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Environmental, Social, and Governance Evaluation

Apr. 10 2019 — S&P Global Ratings' environmental, social, and governance (ESG) Evaluation is a cross-sector, relative analysis of an entity’s capacity to operate successfully in the future and is grounded in how ESG factors could affect stakeholders, potentially leading to a material direct or indirect financial impact on the entity. ESG factors typically incorporate the entity's impact on the natural and social environment and the quality of its governance. Our definition of stakeholders for a particular entity goes beyond shareholders to include employees, the local community, government, regulators, customers, lenders, borrowers, policyholders, voters, members, and suppliers, among others.

First, we establish an ESG Profile for a given entity, which assesses the exposure of an entity’s operations to observable ESG risks and opportunities, accounting for the governance structure in mitigating risks and capitalizing on opportunities. The ESG Profile analysis starts with a global assessment of ESG-related exposure by sector and location, which we call the ESG Risk Atlas. We have both a sector and regional atlas.

Second, we assess the entity’s long-term Preparedness, namely its capacity to anticipate and adapt to a variety of long-term plausible disruptions. These disruptions are not limited to environmental and social scenarios, but could also include technological or regulatory changes where relevant, among other factors. This is because, in our opinion, high-quality corporate governance includes the full spectrum of current and potential risks and opportunities an entity faces beyond typical financial planning horizons.

The ESG Evaluation is not a credit rating, a measure of credit risk, or a component of our credit rating methodology. However, the information we gather for an ESG Evaluation can inform our credit analysis of rated entities.

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