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

Risk Management and Assessment for Business
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Kroll Bond Rating Agency Europe (KBRA) has observed several instances of Environmental, Social, and Governance (ESG) considerations in a majority of our recently rated European broadly syndicated loan (BSL) collateralized loan obligations (CLO). The considerations impose additional eligibility criteria (screens) on the underlying portfolio, driven by investors and/or portfolio managers whose institutional ESG principles guide the investment in, or avoidance of, certain sectors or business activities.

This report highlights some of the negative portfolio screens we have observed in our rated European BSL CLO universe, the environmental and social risks we believe the screens aim to address, and some of the diversification considerations that managers may face when applying ESG filters to portfolios.

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