KBRA Releases Research – Sovereigns: KBRA’s Framework for Incorporating ESG Risk Management in Credit Ratings

Kroll Bond Rating Agency (KBRA) releases research on our approach to incorporating environmental, social, and governance (ESG) factors in the credit rating process for sovereigns.

Key Takeaways

• Climate change is an overarching factor with the potential to affect many sectors of a sovereign’s economy and may influence debt sustainability for some sovereigns. Over the long term, it may lead to lower potential growth and displacement of human capital or, conversely, create economic opportunities for some sovereigns.
• A sovereign’s management of social risks that stem from stakeholder preferences can become an important ratings driver to the extent its policies affect trade, investment, access to capital, economic growth, and fiscal dynamics. Management of such risks can also influence political stability and security risk, which are often focal points for private investment.
• Heavily concentrated economies may be more vulnerable to cybersecurity attacks on key industries. Importantly, it is not always the case that wealthier or more institutionally advanced economies have more sophisticated practices to manage cybersecurity risks; all sovereigns can be at risk and need to actively manage exposures.
• KBRA believes it is critical for all sovereigns to learn from the challenges of the COVID-19 pandemic and prepare for future epidemics.

Click here to view the report.

Related Publications

• ESG Global Rating Methodology
• Credit Ratings Deserve ESG Risk Analysis, Not ESG Scores

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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