KBRA Releases ESG Research – Asset Managers and Investment Funds: KBRA’s Framework for Incorporating ESG Risk Management in Credit Ratings

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

Key Takeaways

• Environmental factors have the potential to affect some asset manager and investment fund ratings, but their relevance can vary depending on the characteristics of the underlying collateral, the structural features of the rated debt, and/or qualitative aspects of the transaction. 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.
• An analysis of social factors, especially stakeholder preferences, is often a key part of KBRA’s assessment of ESG issues. In KBRA’s assessment, where relevant, we analyze how the asset manager incorporates stakeholder preferences into their decision-making process.
• With the increased rise in ESG investing, asset manager and investment fund’s governance frameworks have received increased scrutiny, particularly in how the various facets of ESG factors intersect with company operations and/or asset allocation. KBRA’s rating process will continue to incorporate an assessment of governance structures but, where relevant, we will also include a specific line of inquiry to highlight explicit strategies or programs to address ESG issues.
• ESG factors are complex and dynamic, and some are likely to become more relevant to credit over time. As we develop and advance our understanding of these complex topics, KBRA aims to understand, identify, and disclose an issuer’s unique ESG risk exposure and its relevance to credit. We will continue to communicate these findings in our rating, surveillance, and research reports as we gather data on relevant ESG considerations for our rated universe.

Click here to view the report.

Related Publications

• ESG Global Rating Methodology
• Investment Fund Debt Global Rating Methodology
• Cybersecurity and Credit Risk
• Financial Institutions: Asset Manager Global Rating Methodology

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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