KBRA Releases Research - KBRA Has a Clear Focus on Credit Ratings, Not ESG Scores
KBRA releases research that details its approach to environmental, social, and governance (ESG) topics that affect credit markets and individual issuers. As a credit rating agency, KBRA has judiciously avoided the inclusion of a distinct ESG scoring system into its credit rating methodologies and reports. This approach is backed by extensive issuer and investor feedback which found the merging of ESG scores-often including factors that do not impact the credit analysis-is confusing. In fact, KBRA believes ESG scores are a disservice to market participants.
Credit ratings have a well-understood purpose, namely, they provide an opinion of the creditworthiness and risk of default of an issuer or transaction. Conversely, an ESG rating is not as precise because it considers a variety of ESG factors-many of which are not tied to financial performance, creditworthiness, or provide objective standards of comparison. Instead, they assess wider impacts on society and the environment, which often rely on value-based judgments. In our view, ESG scores that have no impact on a credit rating should be kept separate from credit ratings.
Click here to view the report.
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