Importance of Sustainability in credit ratings

Whitepaper

With rapid development in global capital markets, the number of companies trying to get themselves rated by the three global rating agencies (Moody’s, S&P and Fitch) has been increasing year after year. Rating advisors, the domain experts, help these companies across the rating process – from selecting a rating agency to final publication of rating rationale. In this paper, we discuss the steps involved in a typical credit rating process and how the rating advisory division of an investment bank, commercial bank, boutique advisory firm or accounting and advisory company could help an issuer or borrower obtain a better international credit rating. We also discuss the growing strategic importance of sustainability for global corporates and investors, with the three major rating agencies increasingly (and rapidly) integrating environmental, social and governance (ESG) risks into their rating analyses and offering third-party products such as ESG ratings. In response to this development, rating advisors have been actively involved in helping corporates position themselves vis-à-vis the rating agencies.
Acuity Knowledge Partners supports the rating advisory divisions of investment banks and commercial banks, enabling them to reduce their time to market.

Key Takeaways

• With credit ratings playing a significant role in attracting investors to the primary and secondary bond markets, the workload of rating advisory firms has increased exponentially in recent years.
• Rating advisors can help companies obtain the best credit rating, leveraging (a) their solid working relationships with key senior rating analysts and (b) their demonstrated ability in anticipating rating considerations and providing precise analytical advice
• How three rating agencies integrate ESG assessment into the credit rating process, and independent ESG products.
• Acuity Knowledge Partners can assist rating advisors in preparing rating questionnaires, industry research, spreading of financials, peer comparison, indicative rating analysis, ESG risk assessment and rating presentations

Authors

Prachurjya Bharaly

Associate Director, Investment Banking

Prachurjya has over 16 years of experience in investment banking with Acuity Knowledge Partners. At Acuity, he has led sector and product-specialist pilot teams across Capital Markets, ESG, Debt Advisory, Loan Syndications, Metals & Mining and Real Estate. He has been actively involved in setting up and on-boarding new ESG Advisory, ESG DCM and Sustainable Finance teams for various bulge bracket investment banks. Within DCM and Rating Advisory, he has been instrumental in helping the clients achieve over 30% in annual savings on both regular and adhoc tasks through standardization of the outputs and deployment of our proprietary BEAT tools.

Mohit Sachdeva

Delivery Lead, IB

Mohit is a delivery lead in the Rating Advisory practice at Acuity Knowledge Partners. He has expertise working with investment banks, providing support on rating for corporates, banks and NBFCs covering indicative rating analysis, debt headroom assessments, market update, ratings pitch, credit positioning and benchmarking. He supports the global rating advisory of a major European investment bank.

Prior to joining Acuity Knowledge Partners, he worked as a Rating Analyst at CRISIL Ratings, where he was involved in conducting rating analysis of mid-size corporates across different industries. He holds Post Graduate Diploma in Management from International Management Institute, New Delhi and Bachelors in Technology (Mechanical) from NIT Jalandhar.

Growing importance of sustainability in credit rating and the role of rating advisors