ESG IN CREDIT RATINGS INITIATIVE

The ESG in Credit Ratings Initiative aims to enhance the transparent and systematic integration of environmental, social and governance (ESG) factors in credit risk analysis. As global bonds outstanding have hit US$92.2trn (as of 2016), and fixed income instruments are by far the largest asset class globally, it is important to understand how ESG factors can affect the default risk of a bond issue or its issuer.

Read on to find out how you can make a difference in upcoming PRI rating forums. 

Because of their unique role in fixed income markets, credit rating agencies (CRAs) play a crucial part in promoting greater ESG integration in credit risk analysis. For this reason, the PRI is facilitating a dialogue between CRAs and investors to cultivate a common language, find solutions to enhance ESG consideration in credit risk analysis and bridge existing investor-CRA disconnects.

Since its launch in 2015, the ESG in Credit Ratings Initiative has seen: 

the launch of the esg in credit ratings statement

By signing the ESG in Credit Ratings Statement, investors and CRAs share a common vision to enhance the systematic and transparent consideration of ESG factors in the assessment of creditworthiness. To date, the statement is supported by over 120 investors (with over US$20trn in collective AUM) and 12 CRAs. It remains open to new signatories; see contact details below.

the first report on the state of play

Shifting perceptions: ESG, credit risk and ratings – part 1: the state of play is the first report in a three-part series outlining how investors and CRAs are paying heed to ESG factors in credit risk analysis. In December, it won the “Best ESG Paper 2017” award by Savvy Investor. 

The report concludes that investors and CRAs are ramping up efforts to consider ESG factors in credit risk analysis. Resource allocation is clearly increasing, with research mostly focused on environmental issues. However, ESG integration is not yet systematic.

A WEBINAR ON ESG IN CREDIT RISK AND RATINGS

The webinar: ESG in credit risk and ratings presented the main findings of the above-mentioned report, with two contributors, BlueBay Asset Management and S&P Global Ratings. During the webinar, we conducted a poll to uncover the main obstacles to integrating ESG factors in credit risk analysis as well as perceptions on how these factors feature in credit ratings. See the slide deck with the polls results

Ratings Forums – Your Chance to Join the Debate

To address some of the disconnects between investors and CRAs that have emerged so far, the PRI is organising roundtables across the globe aimed at credit risk analysts, fixed income portfolio managers and strategists (ESG analysts are welcome if accompanying their colleagues). CRA representatives will participate to explain how they incorporate ESG factors in their credit ratings and answer any questions attendees may have. The season kicked off with a panel session at PRI in Person in Berlin focused on ESG in sovereign credit risk, with speakers from Beyond Ratings, Global Evolution, the French Treasury and Moody's Investors Service. 

         Roundtables have already taken place in:
 

  • The Hague (hosted by Aegon Asset Management)
  • Toronto (hosted by University of Toronto Asset Management)
  • Montreal (hosted by PSP Investments)
  • New York (hosted by Neuberger Berman)
  • London (hosted by Insight Investment)
  • Stockholm (hosted by Öhman)

    The following are fast approaching in: 

     
  • Paris, 25 January 2018 - hosted by AXA
  • Frankfurt, 26 January 2018 - hosted by Deutsche Börse
  • San Francisco, 29 January 2018 - hosted by Wells Fargo Asset Management
  • Sydney, 26 February 2018 - hosted by the Financial Services Council
  • Asian forums, spring 2018
Stay tuned for the second and third reports of the ESG in Credit Ratings Initiative, to be published in 2018.

For details on how to sign the statement or participate in the rating forums, please contact Carmen Nuzzo
 



The ESG in Credit Ratings Initiative receives financial support from The Rockefeller Foundation.  

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