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Home > News > Investing > Alternative Asset Managers Release Tool for ESG
Disclosure
Investing November 22, 2022


ALTERNATIVE ASSET MANAGERS RELEASE TOOL FOR ESG DISCLOSURE

The ESG Integrated Disclosure Project is intended to provide a standard format
for ESG-related disclosures and to offer companies a baseline from which to
develop their ESG reporting capacity.

By Michael Katz
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In a move to improve transparency and consistency regarding environment, social
and governance disclosures for private companies and credit investors, a group
of alternative asset managers have launched a template for ESG disclosure.
[Source]

The ESG Integrated Disclosure Project template is intended to provide a standard
format for ESG-related disclosures and to offer companies a baseline from which
to develop their ESG reporting capacity. The project is led by the Alternative
Credit Council–the private credit affiliate of the Alternative Investment
Management Association–the Loan Syndications and Trading Association and the
United Nations-supported Principles for Responsible Investment.

“By simplifying and harmonizing existing market practices, this new industry-led
initiative will reduce the burden on borrowers while improving the materiality
and comparability of ESG disclosure for investors,” Jiří Król, global head of
the Alternative Credit Council, said in a statement.

The group behind the template says it was designed to be completed by borrower
companies and shared with their lenders. Companies can access
the template themselves or share it with their lenders or the arranger in a
syndicated loan. The group also said the executive committee spearheading the
project will review the template and make any necessary updates on an annual
basis.

The Alternative Credit Council represents 250 asset management firms that manage
over $600 billion of private credit assets. The LSTA is a not-for-profit trade
association that includes commercial banks, investment banks, broker-dealers,
hedge funds, mutual funds, insurance companies, fund managers and other
institutional lenders.

The template’s launch comes as business, associations and financial regulators
increasingly seek out ways to standardize ESG and climate-related disclosure
data. Earlier this year, the Securities and Exchange Commission said ESG-related
issues would be a major focus of the regulator this year. In particular, it
wants to know if investment advisers and registered funds are accurately
disclosing ESG investing approaches and if they have controls in place to
prevent securities laws violations regarding the disclosures.

The SEC also proposed in March rule changes that would require publicly traded
companies to disclose climate-related risks that are “reasonably likely to have
a material impact” on their businesses, earnings results, or financial
condition. The climate-related risk information would also include disclosure of
greenhouse gas emissions, as well as certain climate-related financial metrics
in an audited financial statement.

Tagged: Alternative Assets, ESG, Private Funds


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OK, GOT IT
Home > News > Compliance > S&P Global Settles Mortgage-backed Security Case with
SEC
Compliance November 22, 2022


S&P GLOBAL SETTLES MORTGAGE-BACKED SECURITY CASE WITH SEC

Ratings agency agrees to $2.5 million fine over charges its sales and marketing
team influenced analytics.

By Michael Katz
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S&P Global Ratings has agreed to pay $2.5 million to settle Securities and
Exchange Commission charges that it violated conflict-of-interest rules by
allowing its sales and marketing team to influencing its credit ratings.

According to the SEC’s cease-and-desist order, the ratings agency was hired by
an issuer to rate a jumbo residential mortgage-backed security transaction in
July 2017. The SEC said S&P provided preliminary feedback to the issuer
indicating that certain tranches issued as part of the transaction met the
firm’s minimum credit enhancement floor required to assign them “AAA” ratings.
However, one month later, S&P’s analytical team told the issuer they had made a
miscalculation and the tranches were actually 10 basis points below the minimum
credit enhancement floor needed for “AAA” ratings.

But “after further analysis and discussion,” the same S&P analytical team drew a
different conclusion just a few days later and told the issuer the transaction
actually did meet the minimum requirements. According to the order, the issuer
was disappointed and frustrated with S&P and threatened to sue the agency
because it had revised its ratings feedback during a key marketing period for
the offering. The issuer allegedly told S&P commercial employees, who were
responsible for managing the relationship with the issuer, that if the firm
could not rate the super senior and senior support classes “AAA” and “AA,”
respectively, that it would drop S&P from the transaction and permanently end
its relationship with S&P’s RMBS team.

At that time, S&P had not rated a prime “jumbo” RMBS transaction in more than
two years, according to the order, nor had it rated any transaction for this
particular issuer in nearly three years. S&P employees viewed the engagement as
“a very positive development” for the company and its RMBS rating business, said
the order.

The SEC alleges that S&P commercial employees attempted to pressure the
analytical team to rate the transaction consistent with the preliminary
feedback, despite the fact that it “turned out to include a calculation error.”
S&P commercial employees allegedly tried to persuade S&P’s analytical team to
“find a way to rate the transaction consistent with the preliminary indications
that S&P had provided to the issuer.”

The SEC said that, despite sending the communications through the compliance
department as required by company policy, some emails sent by the S&P commercial
employees to the analytical team contained statements reflecting sales and
marketing considerations.

 “As a result of the content, urgent nature, high volume and compressed timing
of the communications, the S&P commercial employees became participants in the
rating process during a time when they were influenced by sales and marketing
considerations,” the order says.

According to the SEC, after S&P discovered the circumstances regarding the
rating of the RMBS transaction, it self-reported the conduct to the regulator
and cooperated with its investigation. The SEC said the firm also took remedial
steps to improve its conflict-of-interest policies and procedures.

“Credit rating agencies play a systemically important role in the structured
products markets,” Osman Nawaz, chief of the SEC’s Complex Financial Instruments
Unit, said in a statement. “The federal securities laws require them to insulate
their analytical functions from the influence of business considerations.”

Without admitting or denying the SEC’s findings, S&P agreed to the entry of a
cease-and-desist order and a censure, in addition to the $2.5 million penalty.

S&P said in a statement that it “takes compliance with regulatory obligations
very seriously and is committed to the integrity of its ratings process and
high-quality independent credit ratings.” 

Tagged: Credit Ratings, S&P Global Ratings, SEC

« Self-Directed Investors Confidence Down Due to Challenging Market


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