Panel Debate - Rating Agencies and Risk Management
Panel Debate 6:Rating Agencies and Risk Management Carl LEEMAN, Chief Risk Officer, Katoen Natie Carol SIROU, President Credit Market Services France, Standard & Poors Jvan GAFFURI, Senior Manager Sustainability Services, Sustainable Asset Management
What is an S&P rating?It is an opinion on the ability and willingness of an obligorto meet its debts as they fall due, or to respect the financialterms of a particular debt security or other financialobligation.
What it is: And what it is not:• Forward-looking opinions about • Investment advice, a relative credit risk, i.e., the recommendation to purchase, sell or creditworthiness of an entity or its hold securities, or a comment as to securities that … market price or suitability for an• … strive to be globally comparable investor across sectors • a measure of liquidity or market• Incorporate views on relative value likelihood of default that … • a way of defining “good” or “bad”• refer to the timely payment of companies, or a direct assessment of interest and principal and … corporate governance• … are applied to entities and • an audit of the company or its securities auditors • a guarantee of credit quality or of future credit risk
Analytical Team Analytical Team Preliminary PreliminaryThe Rating Process Rating Request Rating Request Appointed Appointed Research Research Company Company Rating Management Meeting with Informed Rating Committee Informed Committee Management Meeting Typical timescale 6-8 Rating Issued Appeal Appeal weeks from receipt of Rating Issued Appeal Process Process initial information Surveillance Surveillance Initial publication upon the issuer’s request
SAM Corporate Sustainability Assessment ™SAM Sustainable Asset Management
SAM Methodology Systematic and consistent measurement of corporate sustainability performance• Access to corporate information via web-based questionnaire, management meetings and public information• Integrated assessment of economic, environmental and social criteria with focus on long-term value creation• Assessment of more than 2000 companies yearly based on broad range of general and industry-specific criteria• Emphasis on performance over management systems and policies• Assessment complemented by a Media & Stakeholder Analysis• Process audited annually by independent third-party firm• Cooperation with S&P Dow Jones Indices for the publication and licensing of the DJSI, launched in 1999.
Measuring corporate sustainabilityInformation gathering • Web-based questionnaire • Company documents • Company interactions Criteria • Media & Stakeholder analysisSustainability Database • Integrated assessment of economic, social and environmental criteria with a strong focus on long-term Scores value creation • Evaluation schemes driven by identified “best-in-class” examples Investment universes • Investment products • Clients‘ portfolios Products
Media & Stakeholder Analysis (MSA) Severity of Case Identification of Identification of Evaluation of on a scale of 1-3 MSA Score MSA Case Criteria Affected Response (3 = most severe) Specific event • Was the case an • Analyst determines Was the companys • Using a matrix identified: accident or which criteria the response: combining the • Does the event negligence? MSA case can affect • Timely? severity of the case imply a potential • Was the case a one- • A single case can with the quality of the • Proactive or reputational / off event or have an impact on response based on defensive? financial impact? systematic pattern multiple criteria timeliness, • Transparent?Description of similar events? transparency, etc. • Does the event • The more criteria • Effective? • Analyst determines require a company • Are there major or involved, the greater response? minor impacts / the potential impact • Did it address whether case was consequences? on the companys stakeholders "mismanaged," • Is this an Total Sustainability concerns? "managed" or extraordinary event Score • Were processes "managed very well" for the company and not part of implemented to • Company receives an companys regular prevent future MSA score of 0-1 00 operations? recurrence? for the specific case • Is the news source • MSA score applied to credible? corresponding criteria
DJSI Assessment and Selection Process 2,500 largestDJSI World companies of the 342 Components Selection of top 10% in 15% target market 57 DJSI Sectors Dow Jones Total Global terms of Sustainability in cap coverage in 30 Countries Stock Market Index each sector each super sector Review 2011: 41 ADD / 58 DJSI Sectors 23 DEL 52 Countries 600 largest EuropeanDJSI Europe 172 Components companies of the Dow Selection of top 20% in 45% target market cap 50 DJSI Sectors Jones Total Global Stock terms of Sustainability in coverage in each super 15 Countries Market Index each sector sector Review 2011: 21 ADD / 54 DJSI Sectors 13 DEL 16 Countries 600 largest North AmericanDJSI North companies of the Dow 143 Components Selection of top 20% in 45% target market cap 49 DJSI Sectors Jones Total Global Stock terms of Sustainability in coverage in each super 2 Countries Market IndexAmerica 56 DJSI Sectors each sector sector Review 2011: 20 ADD / 12 DEL 2 Countries 600 largest companies fromDJSI Asia Pacific Asia/Pacific* of the Dow 156 Components Selection of top 20% in 45% target market cap Jones Total Global Stock 44 DJSI Sectors terms of Sustainability in coverage in each Market Index Review 2011: 24 ADD / each sector super sector 55 DJSI Sectors 10 DEL 7 Countries *600 largest companies from South Korea, Australia, New Zealand, Japan, Hong Kong, Taiwan, and Singapore Figures as of launch September 19, 2011