Climate-Related ESG Factors: Reviewing the Relevance and Significance

DBRS Morningstar has published a new commentary reviewing how credit ratings or credit rating trends of Corporates, Governments, Structured Finance vehicles (SF), and Financial Institutions (FIG) rated by DBRS Morningstar have been influenced by Environmental factors.

• Climate and climate change considerations can be found in several ESG factors within our ESG framework. Social and Governance factors can have a climate angle, however, none of the Social or Governance factors within our rating universe have had any credit impact based on climate-related considerations in 2022.

• Climate factors currently have a marginal impact on credit ratings within our rating coverage.

• Nonetheless, this review shows that some sectors within our coverage are more negatively (and sometimes more positively) impacted than others by the transition towards a less carbon intensive society. And we think it is likely we will see an increase in credit relevant Environmental factors in some Corporate sectors if issuers are slower to adapt to regulatory changes or have not adequately transitioned to net zero emission.

• The potential credit impact of physical climate risks will continue to be closely monitored, particularly in the P&C Insurance sector and property-related sectors.

“We are closely monitoring environmental concerns and how issuers are consequently adjusting to a quickly evolving regulatory environment and increased extreme weather events, however, the implications in our credit assessments remain small for now,” said Vitaline Yeterian, Senior Vice President, European Financial Institutions at DBRS Morningstar. “In 2022, climate or climate change considerations were not viewed as significant to the credit ratings in any of our public rating actions.”