Aston University Expert Urges Rethink on Credit Rating Models to Address Climate Risk

A new study by Dr Daniel Cash from Aston Law School, in collaboration with Hazel Ilango of the Institute for Energy Economics and Financial Analysis, has revealed critical insights which emphasise the need for credit rating committees to integrate climate risks more effectively in their assessments.

This research, Going Beyond Methodology: The Credit Rating Committee’s Vital but Overlooked Role in Climate Risk Integration, spotlights the significant role these committees play in the financial world.

It underscores the pivotal position of rating committees as the final arbiters in credit rating, highlighting their responsibility in assimilating climate risks into creditworthiness evaluations.

The study also highlights the need for the formation of expert panels on climate risk within these committees to refine credit analysis and encourage meaningful interactions between credit analysts and issuers.

Dr Daniel Cash, a reader in law at Aston Law School, said:

“In the evolving landscape of finance, it’s imperative that we recognize and address the substantial impact of climate risks on credit ratings.

“This study not only highlights the critical role of rating committees in this process but also underscores the urgent need for enhanced expertise and transparency in integrating environmental considerations into financial assessments.

“We are calling for increased disclosure around committee deliberations to understand better how climate risk impacts financial risk and issuer ratings.

“Our findings point towards the necessity for a systemic shift in credit rating methodologies to include climate risks comprehensively.

At Aston University, we are committed to leading this shift towards a more responsible and forward-thinking financial sector.”