KBRA releases research that focuses on the potential influence of environmental, social, and governance (ESG) topics on KBRA’s analysis of corporate ratings. The report is a follow-up to previous research that examined KBRA’s general approach to incorporating ESG factors in the credit rating process across corporate, financial, and government (CFG) ratings, which KBRA describes as ESG Management.

KBRA’s ESG Management Analysis Framework for Corporates

As part of our due diligence process, KBRA evaluates, where relevant, the overall effectiveness of the company’s risk management framework to determine whether it adequately captures and addresses the plausible risks to which the entity is exposed. When relevant, we may analyze management teams’ awareness of existing, emerging, and potential ESG risks, and the processes in place for identifying, assessing, and responding to relevant ESG risks and opportunities. KBRA also may seek to benchmark the company’s processes, strategy, and responses to these risks and opportunities relative to its peer group.

There continues to be a heightened awareness of the dynamic ESG-related risks and opportunities that companies face as the world moves toward a low-carbon economy. This awareness has led to rising pressure from legislators, regulators, investors, consumers, employees, and other stakeholders that are pushing companies to be more transparent about their ESG-related management practices and strategy. The investment community is also increasingly integrating ESG considerations into their investment decision-making processes, while regulators and legislators are pushing for standardized and transparent corporate ESG disclosures. Further, consumers and employees are demanding stronger ESG commitments from companies and pushing corporations to focus on topical ESG issues such as sustainability, diversity and inclusion, and closing the gender pay gap. Companies that ignore the relevant ESG preferences of their key stakeholder groups may see a negative impact on their revenue and/or capital access.

ESG issues are becoming increasingly critical to a company’s operational and financial performance. Companies that are responsive to mitigating and managing ESG-related risks and capitalizing on ESG opportunities will be better positioned to boost their performance and profitability in the changing competitive business landscape. As ESG risks and opportunities are often more pronounced for corporates, an analysis of a company’s ESG management approach is an important part of KBRA’s corporate rating analysis.

Click here to view the report.

Related Publications

• ESG Global Rating Methodology
• Credit Ratings Deserve ESG Risk Analysis, Not ESG Scores
• Midstream Energy Companies: KBRA’s Framework for Incorporating ESG Risk Management in Credit Ratings

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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