Green Lights for Beyond Ratings

    Stockholm (NordSIP) – Today, privately-owned Paris based ESG-focused credit rating agency (CRA) Beyond Ratings announced its accreditation by the European Securities and Markets Authority (ESMA) to issue ratings for central, regional and local governments as well as supranational and national policy-driven financial institutions. We spoke to Elie Hériard Dubreuil (pictured left), Principal and Managing Director at Beyond Ratings, to understand how his firm intends to disrupt the CRA market with a more sustainable model.

    The approach Beyond Ratings proposes to rate debt-issuing entities relies heavily on ESG analysis to determine risk. “We go further than most traditional rating agencies who currently merely take into account ESG-related factors in extreme cases, such as catastrophes, or at the margin,” explains Hériard Dubreuil.  With our methodology, half of the rating we assign to a sovereign issuer is driven by ESG factors. Sustainability lies at the centre of our model, which is the fruit of extensive proprietary research.”

    The firm’s strategy to conquer the CRA market is to start with the Sovereign, supranational and agency (SSA) segment, as it represents the largest segment, both in terms of outstanding debt and volume of new issues. The assets raised by these entities typically help finance public policies. Therefore, their influence can extend beyond classic economic impact, as illustrated by the goals that underlie green and social bonds, of which the SSA were the pioneers.

    Within this area, the firm will first rate governments. “We need to start by rating sovereign issuers as they will serve as the reference points for smaller issuers within each country,” Hériard Dubreuil continues. “Ratings are typically relative measures. If we were to start with a local community, for example, investors wouldn’t know how to interpret our grade, without the country’s rating as a reference point.”

    Beyond Ratings business model is similar to that of traditional CRAs, where issuers pay to be rated. “We are well aware of the risk for conflict of interests in such a model, but that is also why CRAs are heavily regulated,” says Hériard Dubreuil. “Not every firm receives the accreditation that we have obtained today. As part of our application process with the ESMA, we have spent a significant time showing how our organisation deals with such potential conflicts. Under the constraints imposed by the regulator, we strongly believe that this business model is the best for this type of service. It enables us to make ratings public, so that market participants are free to scrutinize them and use them to make investment decisions or conduct research.”

    While Beyond Ratings has not yet disclosed any timeline for its first rating, nor which countries it will analyse first, Hériard Dubreuil reminds us that any ESMA-regulated agency rating sovereign debt must publish a calendar and we can look forward to the full plan soon. In the meantime, we can enjoy some of the firm’s “food for thought”, publicly available research about Norway, Venezuela, France and Argentina for example, as well as Analyst Insights on the Brazilian pension reform or the applications and limitations of Bio-energy carbon capture in the United Kingdom.

    Picture courtesy of Beyond Ratings: Elie Hériard Dubreuil (left) and Helene Bakhtiar (right)

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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