A new engagement target: ESG rating agencies and their assessment process

In June, at the annual summer meeting, SfC members met with representatives of three of the major rating agencies to discuss of the assessment process of companies involved in ESG incidents. 

In June, the members of Shareholders for Change gathered at the headquarters of Ethos Foundation in Geneva for the annual summer meeting. On the first day, representatives of three of the most important rating agencies – Moody’s Vigeo Eiris, MSCI ESG Research, Morningstar Sustainalytics – joined us to present their assessment process of companies involved in ESG incidents, in particular, regarding reinsurance companies. 

During the meeting, SfC members asked for clarification on the Swiss Re case and on how they integrate controversies into their ESG ratings. As the Swiss Re case shows, ESG rating agencies do not integrate and consider deforestation risks in their ratings, even when controversies arise. In fact, a report by the NGO Public Eye last November revealed that between 2016 and 2022 Swiss Re concluded insurance contracts with farms that have been proven to contribute to deforestation, including on protected indigenous land, or allegedly contributed to armed violence and slave labour. That’s the reason why SfC engaged Swiss Re in December 2023 with a letter asking for clarifications and continued throughout the year. SfC members Bank für Kirche und Caritas eG, GLS Investment Management GmbH, Ethius Invest Switzerland, Forma Futura Invest AG and Inyova Impact Investing supported it. 

SfC urges the rating agencies to list controversies in a timely and appropriate manner so that investors can assess and consider the risks involved. In addition, ESG ratings should take much more into account controversies. And, in the case of controversies, the agencies should downgrade the rating significantly. The engagement will continue in the second half of 2024.

In July, the German business newspaper Handelsblatt featured our engagement in an article on deforestation and the role of companies, banks and investors in supporting it.