DBRS Morningstar Becomes Signatory to the Principles for Responsible Investment

DBRS Morningstar recently signed onto the United Nations-supported Principles for Responsible Investment (PRI) alongside Morningstar, Inc. and Sustainalytics. The PRI developed a voluntary and aspirational set of principles to guide the investment market’s incorporation of environmental, social, and governance (ESG) factors into business practices. DBRS Morningstar is proud to be part of this strong market initiative to ensure the inclusion and transparency of ESG factors in financial markets and investment decisions.

DBRS Morningstar has embraced ESG, recently releasing its “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings,” which provides clarity on how ESG factors are considered in the rating processes. It is a global approach, incorporating ESG into its worldwide rating analysis, covering all DBRS Morningstar-rated sectors.

Transparency on which ESG factors are considered, how these are integrated, and the extent to which they are deemed material in rating analysis is important for investors and issuers alike. In keeping with DBRS Morningstar’s commitment to increase visibility into ESG’s role in credit ratings, DBRS Morningstar launched a new microsite, https://www.dbrsmorningstar.com/esg, dedicated to ESG content.

Credit ratings exclusively reflect an assessment of an issuer’s creditworthiness, with ESG analysis considered an important rating input. In line with the PRI, DBRS Morningstar recognises that ESG factors can affect borrowers’ cash flow and the possibility that they may default on their debt obligations. ESG factors are therefore important elements in the determination of the creditworthiness of borrowers and transactions. However, the two assessments, ESG and credit, are separate and not interchangeable.

With this view, DBRS Morningstar shares a common vision with other participating members of the PRI to enhance the systematic and transparent consideration of ESG factors in the assessment of creditworthiness and to disclose where those factors play a role in the evaluation of credit.

DBRS Morningstar will incorporate this vision by affirming our commitment to:
-- Evaluate the extent to which ESG factors are credit relevant for different issuers;
-- Publish our views on the ways in which ESG factors are considered in credit ratings in a transparent manner;
-- Review the ways ESG factors are integrated into our credit analysis as our understanding of these factors evolves;
-- Maintain organisational governance and resourcing to deliver quality ratings, including ESG analysis where relevant;
-- Participate in industrywide efforts to develop consistent public disclosure from issuers on ESG factors that could impact their creditworthiness; and
-- Participate in dialogue with investors to identify and understand ESG risks to creditworthiness.

For more details on how DBRS Morningstar considers ESG factors within its analytical framework, see the “DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings” at https://www.dbrsmorningstar.com/research/373262. Interesting commentaries on ESG and more details on the approach for specific sectors and issuers can be found at https://www.dbrsmorningstar.com/esg.

Notes:
For more information on ESG, visit www.dbrsmorningstar.com or contact us at info@dbrsmorningstar.com.

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