ESG Factors for Banks, Part Three: Social Factors

This commentary is the third in a series discussing the Environmental, Social, and Governance risk (ESG) factors that could affect the ratings of banking organisations (banks or issuers) rated by DBRS Morningstar.

Key highlights:

• DBRS Morningstar considers the following six social risk factors in its analysis of banks: (i) Social Impact of Products and Services, (ii) Human Capital and Human Rights, (iii) Product Governance, (iv) Data Privacy and Security, (v) Community Relations, and (vi) Access to Basic Services.

• The vast majority of banks are making ongoing efforts to meet the required social standards, particularly in DBRS Morningstar’s rating universe which is comprised of banks in advanced economies operating within strict regulatory frameworks. As a consequence, it is not likely that high social standards would trigger a positive rating action.

• However, weaknesses in some social risk subfactors can lead to lower ratings as a result of reputational, financial and regulatory consequences.

“To affect a bank's credit assessment, a social risk factor would need to be assessed as having a negative or a positive impact on the bank's financial well-being or reputation, or posing a regulatory risk to the bank. In this commentary, we discuss the six social risk factors that we consider in our ratings analysis of banks” said Vitaline Yeterian, Senior Vice President, Global FIG.