ESG
Environmental
Spread Research implemented its Environmental methodology in November 2019 in order to provide asset managers and risk managers with an assessment of risks related to environmental issues. We defined 11 criteria which allow us to score from 0 to 5 credit risks inherited from environmental matters.
We value issuers having defined clear objectives in terms of environment and a responsible policy, including in the way they choose their suppliers.
We have benchmarked issuers in their respective sectors in order to assess quantifiable data such as greenhouse gas emissions, energy consumption and water consumption. While we benchmark issuers upon their financial exposure to potential environmental risks, our methodology also incorporates risk assessment from issuer’s major capital expenditures in vulnerable regions from an environmental perspective. Like in social considerations, we identify potential regulatory changes, controversies and exposure to environmental risks.
Spread Research ESG Research is key to provide timely efficient bond recommendation, including on Environmental issues which we view as increasingly affecting current credit quality.
Social
Spread Research implemented its Social methodology in September 2019 in order to provide asset managers and risk managers with an assessment of risks related to the social climate in a company. Proprietary methodology is based on 9 criteria which are proactive measures of potential risks inherited from weak management of social considerations. Our S-score spans from 0 to 5, which is the best score.
We value the presence of a global HR manager and the quality of the social reporting in case quantifiable data lacks. We have benchmarked issuers in their respective sectors in order to assess employee’s turnover, the frequency of injuries and their exposure to a regulatory change affecting business trends due to social considerations. Based on our internal collecting data tools, we track social controversies and current strikes affecting productivity output of an issuer.
Typically, we believe that provisions for restructurings are a good factor of social troubles, while the split of staff and supply chain located through various geographies imply risks which have to be determined on a case by case.
Governance
Spread Research implemented its Governance methodology in October 2019 in order to provide asset managers and risk managers with an in-depth proprietary and detailed analysis of Governance related issues. While the primarily determinant of an issuer’s credit quality remains its financial metrics and the sustainability of its business, underestimating risks related to Governance can cost bondholders a significant amount of money.
Based on our 15 years of experience in Credit Research, Spread Research believes that Governance assessment is key for having a good view over a firm’s management and to avoid accounting fraud, accounting irregularities.
We have defined 15 quantifiable criteria suitable for investors to assess the quality of Governance at the issuer level. This led to a G-Score that splits between 0 for the worst performer to 5 for the best one that we outline in our reports. Our methodology incorporates our view on the types of shareholder, board-related issues such as size, expertise or independence, relationships with audit firms, management considerations and other topics such as related parties. Bearing in mind fund managers’ objectives, we put a price on the spread impact related to a weak Governance score and stress whenever a weak Governance is not fully factored into the notes.
We regularly update our G-score in our reports in case an issuer’s Governance improves or weakens.