Moody’s to Transfer Sustainable Debt Opinion Service to Ratings Agency, Proposes new Assessment Framework
Global integrated risk assessment firm Moody’s announced that it will transfer its sustainable debt Second Party Opinions (SPO) business to become part of its rating agency under Moody’s Investor Service (MIS), from its Moody’s ESG Solutions group. Along with the move, Moody’s has released proposed changes to its SPO framework, with a scoring system based on contributions to sustainability and alignment with principles.
Moody’s SPO service provides opinions on companies, financial institutions’ and sovereign green, social and sustainability-linked debt issuances and frameworks, including assessments of sustainability impact, and alignment to strategic frameworks and market standards. The practice was originally part of ESG research and assessments provider Vigeo Eiris, acquired by Moody’s in 2019, and subsequently integrated into Moody’s ESG.
According to Moody’s the move will enhance the company’s capacity to provide SPOs, “to meet growing global market demand for independent views on the credentials of labeled green, social, sustainability and sustainability-linked debt issuance.”
Sustainable debt issuance has surged over the past several years, including growth of more than 60% in 2021 to reach around $1 trillion. While market headwinds have pressures issuance so far this year, sustainable bond volumes have outperformed the broader market to reach a record 15% of global total issuance. Moody’s has forecast stronger green, social, sustainability and sustainability-linked (GSSS) bond volumes in the second half of the year.
MIS’ proposed SPO framework includes three key components, including an Alignment with Principles Score, indicating the instrument’s or framework’s assessed alignment with green, social or sustainability principles and with MIS-identified best practices; a Contribution to Sustainability Score, based on MIS’ opinion of the expected contribution of projects or assets financed by the proceeds, or key performance targets, to the issuer’s advancement of long-term sustainable development, and; an Overall Sustainability Quality Score, based on the alignment and contribution scores for an opinion of the overall sustainability quality of a financial instrument or financing framework.
Moody’s stated that it is seeking feedback on the proposed framework, inviting market participants to comment by September 15.
Brian Cahill, Global Head of ESG, Moody’s Investors Service, said:
“Transitioning our SPO business to the rating agency will fuse our deep domain expertise in the SPO and sustainability markets with our scale and track record in global debt capital markets. This will strongly position us to meet market needs for globally efficient delivery of rigorous, consistent and independent analysis of the sustainability credentials of labelled debt.”