KBRA, a global full-service credit rating agency, is pleased to announce it was named ESG Credit Rating Agency of the Year by The Asset, a leading Asian financial market publication. KBRA won ESG Credit Rating Agency of the Year in both the U.S. and Europe at the publication’s Triple A Sustainable Finance Awards 2024 dinner, which was held in Hong Kong in March.

This is the second consecutive year that KBRA has won the ESG award for the Americas from The Asset. KBRA previously won the Asset Backed Securities Rating Agency of the Year award in the region for both 2022 and 2021.

“When it comes to ESG coverage in Europe and the Americas, KBRA is a leader,” The Asset said.

Speaking about the recent political backlash that emerged last year against the role of ESG in global investing, the publication said: “This backlash has spilled over into the credit rating space. Though rating agencies have always stressed that only ESG factors with a direct impact on creditworthiness are taken into consideration in the rating process, many have published ESG scores alongside credit ratings—often on the cover page.

“KBRA has always spoken out against this tendency to mix credit and ESG ratings together, and the firm does not offer ESG scoring or second opinions as an independent service, which many of its competitors have done via acquisition of ESG firms. The KBRA view was a minority one back in 2020 and 2021, but the argument now looks to be moving in its favor. For example, publishing an ESG rating alongside the credit rating has been discontinued at one rating agency, while another simply observes that they have ‘toned it down a bit’.”

KBRA focuses exclusively on factors that can directly impact credit quality, according to The Asset. These could include reputational risk, which can lead to investors avoiding buying debt offerings, or customer boycotts in an age of increased activism, the magazine said.

In KBRA’s view, rigorously derived credit ratings give a focused understanding of debt issuers’ risk of default. This serves a specific important function in the debt capital markets.

It helps market participants price risk appropriately which enables optimal allocation of capital and efficient markets. Some elements of ESG are important components of rigorously derived credit analysis. But, importantly, many ESG elements do not have bearing on the risk of an issuer defaulting on its debt.

“These awards recognize KBRA’s differentiated approach to the important topic of ESG and we are honored to receive them,” said Pat Welch, KBRA’s Chief ESG and Ratings Policy Officer. “KBRA has recognized from the beginning that if a credit rating agency provides scoring of things either inside or alongside a credit rating analysis that go beyond the scope of credit risk analysis, it creates confusion, raises questions of motivations and indeed potentially undermines the very important function that credit ratings play in efficient debt capital markets. Doing so serves neither credit ratings nor ESG.

“KBRA strongly believes that the concept of ESG is a powerful and permanent force in the investing world. It will continue to evolve, but ESG is here to stay. Addressing ESG should not involve potentially undermining or creating confusion around the vital function that credit ratings play in the debt capital markets.”

The Asset’s Triple A Rating Agency of the Year awards highlight the strength of credit rating agencies operating in the region in providing both investors and issuers with fundamental parameters regarding the creditworthiness of corporates, financial institutions, and sovereigns. Criteria for The Asset’s Triple A Rating Agency of the Year awards are based on several factors including transparency of ratings methodology, default and stability rates, investor outreach and education, and the nature of the surveillance process.

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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