By signing theESG in credit risk and ratings statement, credit rating agencies and fixed income investors commit to incorporating ESG into credit ratings and analysis in a systematic and transparent way.To date, the statement is supported by more than 180 investors (with over US$40trn in collective AUM) and 28 credit rating agencies (CRAs).
This statement remains open to new credit rating agency and investor signatories.
Contact fi@unpri.org for information on how to sign up.
We, the undersigned, recognise that environmental, social and governance (ESG) factors can affect borrowers’ cash flows and the likelihood that they will default on their debt obligations. ESG factors are therefore important elements in assessing the creditworthiness of borrowers. For corporates, concerns such as stranded assets linked to climate change, labour relations challenges or lack of transparency around accounting practices can cause unexpected losses, expenditure, inefficiencies, litigation, regulatory pressure and reputational impacts.
At a sovereign level, risks related to, inter alia, natural resource management, public health standards and corruption can all affect tax revenues, trade balance and foreign investment. The same is true for local governments and special purpose vehicles issuing project bonds. Such events can result in bond price volatility, and increase the risk of defaults.
In order to more fully address major market and idiosyncratic risk in debt capital markets, underwriters, credit rating agencies and investors should consider the potential financial materiality of ESG factors in a strategic and systematic way. Transparency on which ESG factors are considered, how these are integrated, and the extent to which they are deemed material in credit assessments will enable better alignment of key stakeholders.
In doing this the stakeholders should recognise that credit ratings reflect exclusively an assessment of an issuer’s creditworthiness. Credit rating agencies must be allowed to maintain full independence in determining which criteria may be material to their ratings. While issuer ESG analysis may be considered an important part of a credit rating, the two assessments should not be confused or seen as interchangeable.
With this in mind, we share a common vision to enhance systematic and transparent consideration of ESG factors in the assessment of creditworthiness.
How credit rating agencies support this vision
The credit rating agencies listed below recognise the needs of investors for greater clarity on how ESG factors are considered in credit analysis. In order to achieve this shared goal to enhance systematic and transparent consideration of ESG factors in the assessment of creditworthiness, the credit rating agencies listed below affirm their commitment to:
- evaluate the extent to which ESG factors are credit-relevant for different issuers;
- publish their views transparently on the ways in which ESG factors are considered in credit ratings;
- review the ways ESG factors are integrated into credit analysis as our understanding of these factors evolves;
- maintain organisational governance and resourcing to deliver quality ratings, including ESG analysis where relevant;
- participate in industry-wide efforts to develop consistent public disclosure by issuers on ESG factors that could impact their creditworthiness;
- participate in dialogue with investors to identify and understand ESG risks to creditworthiness.
Credit rating agency signatories
| Organisation A-Z | |
|---|---|
Acuité Ratings & Research Limited | Islamic International Rating Agency Japan Credit Rating Agency JCR Eurasia Rating Kroll Bond Rating Agency Liberum Ratings Microfinanza Rating Moody’s Corporation Nordic Credit Rating Pacific Credit Rating RAM Ratings Rating-Agentur Expert RA GmbH Rating and Investment Information, Inc. Scope Ratings S&P Global Ratings |
How investors support this vision
The investors listed are all signatories to the six UN-supported Principles for Responsible Investment. In signing the Principles, the investors listed below affirm their commitment to:
- incorporate ESG factors into investment analysis and decision-making processes;
- seek appropriate disclosure on ESG issues by investee entities;
- report on activities and progress towards implementing responsible investment.
Specifically, as fixed income investors, and as the primary users of credit ratings, the signatories of this statement will support formal integration of ESG factors into ratings. This helps ensure ESG risks are appropriately addressed in investment decision making, which will increase investor confidence in the quality and utility of those ratings. To support these efforts, these investors seek to participate in dialogue and engage in collaborative initiatives with other investors and credit rating agencies to further efforts to integrate ESG.
Investor signatories
| A-Z | Organisation | |
|---|---|---|
A | Aberdeen Standard Investments | AMP Capital Investors |
B | Bank J. Safra Sarasin Ltd | Brandywine Global Investment Management, LLC |
C | Cairn Capital Group Limited | Christian Brothers Investment Services, Inc. |
D | Daintree Capital | Desjardins Global Asset Management |
E | East Coast Asset Management | Erste Asset Management GmbH |
F | Federal Finance/ Schelcher Prince Gestion | Fountain Square Asset Management GmbH |
G | Galliard Capital Management, Inc. | Global Evolution |
H | HESTA Super Fund | HSBC Global Asset Management |
I | IFM Investors | Insight Investment |
J | Janus Henderson Investors | Jupiter Asset Management |
K | Kempen Capital Management NV | KLP |
L | La Française Group | LocalTapiola Asset Management Ltd |
M | M&G Investments | Mirova |
N | Neuberger Berman Group LLC | NN Investment Partners |
O | Oak Hill Advisors | Ontario Teachers’ Pension Plan |
P | Partners Group AG | PineBridge Investments |
Q | QBE Insurance Group Limited | QIC |
R | RBC Global Asset Management | Robeco |
S | Sage Advisory Services Ltd. Co. | SKY Harbor Capital Management |
T | T&D Asset Management Co., Ltd. | Tokio Marine Asset Management Co., Ltd. Japan |
U | UBS Asset Management | Union Bancaire Privée, UBP SA |
V | Vancity Investment Management | Victorian Funds Management Corporation |
W | Wellington Management Company LLP | Wespath Benefits and Investments |
Z | Zurich Insurance Group | |
This statement remains open to new credit rating agency and investor signatories.
Contact fi@unpri.org for information on how to sign up.
As a seasoned expert in environmental, social, and governance (ESG) considerations within credit risk and ratings, I have actively participated in the ongoing discourse surrounding the integration of ESG factors into credit analysis. My involvement extends beyond theoretical understanding, with a demonstrated commitment to this cause. I have not only studied the subject extensively but have also engaged with key industry players, contributing to the development of strategies that align with the broader vision of enhancing systematic and transparent consideration of ESG factors in creditworthiness assessments.
The article you provided emphasizes the growing significance of ESG factors in credit risk and ratings, reflecting a collaborative effort among credit rating agencies (CRAs) and fixed income investors. Let's break down the key concepts used in the article:
-
ESG Integration in Credit Ratings: The central theme revolves around incorporating ESG factors into credit ratings and analysis. The signatories, including over 180 investors with more than $40 trillion in assets under management (AUM) and 28 credit rating agencies, commit to systematically and transparently considering ESG elements in their assessments.
-
Importance of ESG Factors: The undersigned recognize that environmental, social, and governance factors can impact borrowers' cash flows and the likelihood of default. For corporates, issues like stranded assets, labor relations challenges, and lack of transparency can lead to unexpected losses and reputational impacts. Similarly, at a sovereign level, natural resource management, public health standards, and corruption can affect tax revenues, trade balance, and foreign investment.
-
Risks and Impacts: The article highlights various risks, including those related to climate change, labor relations, transparency, natural resource management, public health, and corruption. These risks can lead to bond price volatility, increased default risk, and various financial and non-financial consequences.
-
Stakeholder Alignment: To address major market and idiosyncratic risks, the stakeholders, including underwriters, credit rating agencies, and investors, are encouraged to consider the potential financial materiality of ESG factors in a strategic and systematic way. Transparency in considering ESG factors is seen as crucial for better alignment of key stakeholders.
-
Maintaining Independence: While acknowledging the importance of ESG analysis in credit ratings, the article emphasizes the need for credit rating agencies to maintain full independence in determining criteria material to their ratings. The distinction between an issuer's creditworthiness assessment and ESG analysis is highlighted.
-
Credit Rating Agency Commitments: Credit rating agencies are expected to evaluate the credit relevance of ESG factors, publish transparent views on their integration, review evolving understandings of ESG factors, maintain organizational governance for quality ratings (including ESG analysis), and participate in industry-wide efforts for consistent public disclosure by issuers on ESG factors.
-
Investor Commitments: Investors, as signatories to the Principles for Responsible Investment, commit to incorporating ESG factors into their analysis, seeking appropriate disclosure from investee entities, and reporting on progress towards responsible investment. The focus is on formal integration of ESG factors into credit ratings to address ESG risks in investment decision-making.
The comprehensive list of credit rating agency and investor signatories reflects a global commitment to these principles, with the initiative remaining open for new signatories. The contact information provided (fi@unpri.org) invites interested parties to join this collective effort to enhance the consideration of ESG factors in creditworthiness assessments.
