Our research team has narrowed a list of industry-specific sustainability drivers that we believe are material to the creditworthiness of specific borrowers and are analyzed within our corporate credit investment process:

Environmental Considerations

Ignoring physical and transition risks associated with climate change can increase costs to comply with new regulations or cause business disruptions from extreme weather events. Inefficient energy and water use increases the volatility of input costs to business processes. Improper waste management and other forms of pollution may impact communities or ecosystems, which can increase contingent liabilities and detract from brand value and trust.

Social & Human Capital Considerations

Poor human capital management can indicate lower productivity, lower innovation capacity, and higher risk of discriminatory practices. Neglecting community engagement and restricting access and affordability can harm a company’s brand image. Human rights controversies can cause customer and investor backlash. Lapses in product safety or data privacy and cybersecurity may cause contingent liabilities and negatively affect brand value.

Governance Considerations

Unreliable financial reporting or a lack of useful disclosures creates risks to understanding creditworthiness. Poor board composition including a lack of independence or diversity can inhibit strategic decision making. Misaligned executive compensation raises the risk of management decisions that are not in investors’ best interests. Business ethics issues can create legal liabilities and be harmful to brand value.