This is the first in a series of commentaries discussing the Environmental, Social, and Governance (ESG) factors that could affect the ratings of financial institutions rated by DBRS Morningstar.
On February 3, 2021, DBRS Morningstar published DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings, which outlines our approach to evaluating ESG risk factors and the potential impact on credit ratings across DBRS Morningstar’s four business units: Government, Financial Institutions, Structured Finance, and Corporate Finance.
As addressed in the Criteria, DBRS Morningstar identified 17 ESG risk factors as relevant to the ratings process. However, not every factor is applicable to each business unit or methodology. Of the 17 ESG risk factors identified, there are 12 relevant factors (three environmental, six social, and three governance, which are highlighted below) that can be applied to banks rated under the DBRS Morningstar methodology “Global Methodology for Rating Banks and Banking Organisations”, June 8, 2020.
In this first commentary, DBRS Morningstar discusses the three environmental risk factors that we consider in our ratings analysis. Banks are exposed to a number of ESG risk factors, however, environmental risk factors have been less relevant to date for most banks currently rated by DBRS Morningstar. Nonetheless, we expect the impact of environmental risks on credit ratings to become more significant over time. Social and Governance credit factors will be covered in separate commentaries.
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