How ESG Factors can Affect Operational Risk
DBRS Morningstar released a commentary titled “How ESG Factors can Affect Operational Risk” that discusses rising Environment, Social, and Governance (ESG) awareness. In this commentary, DBRS Morningstar provides the market with greater detail with respect to its view of ESG factors when evaluating operational risk considerations in the ratings process for structured finance transactions.The commentary highlights the following:
-- DBRS Morningstar considers ESG factors, as applicable, when conducting operational risk reviews for structured finance transactions.
-- Companies that we view favorably and have positive ESG factors typically have seasoned management teams with demonstrated expertise, strong corporate governance, and operational risk processes that identify, assess, monitor, control, and mitigate risks throughout their enterprises.
-- Embedding an ESG framework into a company’s operational risk platform and overall corporate strategy can ultimately make the business stronger and less likely to be blindsided by poor practices that could adversely affect its reputation or business.
-- DBRS Morningstar anticipates that ESG considerations will become an integral part of the operational risk review process for securitizations as market demand for greater clarity surrounding the impact of ESG increases.
DBRS Morningstar believes that embedding an ESG framework into a company’s operational risk platform and overall corporate strategy can ultimately make the business stronger and less likely to be blindsided by poor practices that could adversely affect its reputation or business. The structured finance universe consists of a wide variety of asset classes with different ESG considerations and data metrics. “To accurately evaluate the results of ESG initiatives and provide the market with informative metrics, companies need to develop reporting capabilities to provide meaningful data,” states Monte Bays, Vice President, U.S. Operational Risk. With a growing number of market participants indicating that positive ESG factors are currently or will soon be an important part of their corporate strategy, “we anticipate that ESG considerations will become an integral part of the operational risk review process for securitizations as the market demands greater clarity surrounding the impact of ESG,” concludes Bays.
DBRS Morningstar is a global credit ratings business with 700 employees in eight offices globally. DBRS and Morningstar Credit Ratings are committed to empowering investor success, serving the market through leading-edge technology and raising the bar for the industry.
Together, we are the world’s fourth largest credit ratings agency and a market leader in Canada, the U.S. and Europe in multiple asset classes. We rate more than 2,600 issuers and 54,000 securities worldwide and are driven to bring more clarity, diversity and responsiveness to the ratings process. Our approach and size provide the agility to respond to customers’ needs, while being large enough to provide the necessary expertise and resources. For more details visit us at dbrs.com.
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