ESG Framework by Sector

  • Environmental

    The impact of environmental risk on financial institutions’ lending, investing and insuring activities is becoming a more important issue for regulators and stakeholders, and large institutions, in particular, are facing pressure from external stakeholders to better manage their exposures. Additionally some regulators have introduced stress testing for environmental and climate risks. Financial institutions are experiencing increasing scrutiny when lending to, investing in, or insuring businesses that face challenges adapting to stricter environmental requirements, including industries such as oil and gas (O&G) and mining. The assessment of environmental risks, in particular climate risks, is a major component of our analysis for the property and casualty (P&C) insurance business. This includes the potential impact of insured catastrophes on an insurance company’s financial strength, as well as considerations regarding claims predictability, frequency, and severity.

  • Social

    In the financial industry, social factors can potentially affect a financial institution’s customer and employee base, as well as an institution’s financial strength. Customers, regulators, and the market could view firms with failings in managing data privacy and security extremely negatively. In a number of cases, financial institutions have paid substantial redress to customers with respect to product misselling. In general, financial institutions with retail-oriented operations face scrutiny from regulators to manage social factors fairly and can face fines and penalties for failure to do so.

  • Governance

    Weak corporate governance, as well as inadequate business ethics, can have a detrimental impact on a financial institution, potentially resulting in fines, impaired financial performance, or even the withdrawal of an operating license. An institution’s corporate governance framework includes the ownership structure, as well as the clarity of the institution’s strategy and its execution; the track record and competence of the board and senior management; the organisational structure, reporting lines, and board committees; relationships with regulators; and organisational checks and balances. In relation to climate risk, financial institutions with risk governance frameworks, including direct oversight of climate change risk and opportunities, are more likely to be able to conduct properly calibrated stress tests and thus to mitigate such risks whilst better understanding opportunities when present.

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Environmental
Social
Governance

Morningstar DBRS Considers ESG Important to a Responsible Capital Market

Globally, financial markets are becoming increasingly active with regards to ESG. Markets are moving toward greater transparency and better disclosures from issuers, investors, and rating agencies regarding ESG risks and their impact, and Morningstar DBRS will continue to play an active role in this change.
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ESG Contacts

Business Development

Media