Kroll Bond Rating Agency (KBRA) recently published theMidstream Energy Companies and ESG Risk Management report, which explains how environmental, social, and governance factors could impact Midstream Energy companies. At KBRA, we believe it is critical that a management team understands its ESG risks. Assessing management performance and capability has long held a prominent role within KBRA, and so it is a natural evolution to question how management identifies and addresses its ESG-related credit risks.
KBRA’s Management Questionnaire
KBRA has many conversations with management as part of its due diligence process. A portion of these discussions have increasingly focused on how management plans for and manages ESG-related risks and opportunities. In response to investor inquires, KBRA thought it would be helpful to provide examples of some questions that may be raised throughout this process:
How do the ESG policy preferences of your investors, customers, or other constituents’ impact your business?
Do you have physical or financial assets that are at risk under various climate change scenarios? How do you determine such risk?
What are your annual greenhouse and CO2 emissions levels? Explain your measurement/analysis. Are there any self-initiated or third-party required plans to reduce them? How is the Company measuring its progress toward its stated goals? What is your exposure to a potential carbon tax?
How is the Company adapting its business strategy to account for the energy transition?
What types of cyber threats are of greatest concern to your operations? How does your business manage cybersecurity threats?
How prepared is your business for anticipated social, technological, and demographic changes?
What environmental risks/opportunities have you identified that could impact the revenue generation potential of the Company?
What type of mitigation measures are in place in the event of increasing natural hazard-induced technological disasters and other ecological hazards to protect staff and ongoing operations?
How does the Company account for and monitor the occurrence of spills and other leakages during the transportation process?
Does the Company have ongoing dialogue with politicians, landowners, regulators, and community members regarding its role in energy policy?
How does the Company address adversarial permitting, right-of-way and/or construction issues?
Have you had any opinions or misstatements identified by auditors on your financial statements? Have you had any other relevant regulatory/legal findings?
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