Germany’s environment minister says company credit rating needs reform to include sustainability risks

Germany’s environment minister Svenja Schulze has called for a new system to rate companies not only according to their financial performance, but also according to sustainability criteria, such as their impact on the climate. “Ratings shouldn’t just depend on how much companies earn,” Schulze said at a conference on climate policy’s impact on the economy and businesses organised by the environment ministry (BMU). She said the current credit rating system represented a “fundamental flaw in how financial flows are directed”.  Schulze explained that a company currently rated “AAA” - a grade used by rating agencies such as Standard&Poor’s, Moody’s, and Fitch to indicate top-notch credit worthiness - can still be highly unsustainable when it comes to environmental and social criteria. “We need a different rating system,” Schulze said, adding she was convinced that an alternative approach would soon be put into practice.

The environment minister’s remarks came only days after Chancellor Angela Merkel called for a comprehensive reform of financial markets towards better support for climate action. A German State Secretaries’ Committee for Sustainable Development in February agreed that the country should develop a tight-knit institutional network for sustainable finance and promote its principles both to other governments and the private sector.