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Financial Institutions
www.fitchratings.com 10 May 2019
ESG / Global
ESG Factors Influencing Financial Institution Ratings Governance Risks Affect Banks and NBFIs, Environmental Risks Impact Insurers
Special Report
High-Impact ESG Issues Differ: Financial crime compliance and conduct issues drive the
highest ESG relevance scores (‘5’ on the 1-5 scale) for developed market (DM) banks’ credit
ratings, including Sw edbank and Commonw ealth Bank Australia. Governance also drives the
highest ESG relevance scores for non-bank f inancial institutions (NBFIs) including Russell
Investments and Apollo Investment Corporation, but the biggest factor is management strategy.
Insurance entities have yet to be assigned an ESG relevance score of ‘5’ in any category.
Sector Differences: Governance-related risk elements, particularly ‘Governance Structure’,
account for the majority of the higher relevance scores (‘4’ or ‘5’ on the 1-5 scale) for both
banks and NBFIs. Environmental considerations, specif ically catastrophe risk, are most
relevant to property and casualty (P&C) (re)insurers. ‘Social’ ESG risks represent only 9% of ‘4’
or ‘5’ ESG relevance scores for FIs globally. These usually relate to NBFIs, and typically stem
from the conduct risks of lending at higher interest rates or to w eaker borrow ers.
Regional Differences: At a global level, 34% of non-bank, 22% of bank, and 6% of insurance
entities feature at least one relevance score of ‘4’ or ‘5’. But 56% of bank issuers w ithin APAC
emerging markets (EM) are assigned at least one higher ESG relevance score. This is follow ed
by Americas EM at 38% and Middle East and Africa at 31%.
ESG relevance for NBFIs is highest in APAC EM at 67%, follow ed by Americas EM at 45% and
European EM at 38%- albeit based on a relatively small sample size. The scores are driven by
governance and, secondarily, social considerations. Although few er (re)insurers credit ratings
are affected by ESG relevant risks, the largest concentration of such entities are w ithin APAC
(DM and EM).
ESG Higher Relevance Score Case Studies – Index Case Studies Named entities
DM Banks: Financial Crime Compliance, Conduct
Failings
Swedbank, Danske Bank, US Bancorp,
Commonwealth Bank Australia, National Australia Bank
Americas Banks, NBFIs: Corporate Governance Wells Fargo, Docuformas SA de CV, Financiera Independencia SAB
DM/EM NBFIs/Banks: Management Strategy, Acquisition Integration
Russell Investment Group, Apollo Investment Corporation, TP ICAP, MIK, Home Credit, Lionbridge
Capital, Deutsche Bank Banks/NBFIs: Complex Group Structures Sparkassen-Finanzgruppe, Avolon Holdings
(Re)insurers, NBFIs: Environmental Impact Mitsui Sumitomo Insurance Company, ABCI Insurance Company, Lloyds of London, Berkshire
Hathaway, Technoleasing Annex 1: Banks with higher ESG relevance element
scores
Annex 2: NBFIs with higher ESG relevance element
scores
Annex 3: (Re)Insurance Companies (Property &
Casualty) with Higher ESG Relevance Scores
Source: Fitch Ratings
Related Research
Gov ernance Most Relevant of ESG Risks for Banks (April 2019)
Global Non-Bank Financial ESG Risk Mostly Gov ernance (March 2019)
Introducing ESG Relevance Scores for Financial Institutions (February 2019)
What Inv estors Want to Know: ESG Relev ance Scores (Marking the Intersection
of Credit Risk and ESG Risks) (February 2019)
Analysts
Monsur Hussain – FI Research +44 20 3530 1793 [email protected] Kev in Duignan – Global Head, FI Ratings +1 212 908 0771 kev [email protected] Andrew Steel – Global Head, Sustainability Group
+44 20 3530 1793 [email protected]
Amendment:
This report, originally published
on 9 May, has been amended to correct some of the identif ied
ratings on page 7.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 2
Introduction
This report provides case studies on selected f inancial institution issuers w ith higher ESG
relevance scores (i.e. ‘4’s and ‘5’s) together w ith a summary of all Fitch-rated FI issuers w ith
higher relevance scores (refer to the annex). Fitch Ratings assigns an ESG relevance score of
‘4’ w hen an issue has an impact on the rating but is not a key rating driver. A relevance score
of 5 is assigned w hen an issue is a key rating driver.
Source: Fitch Ratings, transaction document
The ESG Relevance Score template used by analysts is split into three broad groupings, for
Environmental, Social and Governance. Our analysts then identif ied and agreed categories of
sector-specif ic credit rating aspects relating to each of the sub-elements listed in the general
issues. On a sectoral basis, NBFIs issuers' credit ratings w ere more impacted generally by
ESG factors (i.e. scoring ‘4’ or ‘5’) w hen compared w ith banks and especially insurance
companies. Governance drove the impact on NBFIs and banks, w hereas (re)insurers w ere
almost w holly affected by Environmental risk factors.
We found a more signif icant ESG impact on EM NBFI and bank issuer credit ratings than on
DM issuers. APAC (re)insurers’ credit ratings w ere more affected by ESG factors than North
American or EMEA-based issuers.
ESG Scoring Definitions
Lowest Relevance
Irrelevant to the
entity rating and
irrelevant to the
sector.
1 2
Irrelevant to the
entity rating but
relevant to the
sector.
Minimally relevant to
rating, either very low
impact or actively
managed in a way
that results in no
impact on the entity
rating.
Neutral
3
Credit-Relevant to Issuer
4 5
Relevant to
rating, not a key
rating driver but
has an impact
on the rating in
combination with
other factors.
Highly relevant,
a key rating
driver that has a
significant
impact on the
rating on an
individual basis.
0
20
40
60
80
100
Environmental Social Governance
(%) NBFIs Banks Insurers
Source: Fitch Ratings
ESG Elements Driving Credit Rating Impact - By Sector(For entities assigned at least one ESG relevance score of 4 or 5)
0
20
40
60
80
100
EM Asia EM Americas EM Middle Eastand Africa
EM Europe DM Americas DM Asia DM Europe
(% Issuers in region) Banks NBFIs P&C (Re)Insurers
Source: Fitch Ratings
FI Higher ESG Relevance - BySector/Region
Env ironmental Risk Categories EAQ – GHG Emissions & Air Quality; EFM – Energy Management; EWT – Water & Wastewater Management; EHZ – Waste & Hazardous Materials Management; Ecological Impacts; EIM – Exposure to Environmental Impacts Social Risk Categories SCR – Human Rights, Community Relations, Access & Affordability; SCW – Customer Welfare - Fair Messaging, Privacy & Data Security; SLB – Labour Relations & Practices; SEW – Employee Well-being; SIM – Exposure to Social Impacts Gov ernance Risk Categories GEX – Management Strategy; GGV – Governance Structure; GST – Group Structure; GTR – Financial Transparency
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 3
Corporate Governance, Transparent Reporting – Banks, NBFIs
DM Banks: Financial Crime Compliance, Conduct Failings
Misconduct and f inancial crime-related compliance failures have driven several negative rating
actions over the last few years among higher-rated DM bank issuers. This coincides w ith
heightened regulatory and supervisory scrutiny of conduct issues globally.
Swedbank AB’s ‘5’ ESG relevance score reflects Fitch Ratings’ April 2019 decision to place
the Sw edish bank’s ‘AA-‘ Long-Term (LT) and ‘F1+’ Short-Term (ST) Issuer Default Ratings
(IDR) on Rating Watch Negative (RWN). Fitch's view is that the allegations of Sw edbank’s
potential involvement in money-laundering through its Baltic operations, and specif ically
Estonia, have revealed w eaknesses in the bank's management, w hich could ultimately affect
its franchise. The RWN also reflects uncertainty over the bank's management of operational
and reputational risks, w hich might no longer be in line w ith the bank's high rating, as w ell as
the risk of capital erosion should Sw edbank's money laundering allegations be confirmed and
result in substantial capital-depleting f ines.
Similarly, Danske Bank AS’s ‘5’ ESG relevance score reflects legal and compliance risks w ith
regard to suspicions of money laundering operations carried out by the bank’s Estonian
branch. The bank’s Outlook w as revised to ‘Negative’ from ‘Stable’ in September 2018 ( the
Danish bank’s LT IDR and VR w ere unchanged at ‘A’ and ‘a’ respectively). This reflected
uncertainty as to the ultimate impact on the bank’s capitalisation, franchise and funding profile
follow ing the publication of a report in September 2018 regarding lapses in the anti-money
laundering (AML) control framew ork for the bank’s Estonian non-resident portfolio betw een
2007 and 2015.
Fitch’s base case is that any f ines facing Danske w ill be an earnings rather than a capital
event. How ever, the magnitude of suspicious transactions means there is tail risk of larger f ines
being incurred, particularly as US authorities are now involved. This is especially the case
given that many of the non-resident clients have not yet been investigated and that sanction
screening is not complete.
Commonwealth Bank Australia (CBA) and National Australia Bank (NAB) are assigned ‘5’
ESG relevance scores for ‘Governance Structure’ and ‘4’ in respect of ‘Customer Welfare’.
Outlooks for both banks w ere revised to ‘Negative’ from ‘Stable’ last year due to risks in
remediating shortcomings in operational risk management and governance framew orks. CBA’s
revision in May 2018 follow ed a prudential inquiry into it specif ically by the Australian Prudential
Regulation Authority (APRA).
The APRA’s review identif ied shortcomings in CBA’s “non-f inancial” risk management.
Follow ing this, all the other large banks in Australia w ere asked to undertake self -assessments
on the issues identif ied by APRA. NAB w as the only one to publish its self -assessment, w hich
highlighted shortcomings as w ell. In addition, w hile the Royal Commission into Misconduct in
the Banking, Superannuation and Financial Services Industry affected all four major banks to
some degree, CBA and NAB w ere highlighted for their shortcomings in their management of
operational and compliance risks, culture and governance.
Fitch subsequently revised NAB’s outlook to Negative in February 2019. The revised rating
outlooks for both banks reflects their focus on remediation and culture that could take several
years to resolve, lead to increased compliance costs and a major distraction for the
management. Consequently, Fitch Ratings believes this could result in a w eakening of their
earnings relative to domestic peers.
US Bancorp’s (USB’s) ‘4’ ESG relevance score relates to the one-notch dow ngrade of its LT
IDR to ‘AA-‘ in February 2018. This follow ed the public disclosure of settlements w ith various
regulators for historic AML control framew ork deficiencies. The breadth of the authorities’
Governance Elements – For Banks, NBFIs
Management
Strategy
(GEX)
Operational
implementation of
strategy
Gov ernance
Structure (GGV)
Board independence
and effectiveness; ownership
concentration; protection of
creditor/stakeholder rights; legal/compliance
risks; business continuity; key person
risk; related-party transactions
Group Structure
(GST)
Organizational structure;
appropriateness relative to business
model; opacity; intra-group dynamics;
ownership
Financial
Transparency (GTR)
Quality and timing of
financial reporting and auditing processes
Source: Fitch Ratings
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 4
f indings, particularly regarding USB’s lapses in risk management, w as outside of Fitch’s
expectations given the bank’s high rating level. How ever, the ‘4’ score – instead of ‘5’- reflects
Fitch’s view that the AML-related deficiencies w ere a partial ratings driver, in combination w ith
other factors.
EM Banks: Potential for State Influence and Financial Transparency Issues
Notw ithstanding the higher-profile ESG findings for DM banks above, almost 85% of banks
assigned higher ESG relevance scores are w ithin EM jurisdictions – notably China, India, Brazil
and Gulf-Cooperation Council (GCC) countries.
All rated Chinese banks are assigned ‘4’ ESG relevance scores for corporate governance,
reflecting the potential for signif icant influence by the state either as ow ner or through
regulatory influence (given the lack of independence from the state). The government influence
often results in banks behaving in w ays that do not maximise shareholder values, e.g. banks
being asked to lend to small private enterprises at low er interest rates in order to support
economic grow th. Such issues are more signif icant for state-ow ned banks than private, but
governance w eighs on all VRs and potentially on support prospects for some. How ever, w hile
the influence of Chinese authorities may have positive implications for support prospects , it is
factored into Chinese banks’ IDRs.
Similarly state-ow ned Indian, Brazilian and Chilean banks are assigned ‘4’ scores for corporate
governance due to the similar rationale of deliberate state control and or signif icant influence.
While this compromises their governance and standalone VRs in the process, the greater the
influence, the closer the bank is likely to be to the state and therefore the higher the support
rating f loor.
Moreover, all rated Chinese and Indian banks are given a ‘4’ score for the ‘Financial
Transparency’ risk element. For Chinese banks, this reflects Fitch’s concerns regarding
signif icant under-reporting of non-performing loans (NPLs) and risk-w eighted assets (RWAs),
due to the use of off-balance sheet transactions. Similarly, for Indian banks the ‘4’ score
reflects Fitch Ratings’ f indings of large divergences betw een the banks’ and the central bank
concerning NPL reporting. These divergences ultimately reflect w eaknesses externally
(concerning the Reserve Bank of India’s supervision) and internal audit standards at the banks
themselves.
EM Europe, Middle East & Africa Islamic Banks: Governance Structure
All Islamic banks need to ensure compliance of their entire operations and activities w ith sharia
principles and rules. This entails additional costs, processes, disclosures, regulations, reporting
and sharia audits. This results in a governance structure relevance score of ‘4’ for rated Islamic
banks (in contrast to a typical ESG relevance influence score of ‘3’ for comparable conventional
banks). In addition, Sharia-rules set activity-based restrictions that prohibit Islamic banks from
lending to companies or individuals involved in activities deemed to harm society (for example,
gambling) or prohibited under Islamic law (for example, f inancing construction of a plant to
make alcoholic beverages). This is reflected in the ESG relevance score for Exposure to Social
Impacts. How ever, at a typical score of ‘3’ (versus ‘2’ for comparable conventional banks), this
has less of a bearing on their credit ratings than their governance structure.
Americas Banks, NBFIs: Corporate Governance
Wells Fargo & Company’s (WFC) ‘4’ ESG relevance score for Governance Structure (and
Management Strategy) reflects Fitch’s decision to dow ngrade its LT IDR ratings from ‘AA-‘ to
‘A+’, Outlook ‘Stable’ in October 2017. This w as due to risk control and governance issues, and
a diminished earnings profile, follow ing regulatory actions regarding improper account openings
in the Community Bank segment. Assuming Fitch had the ESG relevance scoring framew ork in
place w hen WFC’s Outlook w as moved to ‘Negative’ in Autumn 2017, then theoretically Fitch
w ould have assigned WFC a ‘5’ ESG relevance score for ‘Governance Structure’. The current
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 5
‘4’ ESG relevance score reflects our view s that, after the dow ngrade, these issues are now
contributing factors rather than the solely driver.
Fitch does not anticipate further material corporate governance-related w eaknesses. But any
further substantial issues could negatively affect the rating, w ith a dow ngrade possible. Fitch
expects that WFC w ill meet the various regulatory requirements of the Federal Reserve’s
consent order, though failure to have the asset cap lif ted in a timely manner w ould likely be
view ed negatively by Fitch.
Further, Fitch remains sensitive to the long-term implications on the company’s earnings profile
of the various risk control-related issues, as w ell as potential effects on the franchise given
heightened reputational risk. If , over the longer term, WFC’s franchise appears impaired
relative to recent history, this may exert dow nw ard ratings pressure on its ratings.
Docuformas S.A.P.I. de C.V. (Docuformas, Mexico, LT IDR ‘BB-‘) is assigned ‘4’ ESG
relevance scores for several governance risk elements including governance structure. The
recent LT IDR upgrade (7 December 2018) reflected the strengthening of corporate
governance practices and reduction of key person risk under a new shareholder structure, as
w ell as signif icant improvements in Docuformas' leverage position follow ing a capital injection
of USD27 million. How ever, areas for improvement persist, such as the inclusion of more
independent members in the board of directors (only one member is now independent).
An ESG relevance score of ‘4’ is applied to Financiera Independencia, S.A.B. de C.V.
SOFOM, E.N.R (Findep, Mexico, LT IDR ‘BB’) as the company has experienced signif icant
senior management turnover over the last three years. In 2016 the CEO and the CFO w ere
replaced. In 2018 a new CFO w as hired w ho lacked experience at a f inancial or consumer-
oriented company. In August 2018, Findep’s head of investor relations also left the company.
Fitch believes incoming management need to prove adherence to previously stated strategic
objectives to sustain continuity, stable grow th and sound performance in the near future.
Management Strategy – NBFIs, Banks
DM/EM NBFIs: Management Strategy, Acquisition Integration
For the 30 NBFI issuers globally assigned higher (‘4’, ‘5’) ESG relevance scores, operational
implementation of management strategy is a key influence for half of these issuers’ credit
ratings. Often this is accompanied by higher ESG relevance scoring for other Governance-
related sub-factors (such as ‘Governance Structure’ - discussed above).
Several DM NBFIs have been assigned higher ESG relevance scores due to concerns about
each issuer’s ability to execute on a strategy and/or acquisition – these include Russell
Investment Group Ltd (US, LT IDR ‘BB’), Apollo Investment Corporation (US, LT IDR ‘
BBB-‘), and TP ICAP Plc (UK, LT IDR ‘BBB-‘).
Russell Investment Group Ltd’s high ‘5’ ESG relevance score relates to w hat Fitch view s as a
lack of consistency in its f inancial or operating strategies, and the potential for additional
leveraged shareholder-friendly distributions by its PE ow ners. This could call into question the
credibility of management’s or the ow nership’s articulated f inancial policy and could lead to a
negative rating action.
The maintenance of the Negative Outlook for Apollo Investment Corporation in February 2019
reflects the continuation of execution risk associated w ith the planned portfolio mix shift given
Apollo Investment Corporation's mixed track record and the highly competitive environment.
This follow s Apollo Investment Corporation receiving board approval to reduce its asset
coverage ratio to 150% from 200% from April in response to a relaxation of regulatory
requirements. Apollo Investment Corporation is a business development company externally
Governance Elements – For Banks, NBFIs
Management
Strategy
(GEX)
Operational
implementation of strategy
Gov ernance Structure
(GGV)
Board independence and effectiveness;
ownership concentration;
protection of creditor/stakeholder
rights; legal/compliance risks; business
continuity; key person risk; related-party
transactions
Group
Structure (GST)
Organizational
structure; appropriateness
relative to business model; opacity; intra-
group dynamics; ownership
Financial Transparency
(GTR)
Quality and timing of financial reporting and
auditing processes
Source: Fitch Ratings
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 6
managed by Apollo Group Management. Apollo Group Management’s ‘A’ rating and Stable
Rating Outlook w ere unaffected by these actions.
Follow ing the acquisition of ICAP’s voice and hybrid broking business in December 2016, TP
ICAP became the w orld’s largest interdealer broker. Signif icant cost synergies w ere expected
from this transaction w ith integration costs to achieve these set at around GBP100 million. But
by July 2018, TP ICAP announced that this target w as no longer realistic and revised it
dow nw ards to GBP75 million. ICAP integration cost containment w as also an issue w ith
estimated integration costs increased from the initial GBP100 million to GBP160 million. This
announcement of restated cost synergy targets w as accompanied by the departure of the CEO.
EM-based NBFIs assigned higher ESG relevance scores in the same category- such as MIK
(Mongolia, LT IDR ‘B’-‘), Home Credit (Vietnam, LT IDR ‘B+’), and Lionbridge Capital Co
(China, LT IDR ‘B+’)) – that respectively score ‘5’, ‘4’, ‘4’- share common features contributing
to their higher ESG relevance scores. All have relatively short operating histories and have
experienced substantial business grow th in the past few years w ithin a relatively benign cycle.
As such, Fitch believes that the sustainability of their business models have yet to be fully
tested through economic cycles. Their business model could evolve quickly subject to the less
predictable changes in regulations and government policy w hile some of them are more likely
to diverge into new businesses.
Deutsche Bank: Execution of Strategy
The ‘4’ ESG relevance score for Deutsche Bank AG (DB) is tied to the Negative Outlook rating
action taken in June 2018 (Germany, LT IDR ‘BBB+’ Affirmed). This reflects Fitch’s view that
the bank faces substantial execution risk in implementing its strategy. Failure to achieve
business and f inancial targets, in particular regarding costs, returns and capitalisation, w ould
likely result in a dow ngrade. DB’s strategy has been revised several times in recent years and
management has yet to prove that it can implement it according to plan and w ithout setbacks.
Improving profitability in the corporate and investment bank is an important priority, w hich w ill
be diff icult to achieve given a risk of further loss of business, and unfavorable market
conditions. The legal entity merger of the tw o retail businesses w as completed, but the bank
has yet to prove that it can achieve targeted synergies. Further progress also needs to be
demonstrated w ith regard to plans to increase the automation of processes and strengthen risk
controls.
Complex Group Structures – Banks, NBFIs
Sparkassen-Finanzgruppe (SFG): Organisational structure
The netw ork of 332 German savings banks under the SFG umbrella (Germany, LT IDR ‘A+’) is
assigned a ‘4’ ESG relevance score, as it is one of the least cohesive groups to w hich Fitch
assigns "group" ratings. Under Fitch’s Bank Criteria, Fitch may assign group ratings to banks
that are members of a mutual support mechanism. SFG does not produce consolidated
f inancial accounts and its aggregated risk reporting is less advanced than other European
mutual support banking groups rated by Fitch. How ever, Fitch acknow ledges initiatives by the
Deutscher Sparkassen- and Giroverband (DSGV), the national savings bank association, to
increase the adherence of the individual savings banks to common strategic projects, including
digitalisation, process automation and standardisation, data collection, analytics and risk
management.
The IDRs and VR for SFG are sensitive to a change in Fitch's assessment of the group's
cohesion. Continuing initiatives, particularly to streamline SFG's infrastructure and a common
digitalisation strategy, point tow ards further strengthening. How ever, an upgrade of the VR is
unlikely unless SFG signif icantly strengthens its corporate governance by streamlining its
decision-making process and disclosure, including audited consolidated f inancial statements.
Governance Elements – For Banks, NBFIs Management
Strategy
(GEX)
Operational
implementation of
strategy
Gov ernance
Structure (GGV)
Board independence
and effectiveness; ownership
concentration; protection of
creditor/stakeholder rights; legal
/compliance risks; business continuity;
key person risk; related-party
transactions
Group
Structure (GST)
Organizational
structure; appropriateness
relative to business model; opacity; intra-
group dynamics; ownership
Financial Transparency
(GTR)
Quality and timing of financial reporting and
auditing processes
Source: Fitch Ratings
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 7
Avolon Holdings Limited: Ownership Structure, Intra-group Dynamics
Avolon Holdings Limited is assigned a ‘4’ score for ‘Group Structure’ alongside ‘4’ for
‘Governance Structure’. The higher relevance scoring relates to changes over time made to
Avolon’s complex intercompany agreements (that govern creditor repayments and dividend
policies), and the highly speculative credit risk profiles of Avolon’s ow ner, Bohai Capital Holding
Co., Ltd. (Bohai Capital) and its majority ow ner, HNA Group Co., Ltd. (HNA). In August 2018
Avolon’s Outlook w as revised to ‘Positive’ on an investment by Japan’s ORIX Corporation,
together w ith enhancements to Avolon’s f inancial structure and corporate governance. This
w as follow ed by an upgrade to Avolon’s LT IDR to ‘BBB-‘, reflecting Avolon's stated intention to
adhere to the enhanced corporate governance framew ork, as agreed by Bohai Leasing and
ORIX.
Environmental Impact - Insurance Companies, NBFIs
The environmental impact associated w ith the frequency and severity of w eather events is the
most relevant ‘Environmental’ risk category for influencing credit ratings, particularly for
(re)insurers. How ever, w e expect the impact of changes associated w ith the transition to a
low er-carbon economy w ill increase over time. This is likely to lead to a broader range of
environmental risk categories increasing in relevance as credit rating drivers , for a greater
breadth of f inancial institutions.
Property & Casualty (Re)Insurers: Direct Exposure to Catastrophe Risks
For (re)insurers, and more specif ically property and casualty (P&C) (re)insurers, exposure to
environmental impacts is a common risk factor. How ever, if actual or increased exposure to
natural catastrophe losses led to a change in rating, outlook or w atch for an entity, this w ould
be view ed as a highly relevant environmental impact on the overall credit rating, and assigned
an ESG relevance risk score of ‘4’. For US non-life companies, environmental issues can be
particularly relevant given a signif icant number of individual carriers' underw riting exposure to
natural catastrophe risk, in terms of insured losses.
How ever, the majority of (re)insurers w ith ESG relevance scores of ‘4’ operate w ithin the APAC
region. This is due to the multiple hazards affecting the economies – e.g., earthquakes,
tsunamis, cyclones, f looding.
For instance, Mitsui Sumitomo Insurance Company Limited (MSI, Japan, Insurer Financial
Strength (IFS) ‘A+’) expects its combined ratio to rise to 100% at FYE19, due to higher than
expected incurred losses from domestic w eather-related losses (Typhoon Jebi, Typhoon Trami
and f looding in July). In FYE18, the Group’s earnings w ere affected by the loss incurred from
hurricanes Hervey Irma, Mariam and Mexican earthquakes under MSI’s fellow subsidiary ADI
and MSI’s subsidiary MS Amlin. Similarly, ABCI Insurance Company Limited (Hong-Kong, IFS
‘A-‘) has large earthquake and typhoon risk exposure in China through its inw ard reinsurance
businesses, and heavily relies on reinsurance arrangements to mitigate this risk.
PT Reasuransi Nasional Indonesia (Indonesia, IFS ‘BB+’) sources nearly 100% of its premium
income from the domestic market. Indonesia is geographically w idespread, and faces multiple
hazards, including f looding, earthquakes, landslides, tsunami, volcanoes, and cyclones.
Beyond APAC, Lloyd’s of London (“Lloyds”, UK, IFS ‘AA-’) is a prominent global insurance
and reinsurance f irm, w ith greater catastrophe risk exposure than peers- although it has been
actively managing this dow n over the past 12 months. 2017 w as one of the costliest years on
record for catastrophe losses follow ing a series of events, including three major hurricanes –
Harvey, Irma and Maria – and earthquakes in Mexico and w ildfires in California.
Berkshire Hathaway: Exposure to Waste and Hazardous Materials
Berkshire Hathaway Inc. (US, LT IDR: ‘AA-’) is the only company in Fitch’s (re)insurance
rating universe exposed to signif icant latent asbestos and environmental (A&E) losses, scoring
Environmental Elements – For Insurance (P&C)
GHG
Emissions & Air Quality
(EAQ)
n.a.
Energy
Management (EFM)
n.a.
Water & Wastewater
Treatment (EWT)
n.a.
Waste & Hazardous
Materials (EHZ)
Underwriting/reserving exposed to
asbestos/hazardous materials risks
Exposure to Env ironment
al Impacts (EIM)
Underwriting/reserving exposed to
environmental and natural catastrophe
risks; impact of catastrophes on own
operations or asset quality; credit
concentrations
Source: Fitch Ratings
Environmental Elements – For NBFIs
GHG
Emissions & Air Quality
(EAQ)
Regulatory risks,
emissions fines or compliance costs
related to owned equipment, which could
impact asset demand, profitability, etc.
Energy Management
(EFM)
Investments in or ownership of assets
with below-average energy/fuel efficiency
which could impact future valuation of
these assets
Water &
Wastewater Treatment
(EWT)
n.a.
Waste &
Hazardous Materials
(EHZ)
n.a.
Exposure to
Env ironmental Impacts
(EIM)
Impact of extreme
weather events on assets and/or
operations and corresponding risk
appetite & management;
catastrophe risk; credit concentrations
Source: Fitch Ratings
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 8
‘4’ in the Environmental sub-score for Waste and Hazardous Materials Management,
Ecological Impacts. It has assumed a signif icant amount of the industry’s A&E exposure
through retroactive reinsurance contracts.
TechnoLeasing LLC: Indirect Exposure to Climate Risks
Beyond reinsurers, TechnoLeasing LLC (Kazakhstan, LT IDR: ‘B-’) is a unique example of an
NBFI w ith high, albeit indirect, exposure to climate risk. Its domestically focused lease book is
dominated by investments in agricultural machinery (tw o-thirds of net investment in lease in
2017), w ithin Kazakhstan – a country w hose agricultural sector is associated w ith elevated
climate risks. This is due to average temperature increases tw ice as fast as the w orld average.
TechnoLeasings’ asset quality notably deteriorated follow ing crop failure in dry seasons
(particularly in 2010, 2012), due to poor revenues among its customers.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 9
Annex 1: Banks with Higher (4, 5) ESG Relevance Element Scores
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element.
Abu Dhabi Islamic Bank
PJSC
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit. The score also reflects high related-party lending to interests of the bank’s controll ing shareholder.
Access Bank Plc GEX 4 There is heightened operational risk with Access Bank’s merger with Diamond Bank.
Agricultural Bank of China Limited
GGV
GTR
4
4
Applies to all Chinese banks. Potential for significant influence by the state as owner or through regulatory influence (given lack of
independence from the state). The issues are more significant for state-owned banks than private, but governance weighs on all VRs
and potentially on support prospects for some. Applies to all Chinese banks. There is significant under-reporting of
NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk mitigation is not clear,
giving rise to substantial contagion.
Ahli United Bank
(Kuwait)
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit.
Ajman Bank PJSC GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit.
Al Hilal Bank PJSC GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit.
Al Rajhi Bank GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit.
Alinma Bank GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit.
Almazergienbank GGV 4 The rating reflects weaknesses in governance and controls
contributing to significant levels of directed and/or related-party lending.
American Express Company
SCW 4 A consumer lender with above-average interest rates, which is indicative of a higher-risk asset class that is l ikely to garner more
scrutiny from consumer advocacy groups and regulators.
Arab Tunisian Bank SIM 4 Interest rate caps on all lending are a direct result of social and
political disapproval of high interest rates charged by banks.
Asia Commercial Joint
Stock Bank
GGV
GTR
4
4
Governance at SOE banks is weak, with few independent directors,
and SBV’s supervisory role could be conflicted due to large/direct ownership.
Financial disclosures are weak, especially significant under-reporting of impaired loans.
Attijariwafa Bank GGV 4 The score reflects high related-party lending to companies controlled by the bank’s shareholder.
Axis Bank Ltd. GTR 4 Applies to all rated Indian banks, but particularly to government banks. Large divergence with central bank on NPL reporting reflects
weaknesses externally (RBI’s supervision) and internal audit standards.
Banca Mifel, S.A., Institucion de Banca
Multiple, Grupo Financiero Mifel
GGV 4 Ownership concentration in a single family.
Banco Agrario de
Colombia S.A.
GGV 4 It is owned by the Colombian federal government and, therefore,
potentially affected by the government's plans and incentives.
Banco Atlántida, S.A. GST 4 The organisational structure is more complex than other issuers’.
Banco BOCOM BBM S.A.
GGV 4 There are no governance issues that directly affect the bank’s VR, and regulatory ring-fencing is sound in Brazil, but it is owned by a
major Chinese bank, which exposes creditors to potential foreign government influence (parent score is also ‘4’).
Env ironmental Risk Categories EAQ – GHG Emissions & Air Quality; EFM – Energy Management; EWT – Water & Wastewater Management; EHZ – Waste & Hazardous Materials Management; Ecological Impacts; EIM – Exposure to Environmental Impacts Social Risk Categories SCR – Human Rights, Community Relations, Access & Affordability; SCW – Customer Welfare - Fair Messaging, Privacy & Data Security; SLB – Labour Relations & Practices; SEW – Employee Wellbeing; SIM – Exposure to Social Impacts Gov ernance Risk Categories GEX – Management Strategy; GGV – Governance Structure; GST – Group Structure; GTR – Financial Transparency
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 10
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
Banco BTG Pactual S.A. GEX
GST
4
4
[+] The positive changes in the bank’s strategy since 2015, when
the main shareholder faced a major corporate scandal, resulted in
improvements in its financial profile.
The group structure is complex and challenging and as such the
identification of intra-group operations can be difficult.
Banco Compartamos,
S.A., Institucion de Banca Multiple
SCR
SCW
SIM
GEX
4
4
4
4
[+] The bank’s focus on the supply of services for underbanked and
underserved communities enhances its profile due to barriers of entry for competitors.
High lending rates to unbanked, lower-income segments of the population expose Banco Compartamos to relatively higher
regulatory, legal and reputational risks. Its Microfinance Focus on Unbanked Segments makes the bank s
profile and performance vulnerable to shifts in social or consumer preferences, and also to political or social programmes.
Management and Strategy is 'Moderate' in the Navigator because execution lacked consistency with stated strategic objectives.
Banco de Costa Rica GEX
GGV
GST
4
5
4
Strategy has been under review since the corporate events that led to a downgrade in 2017. Weaknesses in the bank's governance
framework have tested the quality of its risk controls and challenged execution of its strategy.
Corporate governance issues regarding board effectiveness triggered a rating downgrade in 2017. The resulting VR and Rating
Watch Negative were maintained in 2018 due to investigations and interim appointments.
Its appetite for intra-group operations is sometimes opportunistic.
Banco de la Ciudad de
Buenos Aires
GGV 4 Owned by a sub-national government and, therefore, potentially
affected by the government's plans and incentives.
Banco de la Produccion
S.A. Produbanco y Subsidiarias
GGV 4 There is a risk of government intervention through the regulatory
framework.
Banco de los Trabajadores
GEX
GGV
4
5
[+] Its strategy has been under review because of the corporate events of the past three years. After making important managerial
changes, the bank has an above-average execution of strategy. [+] An alleged fraud attempt by three board members on the bank's
shareholders triggered a rating downgrade in 2016. The resolution of the investigation and the strengthening of the corporate
governance framework are triggers for the resolution of the Positive Rating Outlook.
Banco de Reserv as de la Republica
Dominicana, Banco de Serv icios Multiples
(BANRESERVAS)
GGV 4 Owned by the Dominican Republic federal government and, therefore, potentially affected by the government's plans and
incentives.
Banco del Caribe, C.A.
Banco Univ ersal
GTR 4 Distortion of financial indicators from hyperinflation and
transparency of regulation.
Banco del Estado de
Chile
GGV 4 Owned by the Chilean federal government and, therefore,
potentially affected by the government's plans and incentives.
Banco do Brasil S.A. GGV 4 Owned by the Brazil ian federal government and, therefore,
potentially affected by the government's plans and incentives.
Banco do Estado do Rio
Grande do Sul S.A.
GGV 4 Owned by a sub-national government and, therefore, potentially
affected by the government's plans and incentives.
Banco Fassil SA GGV 4 Exposed to considerable government intervention. It needs to
allocate roughly half of its portfolio to certain sectors.
Banco GNB Sudameris
S.A.
GGV 4 Key person risk, since the chairman is perceived as materially
influencing broad operations across the bank, under sound controls.
Banco Internacional de
Costa Rica
GGV 4 Owned by the two large state-owned Costa Rican banks, which
affects the overall governance.
Banco La Hipotecaria,
S.A.
GST 4 Owned by a diversified financial conglomerate that adds some
complexity to the analytical review.
Banco Latinoamericano
de Comercio Exterior (Bladex)
GEX 4 Given its presence across the region, Bladex needs to frequently
adapt its overall strategy. The bank has a below-average execution of strategy as reflected in its weak financial performance.
Banco Mercantil del Norte, S. A., Institucion
de Banca Multiple, Grupo Financiero
Banorte
GEX 4 Banorte recently made an acquisition that increased its already high exposure to government and moderately weakened its risk appetite.
Strategy is opportunistic at times, especially regarding its relationships with public sector entities.
Banco Nacional de
Costa Rica
GGV 4 Owned by the Costa Rican federal government and, therefore,
potentially affected by the government's plans and incentives.
Banco Nacional de
Panama
GGV 4 Owned by the Panamanian government and, therefore, potentially
affected by the government's plans and incentives.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 11
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
Banco Original S.A. GGV 4 The bank has a very large volume of related-party transactions with
its parent. While these are fully and clearly disclosed in the financial
statements, the parent (food producer JBS) is sti l l being investigated for corruption, and contagion risks (albeit lower)
remain.
Banco Pan S.A. GST 4 Joint-venture between a specialised private bank (BTG Pactual) and
a state-owned major bank (Caixa), which at times has made corporate strategies difficult to implement (such a recent capital
raise that took longer than expected).
Banco Pichincha C.A. y
Subsidiarias
GGV 4 There is a risk of government intervention through regulatory
framework.
Banco Ve por Mas, S.A.,
Institucion de Banca Multiple, Grupo
Financiero Ve por Mas
GGV 4 Ownership concentration in a single family.
Banestes SA Banco do
Estado do Espirito Santo
GGV 4 Owned by a sub-national government and, therefore, potentially
affected by the government's plans and incentives.
Bank Aljazira GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Bank of Baroda GGV
GTR
4
4
Applies to all rated Indian government banks. Lack of board independence due to high government influence/interference.
Applies to all rated Indian banks, but particularly to government banks. Large divergence with central bank on NPL reporting reflects
weaknesses externally (RBI's supervision) and internal audit standards.
Bank of Beij ing GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence by the state as owner or through regulatory influence (given lack of
independence from the state). Issues are more significant for state-owned banks than private, but governance weighs on all VRs and
potentially on support prospects for some. Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear giving rise to substantial contagion.
Bank of Ceylon GGV 4 Influence from state as owner.
Bank of China Limited GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence by the state as owner or through regulatory influence (given lack of
independence from the state). Issues are more significant for state -owned banks than private, but governance weighs on all VRs and
potentially on support prospects for some. Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear giving rise to substantial contagion.
Bank of
Communications Co., Ltd.
GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence
by the state as owner or through regulatory influence (given the lack of independence from the state). The issues are more significant for
state-owned banks than private, but governance weighs on all VRs and potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-reporting of NPLs and RWAs due to use of off-balance sheet
transactions and regulatory forbearance/loan rollovers. Risk mitigation is not clear, giving rise to substantial contagion.
Bank of India GGV
GTR
4
4
Applies to all rated Indian government banks. Lack of board independence due to high government influence/interference.
Applies to all rated Indian banks, but particularly to government banks. The large divergence with central bank on NPL reporting
reflects weaknesses externally (RBI's supervision) and internal audit standards.
Bank of Sharjah PJSC GGV 4 Executive management (CEO & Deputy CEO) plays an important role (high influence) in new loan and investment book decisions.
The board lacks independent members, which is not unusual in the region, but average length of service is very high, around 30 years.
Barwa Bank GGV 4 Applies to all rated Islamic banks; they need to ensure compliance of their entire operations and activities with sharia principles and
rules. This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 12
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
Belarusbank GGV 4 Reflects weaknesses in governance and controls contributing to
significant levels of directed lending.
Belinv estbank, OJSC GGV 4 Reflects weaknesses in governance and controls contributing to significant levels of directed lending.
Boubyan Bank K.S.C.P. GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
BRB - Banco de Brasilia SA
GGV 4 Owned by a sub-national government and, therefore, potentially affected by the government's plans and incentives.
CAIXA ECONOMICA MONTEPIO GERAL,
Caixa economica bancaria, S.A.
GGV 4 Disagreements between Banco Montepio’s previous management team and the bank’s shareholder, Montepio Geral Associação
Mutualista, led to significant management turnover in 2018.The stabilisation of the bank’s management and board of directors is
taking longer than expected. This, coupled with a strong influence from the association on day-to-day business, reflects a less
developed corporate governance than those of its peers.
Canara Bank GGV
GTR
4
4
Applies to all rated Indian government banks. Lack of board
independence due to considerable government influence/interference.
Applies to all rated Indian banks, but particularly to government banks. Large divergence with central bank on NPL reporting reflects
weaknesses externally (RBI's supervision) and internal audit standards.
Capital One Financial Corporation
GGV 4 Potential impact of pending AML investigation.
Cartu Bank GGV 4 The rating reflects weaknesses in governance and controls contributing to significant levels of related-party lending.
China CITIC Bank Corporation Limited
(CNCB)
GGV
GTR
4
4
Applies to all rated Chinese banks. There is potential for significant influence by the state as owner or through regulatory influence
(given lack of independence from the state). Issues are more significant for state-owned banks than private, but governance
weighs on all VRs and potentially on support prospects for some. Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear, giving rise to substantial contagion.
China Construction
Bank Corporation
GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence
by the state as owner or through regulatory influence (given lack of independence from the state). The issues are more significant for
state-owned banks than private, but governance weighs on all VRs and potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-reporting of NPLs and RWAs due to use of off-balance sheet
transactions and regulatory forbearance/loan rollovers. Risk mitigation is not clear giving rise to substantial contagion.
China Ev erbright Bank GGV
GTR
4
4
Applies to all rated Chinese banks. There is potential for significant influence by the state as owner or through regulatory influence
(given lack of independence from the state). Issues are more significant for state-owned banks than private, but governance
weighs on all VRs and potentially on support prospects for some. Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear giving rise to substantial contagion.
China Guangfa Bank
Co., Ltd.
GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence
by the state as owner or through regulatory influence (given lack of independence from the state). Issues are more significant for state-
owned banks than private, but governance weighs on all VRs and potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-reporting of NPLs and RWAs due to use of off-balance sheet
transactions and regulatory forbearance/loan rollovers. Risk mitigation is not clear giving rise to substantial contagion.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 13
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
China Merchants Bank
Co., Ltd.
GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence
by the state as owner or through regulatory influence (given lack of
independence from the state). Issues are more significant for state-owned banks than private, but governance weighs on all VRs and
potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear giving rise to substantial contagion.
China Minsheng
Banking Corp., Ltd.
GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence
by the state as owner or through regulatory influence (given lack of independence from the state). Issues are more significant for state -
owned banks than private, but governance weighs on all VRs and potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-reporting of NPLs and RWAs due to use of off-balance sheet
transactions and regulatory forbearance/loan rollovers. Risk mitigation is not clear giving rise to substantial contagion.
Commonwealth Bank of Australia
SCW
GGV
4
5
Multiple misconduct issues have been identified, and a remediation programme is underway as a result of a prudential inquiry report.
This has contributed with other factors to weigh on the Rating Outlook which was revised to negative in May 2018.
Cooperativ a de Ahorro y Credito (FUCEREP)
GEX 4 The business mix is shifting towards a greater contribution from non-payroll deductible loans.
Credit Bank of Moscow GGV
GST
4
4
The rating reflects weaknesses in governance and controls, as evidenced by high levels of related-party lending and lack of
transparency with respect to the bank’s ownership structure. It also reflects significant double leverage at the level of the bank’s
holding company, as well as lack of transparency with respect to ownership structure.
Danske Bank AS GGV 5 Legal and compliance risks associated with material volumes of transactions with non-resident customers of Danske's Estonian
branch between 2007 and 2015, many of which are expected to be deemed suspicious. The bank is under investigation by local and
international authorities. Outlook revised to Negative in September 2018.
Deutsche Bank AG GEX 4 The Negative Rating Outlook on Deutsche Bank AG's Long-Term IDR reflects substantial execution risk in implementing its
restructuring. Failure to achieve the bank's targets would put the management's ability to execute the strategy in question and would
likely result in a downgrade.
Dev elopment Bank of
the Philippines
GGV 4 Applies to both DBP & LBP. Risk of influence from full state
ownership, as both act as commercial banks, but perform quasi -policy roles.
Diamond Bank Plc GGV 4 The bank failed to replace key board members who resigned in 4Q18. This gives rise to concerns about how executive decisions
are currently being made at the bank.
Discov er Financial
Serv ices
SCW 4 A consumer lender with above-average interest rates, which is
indicative of a higher-risk asset class that is l ikely to garner more scrutiny from consumer advocacy groups and regulators.
Dubai Islamic Bank PJSC
GGV 4 Applies to all rated Islamic banks: they need to ensure compliance of their entire operations and activities with sharia principles and
rules. This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Emirates Islamic Bank PJSC
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Expressbank Open Joint Stock Company
GGV 4 The rating reflects weaknesses in governance and controls, as evidenced by high levels of related-party lending.
First BanCorp EIM 4 The impact of Hurricanes Irma and Maria has complicated the Commonwealth of Puerto Rico's efforts to reverse outward
migration, generate sustainable economic growth, and address its fiscal and debt imbalances.
Fulton Financial Corporation
SCW 4 There is rating sensitivity regarding a fair lending probe.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 14
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
Gazprombank (Joint-
stock Company)
GGV
GST
4
4
The rating reflects weaknesses in governance and controls
contributing to significant levels of directed lending.
It also reflects contingent risks from considerable debt and equity exposure to non-banking subsidiaries.
Getin Noble Bank S.A. GTR 4 Weakened financial transparency with respect to l iquidity and deposit flows following increased liquidity risk in November 2018.
Grupo Financiero Banorte, S.A.B. de C.V.
GEX 4 GFNorte recently made an acquisition that increased its already high exposure to government and moderately weakened its risk
appetite. Strategy is opportunistic at times, especially regarding its relationships with public sector entities.
Hua Xia Bank Co., Limited
GGV
GTR
4
4
Applies to all rated Chinese banks. There is potential for significant influence by the state as owner or through regulatory influence
(given the lack of independence from the state). The issues are more significant for state-owned banks than private, but governance
weighs on all VRs and potentially on support prospects for some. Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear, giving rise to substantial contagion.
ICICI Bank Ltd. GTR 4 Applies to all rated Indian banks, but particularly to government
banks. Large divergence with central bank on NPL reporting reflects weaknesses externally (RBI's supervision) and internal audit
standards.
IDBI Bank Ltd. GGV
GTR
4
4
Applies to all rated Indian government banks. Lack of board
independence due to high government influence/interference. Applies to all rated Indian banks, but particularly to government
banks. There is wide divergence with central bank on NPL reporting reflects weaknesses externally (RBI's supervision) and internal audit
standards.
Industrial and
Commercial Bank of China Limited
GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence
by the state as owner or through regulatory influence (given lack of independence from the state). Issues are more significant for state -
owned banks than private, but governance weighs on all VRs and potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-reporting of NPLs and RWAs due to use of off-balance sheet
transactions and regulatory forbearance/loan rollovers. Risk mitigation is not clear giving rise to substantial contagion.
Industrial Bank Co., Ltd GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence by the state as owner or through regulatory influence (given lack of
independence from the state). Issues are more significant for state -owned banks than private, but governance weighs on all VRs and
potentially on support prospects for some. Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear giving rise to substantial contagion.
Joint Stock Commercial
Bank Asaka
GGV 4 The rating reflects weaknesses in governance and controls
contributing to significant levels of directed lending.
Joint Stock Commercial
Bank For Foreign Trade of Vietnam
GGV
GTR
4
4
Governance at SOE banks is weak, with few independent directors
and SBV’s supervisory role could be conflicted due to large/direct ownership.
Financial disclosures are weak, and there is especially significant under-reporting of impaired loans.
Joint Stock Commercial Bank Univ ersal Bank
GGV 4 Reflects weaknesses in governance and controls contributing to significant levels of related-party lending.
Joint Stock Company OTP Bank
GST 4 Significant exposure to, and potential contingent risks related to, sister company, which operates as microfinance lender.
JSC Alfa-Bank GST 4 Bank is in process of merging with sister bank. This did not lead to rating action (as both banks have similarly weak rating profiles), but
is sti l l a significant factor driving stand-alone analysis and the VR.
JSC State Sav ings
Bank of Ukraine (Oschadbank)
GGV 4 The rating reflects weaknesses in governance and controls leading
to risks of directed lending.
JSC The State Export-Import Bank of Ukraine
(Ukreximbank)
GGV 4 Reflects weaknesses in governance and controls leading to risks of directed lending.
KCB Bank Kenya
Limited
SIM 4 Interest rate caps on all lending are a direct result of social and
political disapproval of high interest rates charged by banks.
KCB Group PLC SIM 4 Interest rate caps on all lending are a direct result of social and
political disapproval of high interest rates charged by banks.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 15
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
King's Town Bank GGV 4 Strategy and key management changes are rating sensitivities. The
tight control at top serves as key person risk.
Krung Thai Bank Public Company Limited
GGV 4 An SOE and a quasi-policy bank operating as commercial bank. Its governance has been/can be compromised by the state.
Kuv eyt Turk Katilim Bankasi A.S
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Kuwait Finance House (K.S.C.P.)
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Kuwait International Bank K.S.C.P.
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Land Bank of the Philippines
GGV 4 Applies to both DBP & LBP. There is a risk of influence from full state ownership, as both act as commercial banks, but perform
quasi-policy roles.
Mercantil, C.A. Banco
Univ ersal
GTR 4 Distortion of financial indicators from hyperinflation and
transparency of regulation.
Microcreditbank GGV 4 Reflects weaknesses in governance and controls contributing to
significant levels of directed lending.
Military Commercial
Joint Stock Bank
GGV
GTR
4
4
Governance at SOE banks is weak, with few independent directors,
and SBV’s supervisory role could be conflicted due to large/direct ownership.
Financial disclosures are weak, and there is especially significant under-reporting of impaired loans.
National Australia Bank Limited
SCW
GGV
4
5
There are shortcomings in management, with increased operational and compliance risks, and in its culture.
Failings identified as part of Royal Commission and self-assessment. A remediation programme is underway. This was the
main factor resulting in the revision of the Rating Outlook to Negative in February 2019.
National Bank of Egypt GGV 4 There is very strong government influence (because of state
ownership).
NongHyup Bank SIM
GGV
4
4
There is a potential impact on VR because of the pressure to
increase agricultural policy loans, to maximise distributions to NACF (thus ultimately to farmers/member co-ops) through brand fee and
dividends. There is significant influence from the ultimate parent NACF (policy
co-op) impacts our assessment on management and strategy, risk appetite.
Noor Bank GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
OJSC Agrobank GGV 4 Reflects weaknesses in governance and controls contributing to significant levels of directed lending.
Open Joint Stock Company International
Bank of Azerbaijan
GGV 4 Reflects largely untested governance and controls after the previously weak framework that resulted in the bank's failure.
Ping An Bank Co., Ltd. GGV
GTR
4
4
Applies to all rated Chinese banks. There is potential for significant
influence by the state as owner or through regulatory influence (given lack of independence from the state). The issues are more
significant for state-owned banks than private, but governance weighs on all VRs and potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-reporting of NPLs and RWAs due to use of off-balance sheet
transactions and regulatory forbearance/loan rollovers. Risk mitigation is not clear giving rise to substantial contagion.
Popular, Inc. EIM 4 The impact of Hurricanes Irma and Maria has complicated the Commonwealth of Puerto Rico's efforts to reverse outward
migration, generate sustainable economic growth, and address its fiscal and debt imbalances.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 16
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
Postal Sav ings Bank of
China Co., Ltd
GGV
GTR
4
4
Applies to all rated Chinese banks. There is potential for significant
influence by the state as owner or through regulatory influence
(given lack of independence from the state). Issues are more significant for state-owned banks than private, but governance
weighs on all VRs and potentially on support prospects for some.
Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear giving rise to substantial contagion.
Promerica Financial
Corporation
GST 4 The group structure complexity adds challenges to the analytical
review, and sometimes makes difficult the identification of intra -group operations.
Punjab National Bank GGV
GTR
4
4
Applies to all rated Indian government banks. Lack of board independence due to high government influence/interference.
Applies to all rated Indian banks, but particularly to government banks. Large divergence with central bank on NPL reporting reflects
weaknesses externally (RBI's supervision) and internal audit standards.
Qatar International Islamic Bank
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Qatar Islamic Bank (Q.P.S.C)
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of their entire operations and activities with sharia principles and rules.
This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Russian Agricultural Bank
GGV 4 Reflects weaknesses in governance and controls leading to risks of directed lending.
Santander Holdings USA, Inc.
SCW 4 Historical compliance issues at the subprime auto lending unit, including findings of improper repossessions and fees as well as
weaknesses in oversight, are in the process of resolution but continue to factor in the company's risk appetite assessment.
Shanghai Pudong Dev elopment Bank
GGV
GTR
4
4
Applies to all rated Chinese banks. Potential for significant influence by the state as owner or through regulatory influence (given lack of
independence from the state). Issues are more significant for state -owned banks than private, but governance weighs on all VRs and
potentially on support prospects for some. Applies to all rated Chinese banks. There is significant under-
reporting of NPLs and RWAs due to use of off-balance sheet transactions and regulatory forbearance/loan rollovers. Risk
mitigation is not clear giving rise to substantial contagion.
Sharjah Islamic Bank GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit.
SLM Corporation SIM 4 Student loans are subject to elevated political and reputational risk
given the potential payment burden for young graduates.
Sparkassen-
Finanzgruppe (Sparkassen)
GST 4 Fitch assigns "group" ratings to Sparkassen-Finanzgruppe (SFG) in
l ine with criteria for rating banking structures backed by mutual support mechanisms. We view SFG as one of the least cohesive
groups to which Fitch assigns "group" ratings, but the sector's mutual support scheme has an impeccable record of safeguarding
its member banks' viability. The IDRs and VR are sensitive to a change in Fitch's assessment of the group's cohesion, and an
upgrade of the VR is unlikely unless SFG significantly strengthens its corporate governance by streamlining its decision-making
process and disclosure, including audited consolidated financial statements.
Stanbic Bank Kenya Limited
SIM 4 Interest rate caps on all lending are a direct result of social and political disapproval of high interest rates charged by banks.
State Bank of India GGV
GTR
4
4
Applies to all rated Indian government banks. Lack of board independence due to high government influence/interference.
Applies to all rated Indian banks, but particularly to government banks. Large divergence with central bank on NPL reporting reflects
weaknesses externally (RBI's supervision) and internal audit standards.
Sv iaz-Bank GGV 4 Reflects weaknesses in governance and controls contributing to the bank's weak asset quality and underperformance.
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 17
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. (Cont.)
Swedbank AB GGV 5 Swedbank AB is exposed to risks related to its governance
structure, which are a key driver for its RWN. This is reflected in the
‘5’ ESG relevance score for this factor. A confirmation that Swedbank was involved in money laundering would point to
material control deficiencies and weaker management of operational, reputational and litigation risks.
Synchrony Financial SCW 4 A consumer lender with above-average interest rates, which is indicative of a higher-risk asset class that is l ikely to draw more
scrutiny from consumer advocacy groups and regulators.
Taishin International
Bank Co., Ltd.
GST 4 The parent has a continuing dispute with the government over the
control of Changhwa Bank.
Trade Bank of Iraq GGV 4 The Iraqi government is highly involved at board level and in the
business.
Turkiye Finans Katilim
Bankasi A.S.
GGV 4 Applies to all rated Islamic banks; need to ensure compliance of
their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures, regulations,
reporting and sharia audit.
Turkiye Halk Bankasi
A.S.
GGV 4 The rating reflects Fitch's view of a sti l l material risk of the bank
becoming subject to a fine or other punitive measures as a result of the US investigation, which resulted in the conviction of its deputy
general manager for violation of US sanctions. This drives Rating Watch Negative on VR, but IDR is not on Rating Watch Negative as
it is underpinned by support.
U.S. Bancorp GGV 4 There are compliance risks outstanding related to the Bank Secrecy
Act/Anti-Money Laundering (BSA/AML) regulation order.
Union de Banques
Arabes et Francaises - U.B.A.F.
GGV 4 The outcome of l itigation with the US Office of Foreign Assets
Control (OFAC) is uncertain. This follows the self-disclosure of certain transactions that might be construed as impermissible under
US regulations.
Uzbek Industrial and
Construction Bank Joint-Stock Commercial
Bank
GGV 4 Reflects weaknesses in governance and controls contributing to
significant levels of directed lending.
Vakif Katilim Bankasi
AS
GGV 4 Applies to all rated Islamic banks: they need to ensure compliance
of their entire operations and activities with sharia principles and rules. This entails additional costs, processes, disclosures,
regulations, reporting and sharia audit.
Vietnam Joint Stock
Commercial Bank for Industry and Trade
GGV
GTR
4
4
Governance at SOE banks is weak, with few independent directors,
and SBV’s supervisory role could be conflicted due to large/direct ownership.
Financial disclosures are weak, especially significant under-reporting of impaired loans.
Warba Bank GGV 4 Applies to all rated Islamic banks: they need to ensure compliance of their entire operations and activities with sharia pri nciples and
rules. This entails additional costs, processes, disclosures, regulations, reporting and sharia audit.
Wells Fargo & Company
GEX
GGV
4
4
The bank is in the process of remediating various risk control issues and responding to regulatory findings. Ratings are sensitive to risk
control-related issues. The ratings are affected by risk control and governance issues.
Outstanding legal and compliance risk not yet fully addressed.
[+] Signif ies an ESG element that has a positive influence on credit risk Source: Fitch Ratings
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 18
Annex 2: NBFIs with Higher (4, 5) ESG Relevance Element Scores
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. Emerging market names also contributed a proportionately higher share of higher ESG relevance scores.
Algeco Scotsman
Global S.a r.l.
GEX 4 The recent disposal of US business led to higher leverage and
contributed to Rating Outlook revision to Negative.
Apollo Inv estment Corporation
GEX 4 The pursuit of higher leverage is expected to occur in concert with portfolio rotation into more senior assets, which gives rise to strategic
execution risk.
Av olon Holdings
Limited
GGV
GST
4
4
The ownership and group structures are complex.
The majority owner has a weaker financial profile.
BGC Partners, Inc. GGV
GST
4
4
Key person risk.
Complex group structure.
Bolsa Mexicana de
Valores, S.A.B. de C.V.
GGV 4 [+] The strong and sound governance structure provides a relative
competitive advantage in terms of market reputation and further reinforces FMI barriers to entry.
Cantor Fitzgerald, L.P.
GGV GST
4 4
Key person risk. Complex group structure.
Credito Real, S.A.B. de C.V., Sociedad
Financiera de Objeto Multiple, Entidad
Regulada
SCW
SIM
4
4
The bank is exposed to reputational and operational risks as it targets government employees and dependencies at relatively high rates.
It is also exposed to a shift in consumer or social preferences or to government regulation of its lending offer.
Docuformas, S.A.P.I.
de C.V.
GEX
GGV
GTR
4
4
4
The Management and Strategy assessments on the Ratings Navigator
are 'Moderate'. Recent changes due to a new shareholder structure and the changed role of the founder acting only as the CEO, and not as
the chairman of the board. Recent execution risks from inorganic growth need to be improved.
A non-regulated entity. Positive corporate practices were implemented recently, but areas for improvement persist. It is exposed to key person
risk, which moderately decreased recently. Although financial transparency has improved, this is sti l l recent and
further enhancements are sti l l continuing due to its non-regulated nature.
Element Fleet Management Corp.
GEX 4 There is execution risk because of the new management team's ability to successfully implement proposed strategic, financial and operational
plans, which include winding down non-core assets and reducing leverage.
Far East Horizon Limited
GST 4 The FEH’s organisational structure is considered complex due to the large number and multiple layers of onshore and offshore entities to
facil itate its business in various sectors. The continued growth of hospital operations could further add complexity to its organisational
structure.
Financiera
Independencia, S.A.B. de C.V.
SOFOM, E.N.R.
SCW
SIM
GEX
4
4
4
High lending rates to unbanked, lower-income segments of the
population expose Findep to relatively high regulatory, legal and reputational risks.
The business model (individual loans to low-income segments) is exposed to shifts of consumer or social preferences or to measures that
the government could take to increase financial inclusion. After frequent managerial shifts, the management needs to prove the
company's adherence to strategic objectives and execution.
FLLC Mikro Leasing GEX
GGV
GST
GTR
4
4
4
4
The strategic goals are not very well articulated following a recent
change of top management. Corporate governance is rudimentary, with l imited management and
board independence. There is significant reliance on related parties for funding.
The aggressive venture -type private owner with diverse interests in a number of risky start-ups results in contagion risk.
The financials are not disclosed and there is very limited transparency.
Freedom Mortgage
Corporation
GGV 4 There is key person risk and there are related-party transactions.
GFH Financial Group
BSC
GEX 4 Performance in the post-crisis period has been volatile, but the current
management team appears to have brought greater stability.
Home Credit Vietnam
Finance Company Limited
GEX 4 The company is located in a growing but less developed market prone
to business and economic volatility. Its business model is not well tested through the cycle, and execution is susceptible to less
predictable regulations and operations.
Intrum AB GTR 4 Certain key ratios (EBITDA, ERC) rely on non-IFRS numbers and
management judgment.
Jefferies Group LLC GST 4 The group structure is complex.
Environmental Risk Categories
EAQ – GHG Emissions & Air Quality ;
EFM – Energy Management; EWT –
Water & Wastewater Management;
EHZ – Waste & Hazardous Materials
Management; Ecological Impacts;
EIM – Exposure to Env ironmental
Impacts
Social Risk Categories SCR – Human Rights, Community
Relations, Access & Af f ordability ;
SCW – Customer Welf are - Fair
Messaging, Priv acy & Data Security ;
SLB – Labour Relations & Practices;
SEW – Employ ee Wellbeing;
SIM – Exposure to Social Impacts
Governance Risk Categories
GEX – Management Strategy ;
GGV – Gov ernance Structure;
GST – Group Structure;
GTR – Financial Transparency
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 19
Higher Relevance Scores in this sector cluster were dominated by Governance, particularly the ‘Governance Structure’ risk element. Emerging market names also contributed a proportionately higher share of higher ESG relevance scores. (Cont.)
JSC Microfinance
Organization Swiss Capital
SCW
SIM
4
4
High-yield lending with complicated pricing mechanism induces
potential mis-selling claims.
High-yield lending to socially disadvantaged population drives material
regulatory risk.
Lionbridge Capital Co., Limited
GEX 4 Lionbridge was established in 2011 and has a short operating history. The sustainability of its business model, strategic focus, risk appetite
and financial profile has yet to be fully tested through economic cycles.
Metrofinanciera,
S.A.P.I. de C. V., Sociedad Financiera
de Objeto Multiple, Entidad Regulada
GEX 4 There is l ittle stability in top management stability and the company
profile is very limited. The management has not been able to successfully execute goals.
Mongolian Mortgage Corporation HFC
LLC
GEX
GGV
5
4
Its business model is evolving, and the company plans to diversify away from purchasing subsidised mortgages under Mongolia's
affordable housing programme to issue residential mortgage-backed securities. Its aggressive growth plan has created execution risks that
expose the company to high levels of counterparty risk. While owned by commercial banks, the business model is highly
sensitive to the direction of government policy.
Nav ient Corporation SIM 4 Student loans are subject to elevated political and reputational risk
given the potential payment burden for young graduates.
Och-Ziff Capital
Management Group LLC
GEX 4 The SEC/DOJ investigation and fines, together with the noise around
succession planning and several management resignations, have led to management and strategic missteps at the firm. The direction of the
rating is contingent on the ability to execute on growth in non-hedge fund business lines and stabili sation in the hedge fund AUM in order to
de-lever. Additional concerns about recent strategic announcements, including a realignment of common equity ownership, a restructuring of
the debt and a C-Corporation conversion, raise questions about the pace at which the firm can reduce leverage.
ORIX Corporation GST 4 ORIX has a complex business model and organisational structure as the company expands and moves across sectors and geographies.
This heightens the challenges facing ORIX in risk management and governance.
Pershing Square Holdings, Ltd.
GGV 4 Key person risk.
Russell Inv estments Cayman Midco, Ltd.
GEX 5 The uncertainty surrounding the company’s future strategy and financial policies and the ability to execute on them due to their private equity
ownership drove the Negative Rating Outlook.
Stifel Financial Corp GGV 4 There is key person risk.
TechnoLeasing LLC EIM 4 There is high exposure to agriculture in an area with elevated climate risks. Asset quality notably deteriorates after the dry season.
TP ICAP plc GEX 4 The former CEO departed in July 2018 amid concerns over reduced cost synergy targets and cost overruns relating to the ICAP integration.
Virtu Financial LLC GEX 4 There is elevated execution risk associated with the acquisition of Investment Technology Group, Inc in terms of integration, achievement
of envisioned synergies and deleveraging.
[+]Signif ies an ESG element that has a positive influence on credit risk Source: Fitch Ratings
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 20
Annex 3: (Re)Insurance Companies (Property & Casualty) with Higher (4, 5) ESG Relevance Scores
For (re)insurers, and more specifically P&C (re)insurers, there is significant exposure to environmental risk factors. This is typically associated with exposure to a variety of catastrophe risks.
ABCI Insurance
Company Limited
EIM 4 Reinsurance, Risk Mitigation and Catastrophe Risk are weighted
'Higher Influence'. "Prism Score is sensitive to net PML assumptions provided by the company" stated in the rating sensitivity section.
Berkshire Hathaway Inc.
EHZ 4 BH has about one-half of the industry's total exposure to asbestos.
Eurohold Bulgaria AD GTR 4 The score is based on past qualified audit opinions and frequent change of auditor.
Lloyd's of London EIM 4 Exposure to catastrophe risk referenced in sensitivities.
Mitsui Sumitomo
Insurance Company, Limited
EIM 4 Exposures to natural catastrophe risks. Reinsurance weighted at
'Moderate'.
PT Reasuransi Indonesia Utama
(Persero)
EIM 4 Relatively high catastrophe exposure; ‘Moderate’ influence of reinsurance factor.
PT Reasuransi Nasional
Indonesia
EIM 4 Major non-l ife business, high catastrophe exposure; ‘Moderate’
influence of reinsurance factor.
RenaissanceRe
Holdings Ltd.
EIM 4 Property catastrophe business is 39% of GPW, with downgrade
sensitivity of catastrophe loss of 25% or more of shareholder equity. 1:250 aggregate PML of 38% of equity.
Sirius International Group, Ltd.
EIM 4 Sizable property (30%) and property catastrophe (15%) NPW, with 1:250 aggregate PML of 42% of equity.
Sompo Japan Nipponkoa Insurance
Inc.
EIM 4 Catastrophe risk was mentioned in the latest RAC, and Reinsurance is 'Moderate' influence.
Yingda Taihe Property
Insurance Co., Ltd
EIM 4 Exposure to catastrophe risk is mentioned in the downgrade
sensitivities.
Tokio Marine & Nichido
Fire Insurance Co., Ltd.
EIM 4 Exposures to natural catastrophe risks. Reinsurance weighted at
'Moderate'.
[+] Signif ies an ESG element that has a positive influence on credit risk Source: Fitch Ratings
Env ironmental Risk Categories EAQ – GHG Emissions & Air Quality; EFM – Energy Management; EWT – Water & Wastewater Management; EHZ – Waste & Hazardous Materials Management; Ecological Impacts; EIM – Exposure to Environmental Impacts Social Risk Categories SCR – Human Rights, Community Relations, Access & Affordability; SCW – Customer Welfare - Fair Messaging, Privacy & Data Security; SLB – Labour Relations & Practices; SEW – Employee Wellbeing; SIM – Exposure to Social Impacts Gov ernance Risk Categories GEX – Management Strategy; GGV – Governance Structure; GST – Group Structure; GTR – Financial Transparency
Financial Institutions
ESG Factors Influencing Financial Institution Ratings
May 2019 21
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