Christopher greenwald
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Transcript of Christopher greenwald
ESG and Credit Risk Christopher GreenwaldHead of ESG Content Strategy
Agenda
• Introduction to ASSET4 ESG Data at Thomson Reuters
• Overview of ESG integration into Thomson Reuters
• Examination of ESG scores and CDS spreads
3
ASSET4 ESG Data Sources and Products
Annual Reports
CSRReports
CompanyWebsites
NewsSources
NGOWebsites
Stock Exchange Filings
ObjectiveESG Database
Data Collection
Negative Screening News Monitoring
assetmasterExecutive
Fixed IncomeCarbon Data & Estimates
assetmasterProfessional
Data Analysis
4
EconomicPerformance
Environmental Performance
SocialPerformance
Corporate Governance Performance
Pillars
Client Loyalty Performance Shareholders
Loyalty
Resource Reduction Emission Reduction Product Innovation
Employment Quality Health & Safety Training & Develop. Diversity Human Rights Community Product Responsibility
Board Structure Compensation Policy Board Functions Shareholders Rights Vision and Strategy
Categories
Overall performanceCompany overview
Link to public data sources (Raw Data)
Indicators More than 250 indicators (calculated from data point values)
ESG Data and Framework
More than 750 data pointsDataPoints
5
Integrating ASSET4 Data into Thomson Reuters Products
• Thomson Reuters CreditViews on Eikon– Ability to access ESG scores and integrate into
credit analysis
• ESG Datafeeds– Core feed of 23 levels of scoring
– Premium feed of 1000+ data items
• ESG in Datastream (Feb. 2011)– Core package (120 items) on Datastream
premium
– Upgrade with access to all data items
• Complete ESG data integration into Eikon (2011)
Source: Thomson Reuters Datastream
CO2 / Sales and Equity Price
2008 2009 20100.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0x 0.01
0
20
40
60
80
100
120
140
160
Geberit - CO2 Equivalents Emission Total/GEBERIT 'R' (FRA) - DWSLWartsila - CO2 Equivalents Emission Total/WARTSILA - DWSLDanone - CO2 Equivalents Emission Total/DANONE - DWSLDANONE - P (RH Scale)WARTSILA - P (RH Scale)GEBERIT 'R' (FRA) (RH Scale)
Danone
Wartsila
Geberit
ESG Ratings and CreditViews
ESG vs CDS Spread History
Access to Environmental News
9
ESG: a Proxy for Management Quality
• According to an Issue of The McKinsey Quarterly:
80% of CFOs and CIOs believe that ESG information can serve as a proxy for the quality of a company’s management.
Source: The McKinsey Quarterly, Feb. 2009
Average ESG Scores andCredit Downgrades/Upgrades
2003 2004 2005 2006 2007 2008 20090.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
Downgraded Companies
Upgraded Companies
ESGScores
Examination of ESG performance and CDS spreads
• CDS Spreads measure the cost of ensuring against default and the riskiness of a bond
• Examined the relationship between CDS spreads and ESG scores – Segregated ESG performers into 4 quartile groupings
– 2005-2007
– 2008-present
• Hypothesis: Higher ESG performers should have lower CDS spreads
CDS Spreads vs. ESG Performance 2005-2007
0-25% 25-50% 50-75% 75-100%0
10
20
30
40
50
60
70
80
ESG Scores
CDSBPS
CDS Spreads and ESG Scores 2008-present
0-25% 25-50% 50-75% 75-100%0
50
100
150
200
250
300
350
400
450
ESG Scores
CDSBPS
Dramatic Change in Average CDS Spreads 2005 - 2007
0-25% 25-50% 50-75% 75-100%0
50
100
150
200
250
300
350
400
450
2008-present2005-2007
ESG Scores
CDSBPS
CDS Spreads by ESG Score / Region 2005 - 2007
0-25% 25-50% 50-75% 75-100%0
20
40
60
80
100
120
140
N. AmericaAsia PacificEurope
ESG Score
CDSBPS
CDS Spreads by ESG Score / Region 2008-present
0-25% 25-50% 50-75% 75-100%0
100
200
300
400
500
600
N. AmericaAsia / PacificEurope
ESG Scores
CDSBPS
ESG/CDS Correlation by Geography 2005-present
Europe Asia North America
-0.3
-0.25
-0.2
-0.15
-0.1
-0.05
0
2005-20072008-present
ESG / CDS Correlation by Pillar 2008-present
Environmental Social Governance
-0.23
-0.18
-0.13
-0.08
-0.03
0.02
ESG/CDS Correlation by Credit Rating
AA / AAA A+ / A A- / BBB+ BBB and BBB- BB and lower
-0.5
-0.45
-0.4
-0.35
-0.3
-0.25
-0.2
-0.15
-0.1
-0.05
0
Correlation ESG/CDS for US Companies 2008-present
A+ to AAA BBB+ to A BBB and BBB- BB and lower Rank Correlation
-0.6
-0.5
-0.4
-0.3
-0.2
-0.1
0
Conclusions
• ESG a positive signal for credit risk– Negative correlation with CDS spreads
– Signal strongest as rank correlation with US companies
– Best used to aid in a risk profile of the company
• Environmental and Social pillars showed most positive signals– Likely due to dramatic differences in disclosure and performance
within regions
• ESG a stronger signal for companies with higher credit ratings– Short term financial risk less determinant of CDS spreads
– Useful in determining risks for companies with stronger risk profiles
• Can be useful as additional screening to financial analysis