Inflation And Ratings

Andrea Fiano's letter to you, the reader.

VOL. 35  NO. 7

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For months, inflation has been a key concern both in advanced and developing economies. The discussion is not so much on the current rate, but on inflation’s trajectory in the near and mid term. A consensus has developed, confirmed by data, that inflation has grown worldwide due the heavy monetary stimulus of central banks. But how high will inflation be in the near future, and will the trend be temporary or should we expect a new phase of inflation such as we have not seen in decades? Monetary authorities in the West seem to be embracing a “temporary high inflation” scenario, but the business community and financial markets are more divided.

Another very current question is how to assess the growing commitment of corporates and financial institutions to environmental, social and governance (ESG) goals. We devoted the cover story of this issue to this topic, and in a few weeks will announce the honorees of our first awards for Outstanding Leadership In Sustainable Finance.

Sustainability rating is in the early stages of a development that will likely mirror that of the credit-rating agencies. Credit raters earned their credibility over decades: Their methodology has often been challenged and over time they became heavily regulated. Today there is an consensus on their role and their ratings are for the most widely recognized. An AAA rating does not usually need further explanation.

This is not yet the case with ESG, and the aforementioned issues—methodology, regulation, credibility—have not been sorted through. With interest in sustainable business growing exponentially worldwide, there is a need for clear and accepted criteria for evaluating corporate and financial ESG policies. The stong demand for these ratings will drive consolidation and bring on regulation, as with credit ratings. Eventually, this process will lead to a stable, reliable and trustworthy system. But we’re not there yet.

Andrea Fiano | Editor