S&P buys Cicero Shades of Green as regulation looms
S&P Global has bought the Shades of Green second-party opinion business from Norwegian research institute Cicero as the prospect of impending regulation continues to reshape the ESG ratings industry.
The Shades of Green business was established in 2018 by Norway’s Center for International Climate Research, and has built a reputation for opinions and research that are grounded in climate science.
Shades of Green will be integrated into its S&P Global Ratings unit, and its SPOs of green, sustainable and sustainability-linked financing frameworks, climate risk assessments and impact reporting reviews will complement S&P’s SPO service, which was launched in 2017.
Cicero provided the SPO for the World Bank's first green bond in 2008 and Shades of Green has completed more than 300 SPOs since it was launched. S&P has completed more than 260 opinions, highlighting the rapid growth of the sustainable finance market.
There is more than US$4.5trn of sustainable debt outstanding, according to the International Institute of Finance, and sustainable finance is expected to triple or quadruple to support the goals of the Paris Agreement to limit global warming to two degrees Celsius or less.
"This acquisition combines Shades of Green's deep expertise on climate and the breadth of our coverage across all sustainable finance topics, our global geographical presence and also our ability to link sustainable analysis to company analysis," said Alexandra Dimitrijevic, global head of analytical research at S&P Global Ratings.
"We think through this combination, we can really add an extra level of insight to this market that is growing and is also quite a complex market as it is evolving rapidly."
Looming regulation
The acquisition is also a result of the impending regulation of the ESG ratings industry and is the latest step in an acquisition spree by S&P, which is positioning itself to be a major market player in ESG ratings and data.
The market for ESG ratings is unregulated but industry bodies are working on greater oversight to improve transparency and trust, including the UK regulator, the Financial Conduct Authority, which is working with the International Capital Market Association and the International Regulatory Strategy Group.
The IRSG earlier this year called for the ESG ratings industry to be regulated, and the European Securities and Markets Authority reported to the EU in June on the market structure of the 59 ESG ratings providers that were active in the EU as regulators step up their oversight. The International Organization of Securities Commissions has also weighed in on the topic.
"One of the reasons why Cicero Shades of Green was keen to become part of the S&P Global Group is what they were assessing [in] the regulatory environment. To be set up for the current draft of the regulations proposed, you need to separate very clearly the commercial and analytical functions," said Lynn Maxwell, head of EMEA commercial at S&P Global Ratings.
S&P’s SPO business already operates with that separation, which is designed to ensure no conflicts of interest so analysis can be independent.
"I think we are very well positioned if this market becomes regulated as we already operate under a lot of these regulatory requirements," Dimitrijevic said.
S&P Global's joint venture S&P Dow Jones Indices bought carbon and environmental analysis provider Trucost in October 2016 and RobecoSAM’s ESG ratings business in 2019. The firm launched its ESG and sustainability organisation, S&P Global Sustainable1, in April 2021, and bought climate risk analysis service The Climate Service in January.
"It's all part of a bigger corporate goal for S&P to be able to really play a significant role in the sustainability market," Maxwell said.
Moving forward
The Shades of Green team will be combined with S&P’s Global Ratings' sustainable finance team but both sets of products will be kept separate for a transition period of around a year before joint products are developed.
S&P is planning to retain the Shades of Green scale with "dark green", "light green" and "medium green" labels, which it will apply initially to use of proceeds in SPOs for green financing instruments. S&P is also exploring its broader use in other ESG-labelled formats such as social, sustainable and sustainability-linked.
"We intend to maintain the Shades of Green scale as applied to the use of proceeds in green second-party opinions. We really like it and think it’s achieved simplicity – it's not binary but really shows a progression," said Dimitrijevic.
While S&P has focused on providing SPOs for the bond market, the firm is expecting demand to increase in the private markets as investors buying loans and private placements ask for SPOs to support their own credit analysis.
S&P will retain an office in Oslo, where Shades of Green is based, and Cicero will continue provide climate expertise to Shades of Green and insight to S&P Global’s other sustainability businesses.
Cicero is planning to use the proceeds of the sale, which was closed on December 1, to finance its climate-related research. The terms of the transaction were not disclosed.