Moody’s ESG Framework Swami Venkataraman, CFA, Senior Vice-President
Advancing global standards in ESG Global and irreversible Leadership in ESG Analytics A unified strategy » Demand for climate risk MIS aims to be Aligned in a broader unified analytics is accelerating the leader in: organizational strategy leveraging data and risk products across a » Global market practitioners » ESG integration into credit ratings variety of risk categories for ESG, need enhanced ESG products » Standalone ESG, Sustainable Sustainable Finance and and services Finance and Climate Risk data, Climate Risk » Sustainable finance is a assessments, and insights fast growing asset class Moody’s ESG Framework, June 2019 2
MIS vision: Leadership in ESG risk analytics, a broad product suite Coordinate and communicate across MIS / MISA / MA Flow of data and analytics MIS Assessments MIS Ratings & & Affiliates Research Other data Primary provider of Credit analysis, including providers ESG data, new transparent integration of tools & products ESG risk assessments Moody’s ESG Framework, June 2019 3
Our ratings capture ESG considerations with material credit implications Illustrative example of how ESG considerations are incorporated into our corporate and sovereign credit analysis METHODOLOGY SCORECARD RATING CREDIT ANALYSIS Assess material impact under Aaa OTHER RATING ENVIRONMENTAL methodology scorecard: Aa CONSIDERATIONS Assess potential » Profitability A impact on: Assess material impact on: » Leverage Baa » Product Demand » Other considerations not » Cash Flow Ba captured in methodology » Reputation » Business Profile scorecard B » Cost of Production SOCIAL » Financial Policy Caa » Financial Strength » Scale (revenues/assets) Ca C GOVERNANCE Moody’s ESG Framework, June 2019 4
Moody’s Analytical Approach to ESG Integrated Credit Analytical Approach Is ESG material to What is ESG? credit quality? Framework Reports Heat maps indicate describe Moody’s materiality of ESG Taxonomy of ESG risks to credit quality risks and provide relative ESG ranking of sectors Analytical How are ESG factors How is a specific Tools incorporated into an issuer exposed to issuer’s credit rating? ESG risks? Integrate ESG analysis Assessments are into credit ratings using issuer-specific scores the relevant industry that provide rank methodology ordering of issuers supplemented by the along a single ESG ESG methodology, and risk. Typically applied provide greater to sectors that rank as transparency in press high risk in heat maps releases and credit opinions. Moody’s ESG Framework, June 2019 5
Credit relevant ESG “Taxonomy” Created SOCIAL ENVIRONMENTAL GOVERNANCE Private Sector Governments Private Sector Governments Financial Strategy & Risk Demographics Customer relations Institutional Structure Air pollution Management Labor & Income Management Credibility & Health & safety Policy Credibility & Carbon regulations Track Record Effectiveness Education Human Capital Budget Management Organization Structure Natural & man-made hazards Health & safety Responsible Transparency & Disclosure Housing Production Compliance & Reporting Soil/water pollution & land-use restrictions Ownership & Control Access to basic Demographic & Board Structure, Policies & Rule of law services Societal Trends Procedures Water shortages Incorporated in Moody’s Carbon For publicly listed non-financial corporates, these categories are Transition Risk Assessment incorporated in Moody’s Corporate Governance Assessment Scores Moody’s ESG Framework, June 2019 6
Swami Venkataraman, CFA Senior Vice President Environmental, Social and Governance moodys.com
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