Kroll Bond Rating Agency (KBRA) releases research on our approach to incorporating environmental, social, and governance (ESG) factors in the credit rating process for financial institutions.

Key Takeaways

• When analyzing climate change risk exposure for financial institutions, we often evaluate the level of oversight of climate-related issues, including both physical risks (such as extreme weather) and transition risks, which are indirect and relate to an entity’s ability to respond to regulatory pressure to decarbonize either its own operations or those of its portfolio.
• KBRA believes that financial institutions that adequately identify and quantify their climate-related risks will be better positioned to manage their exposure and mitigate these risks over the longer term.
• We believe it is important for issuers to demonstrate awareness of and disclose the ESG preferences of their key stakeholders, and how these preferences may impact the issuer’s operating, capital, and financial strategies.
• KBRA’s rating process for financial institutions will continue to incorporate an assessment of governance structures and their appropriateness relative to the size and complexity of the entity but will also include a specific line of inquiry to highlight explicit strategies or programs to address ESG issues.

Click here to view the report.

Related Publications

• ESG Global Rating Methodology
• Cybersecurity and Credit Risk
• Financing the Green Transition

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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