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The Role of Credit Rating Agencies in Responsible Finance pp 75–98Cite as

“Disconnects”

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Part of the book series: Palgrave Studies in Impact Finance ((SIF))

Abstract

As the analytical foundation has been set in the first two chapters, this chapter now begins to pose critical questions regarding the relationship between the three parties. In examining the ‘disconnects’, the chapter assesses the power dynamic that exists amongst the three parties, and questions the stated ‘disconnects’ as identified by the Initiative in their second major report on the relationship. The aim of the chapter is to assess which of these ‘disconnects’ are fundamental, and which are the products of an off-balanced power dynamic that exists almost naturally within the CRA–Investor dynamic.

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Notes

  1. 1.

    Zenichi Shishido, ‘Institutional Investors and Corporate Governance in Japan’ in Theodore Baums, Richard M. Buxbaum, and Klaus J. Hopt (eds.), Institutional Investors and Corporate Governance (Walter de Gruyter 1994) 667.

  2. 2.

    Ibid.

  3. 3.

    Ibid.

  4. 4.

    OECD, Corporate Governance: The Role of Institutional Investors in Promoting Good Corporate Governance (OECD 2011) 132.

  5. 5.

    E. Philip Davis and Benn Steil, Institutional Investors (MIT Press 2004) 12.

  6. 6.

    Maximillian Martin, Building the Impact Economy: Our Future, Yea or Nay (Springer 2015) 179.

  7. 7.

    Davis and Steil (n. 5).

  8. 8.

    Claire Woods, ‘Finding Climate Change: How Pension Fund Fiduciary Duty Masks Trustee Inertia and Short-Termism’ in James P. Hawley, Shyam J. Kamath, and Andrew T. Williams (eds.), Corporate Governance Failures: The Role of Institutional Investors in the Global Financial Crisis (University of Pennsylvania Press 2011) 248.

  9. 9.

    Tessa Hebb, No Small Change: Pension Funds and Corporate Engagement (Cornell University Press 2008) 1.

  10. 10.

    Peter F. Drucker, The Unseen Revolution: How Pension Fund Socialism Came to America (Elsevier 2013) 41.

  11. 11.

    Ibid. 47.

  12. 12.

    Thinking Ahead Institute, Global Pension Assets Study 2018 (2018).

  13. 13.

    Fred Kaen, A Blueprint for Corporate Governance: Strategy, Accountability, and the Preservation of Shareholder Value (AMACOM 2003) 8.

  14. 14.

    Hebb (n. 9) 3.

  15. 15.

    Hebb (n. 9) 6.

  16. 16.

    Gianluca Mattarocci, The Independence of Credit Rating Agencies: How Business Models and Regulators Interact (Academic Press 2013) 11.

  17. 17.

    Aline Darbellay, Regulating Credit Rating Agencies (Edward Elgar 2013) 49.

  18. 18.

    Ibid. 135.

  19. 19.

    Shuangge Wen, Shareholder Primacy and Corporate Governance: Legal Aspects, Practices and Future Directions (Routledge 2013) 232.

  20. 20.

    Wolf-Georg Ringe, The Deconstruction of Equity: Activist Shareholders, Decoupled Risk, and Corporate Governance (Oxford University Press 2016) 77.

  21. 21.

    It is argued by Denise L. Nappier that the two industries are not analogous, but it is contested here that there are intrinsic similarities that make them analogous when viewing them from the perspective of the investor. See SEC, Comments of Connecticut State Treasurer Denise L. Nappier Concerning Concept Release on the US Proxy System (S7-14-10) (2010).

  22. 22.

    Hebb (n. 9) 10.

  23. 23.

    Marguerite Mendell and Erica Barbosa, ‘Impact Investing: A Preliminary Analysis of Emergent Primary and Secondary Exchange Platforms’ [2012] 3 Journal of Sustainable Finance & Investment 2 111–123.

  24. 24.

    Hebb (n. 9) 6.

  25. 25.

    PRI, Shifting Perceptions: ESG, Credit Risk and Ratings—Part II—Exploring the Disconnects (2018).

  26. 26.

    PRI, Shifting Perceptions: ESG, Credit Risk and Ratings—Part I—The State of Play (2017) 25.

  27. 27.

    Ibid. 26.

  28. 28.

    Ibid.

  29. 29.

    Ibid.

  30. 30.

    Ibid.

  31. 31.

    Ibid. 28.

  32. 32.

    Moody’s , Moody’s Hires Carbon and Corporate Governance Experts to Join Its ESG Team (2018).

  33. 33.

    PRI (n. 26) 27.

  34. 34.

    See Chapter 8 in John C. Coffee, Gatekeepers: The Professions and Corporate Governance (Oxford University Press 2006).

  35. 35.

    See Chapter 5 in Senate Subcommittee on Investigations, Wall Street and the Financial Crisis: Anatomy of a Financial Collapse (Cosimo 2011).

  36. 36.

    PRI (n. 26) 30.

  37. 37.

    PRI (n. 25) 10.

  38. 38.

    Ibid.

  39. 39.

    Sustainability Accounting Standards Board, About the SASB (2018).

  40. 40.

    Marcia L. Narine, ‘Living in a Material World—From Naming and Shaming to Knowing and Showing: Will New Disclosure Regimes Finally Drive Corporate Accountability for Human Rights?’ in Jena Martin and Karen E. Bravo (eds.), The Business and Human Rights Landscape: Moving Forward, Looking Back (Cornell University Press 2015) 246.

  41. 41.

    Daniel Cash, ‘Can Credit Rating Agencies Play a Greater Role in Corporate Governance Disclosure?’ [2018] 18 Corporate Governance: The International Journal of Business in Society 4.

  42. 42.

    PRI (n. 25) 15.

  43. 43.

    Ibid. 16.

  44. 44.

    Ibid. 18.

  45. 45.

    Ibid. 19.

  46. 46.

    Moody’s (n. 32).

  47. 47.

    Jennifer Thompson, ‘Asset Managers Engage in ESG “War for Talent”’ [2018] Financial Times (June 16).

  48. 48.

    Herwig P. Langohr and Patricia T. Langhor, The Rating Agencies and Their Credit Ratings: What They Are, How They Work, and Why They Are Relevant (Wiley 2010) 191.

  49. 49.

    PRI (n. 25) 23.

  50. 50.

    Ibid. 24.

  51. 51.

    John (Xuefeng) Jiang, Mary H Stanford, and Yuan Xie ‘Does It Matter Who Pays for Bond Ratings? Historical Evidence’ [2012] 105 Journal of Financial Economics 3 2.

  52. 52.

    PRI (n. 25) 27.

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  1. Aston University, Birmingham, UK

    Daniel Cash

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Cash, D. (2018). “Disconnects”. In: The Role of Credit Rating Agencies in Responsible Finance. Palgrave Studies in Impact Finance. Palgrave Pivot, Cham. https://doi.org/10.1007/978-3-030-03709-3_4

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  • DOI: https://doi.org/10.1007/978-3-030-03709-3_4

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