Moodys ESG Framework Swami Venkataraman, CFA, Senior Vice-President - - PowerPoint PPT Presentation

Moody’s ESG Framework

Swami Venkataraman, CFA, Senior Vice-President

Moody’s ESG Framework, June 2019 2

Advancing global standards in ESG

Global and irreversible

» Demand for climate risk analytics is accelerating » Global market practitioners need enhanced ESG products and services » Sustainable finance is a fast growing asset class

Leadership in ESG Analytics

MIS aims to be the leader in: » ESG integration into credit ratings » Standalone ESG, Sustainable Finance and Climate Risk data, assessments, and insights

A unified strategy

Aligned in a broader unified

• rganizational strategy leveraging

data and risk products across a variety of risk categories for ESG, Sustainable Finance and Climate Risk

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MIS vision: Leadership in ESG risk analytics, a broad product suite

MIS Assessments & Affiliates

Primary provider of ESG data, new tools & products

Flow of data and analytics

Other data providers

MIS Ratings & Research

Credit analysis, including transparent integration of ESG risk assessments

Coordinate and communicate across MIS / MISA / MA

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Our ratings capture ESG considerations with material credit implications

SOCIAL ENVIRONMENTAL

Assess potential impact on: » Product Demand » Reputation » Cost of Production » Financial Strength Assess material impact under methodology scorecard: » Profitability » Leverage » Cash Flow » Business Profile » Financial Policy » Scale (revenues/assets)

METHODOLOGY SCORECARD

Aaa Aa A Baa Ba B Caa Ca C

RATING CREDIT ANALYSIS OTHER RATING CONSIDERATIONS

Assess material impact on: » Other considerations not captured in methodology scorecard

GOVERNANCE

Illustrative example of how ESG considerations are incorporated into our corporate and sovereign credit analysis

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Moody’s Analytical Approach to ESG

ESG Analytical Tools

How are ESG factors incorporated into an issuer’s credit rating? Integrate ESG analysis into credit ratings using the relevant industry methodology supplemented by the ESG methodology, and provide greater transparency in press releases and credit

• pinions.

What is ESG? Framework Reports describe Moody’s Taxonomy of ESG risks How is a specific issuer exposed to ESG risks? Assessments are issuer-specific scores that provide rank

• rdering of issuers

along a single ESG

• risk. Typically applied

to sectors that rank as high risk in heat maps Is ESG material to credit quality? Heat maps indicate materiality of ESG risks to credit quality and provide relative ranking of sectors

Integrated Credit Analytical Approach

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Credit relevant ESG “Taxonomy” Created

SOCIAL

Customer relations Access to basic services Demographic & Societal Trends Demographics Human Capital Education Health & safety Health & safety Responsible Production Housing Labor & Income

GOVERNANCE

Management Credibility & Track Record Organization Structure Ownership & Control Compliance & Reporting Rule of law Budget Management Policy Credibility & Effectiveness Financial Strategy & Risk Management

For publicly listed non-financial corporates, these categories are incorporated in Moody’s Corporate Governance Assessment Scores

Board Structure, Policies & Procedures Institutional Structure

ENVIRONMENTAL

Air pollution Carbon regulations

Natural & man-made hazards

Soil/water pollution & land-use restrictions Water shortages

Incorporated in Moody’s Carbon Transition Risk Assessment

Private Sector Governments Private Sector Governments

Transparency & Disclosure

moodys.com

Swami Venkataraman, CFA Senior Vice President Environmental, Social and Governance