Driving the green agenda? A shift in ratings criteria

ESG? As long as it is meaningful for credit analysts. And than means climate change!

Ratings agency supports PPPs as a vehicle to bolster green agenda, according to our friends at PPP Bulletin, the leading publication in infrastructure and partnerships.

An article recently published (click here) highlighted that the ratings agency Kroll Bond Ratings Agency (KBRA) supported in its “Financing the Green Transition” the potential role of Public-Private Partnerships and private finance in infrastructure projects to favour low-carbon and greener solutions.

This actually echoes a shift in position sustained by KBRA which only two days ago emphasized in an interview to The Bond Buyer that banks and funders could orientate the market towards low-carbon, environmentally friendly and sustainable projects. In other words, financing instruments such as project finance for partnership projects

As a result of this analysis, KBRA dropped the traditional ESG (Environmental, Social and Governance) criteria as “too subjective"! Pragmatically, they explain that ESG criteria are designed for investors rather than credit analysts, who need to assess

without having to veer into subjective selection, scoring, and weighting of ESG factors that are not meaningfully credit-relevant (…) SG issues that are most often relevant and top of mind for credit-focused investors are those related to climate change, cybersecurity, and the impact that stakeholder preferences may have on operating and financial strategies

In essence, part of the market attractiveness of PPPs but also project finance may well be shifting to favour greener investment in a very pragmatic move.

To read more: click here