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Financial Institutions: KBRA’s Approach to ESG Climate and Reputational Risk Management

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As discussed in our Credit Ratings Deserve ESG Risk Analysis, Not ESG Scores report, KBRA embraces numerous ESG initiatives including efforts to improve the quality and frequency of issuers’ disclosures. KBRA also reiterates our belief that the role of analysts at a credit rating agency is to remain focused on ESG factors that are material to credit, and we believe the best way to analyze the relevance of ESG factors in credit ratings is through fundamental credit risk analysis. As we have explored these various topics as they relate to credit risk analyses of financial institutions, we have developed a framework for identifying the most relevant ESG factors as they pertain to our rated universe, while also striving to identify and understand ESG factors unique to each rating and issuer.

This Kroll Bond Rating Agency (KBRA) report is a follow-up to a recent research publication on how environmental, social, and governance (ESG) factors are considered in KBRA’s credit rating process across corporate, financial, and government (CFG) ratings. While our previous publication provided a broad overview of ESG at KBRA, this research report focuses on ESG topics and their potential influence on KBRA’s analysis of financial institutions. Given the evolving nature of ESG credit risk analysis, this research should not be taken as methodology. KBRA’s proposed cross-sector ESG methodology can be found here.