KBRA Releases Research – Midstream Energy Companies: KBRA’s Framework for Incorporating ESG Risk Management in Credit Ratings

Kroll Bond Rating Agency (KBRA) releases research on our general approach to incorporating environmental, social, and governance (ESG) factors in the credit rating process across corporate, financial, and government (CFG) ratings, which we describe as ESG Management. While our previous publication provided a broad overview of KBRA’s ESG Management approach (summarized below), this research report focuses on the potential influence of ESG topics on KBRA’s analysis of midstream energy companies. It is important to note that this research is not a methodology. KBRA’s cross-sector ESG methodology can be found here.

• KBRA believes that ESG issues are best examined through the lens of active risk management. Under our ESG Management framework, we seek to understand how an issuer or transaction identifies, addresses, and mitigates relevant ESG risks or capitalizes on ESG opportunities.
• KBRA believes that credit-relevant ESG risks and opportunities are unique to every rating and issuer. Our approach to evaluating the management of ESG issues is a bespoke and dynamic process.
• KBRA does not deploy subjective value-based ESG scoring rubrics.
• KBRA understands that better quality ESG-related disclosure is needed to understand an issuer’s exposure to credit-relevant ESG issues.
• Our direct dialogue with management teams enhances our understanding of credit-relevant ESG issues while also improving the quality and consistency of ESG-related disclosure.
• Consistent with how we assess default and recovery risk, we view the management of ESG factors as a dynamic process, rather than a point-in-time judgment.
• In addition to the unique ESG risks related to each specific debt issue or issuer, KBRA’s analysis of ESG Management typically includes a review of broadly relevant topics such as climate risk, stakeholder preferences, ESG reputational risk, and cybersecurity.
• We believe the risk management framework should be comprehensive, yet also dynamic and flexible enough to accommodate evolving factors, including ESG considerations.

Click here to view the report.

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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