Key Areas of Activity
Material topics:
- Provision of qualitative information about the issuance of independent ratings, assessments and opinions
- Assistance in market infrastructure development to facilitate the increase in individual and institutional investors
- Assistance to small, medium-sized and large organisations in gaining access to funds
- Promotion of the responsible finance and ESG rating market development
- Raising of public financial literacy
- Improvement of the awareness of sustainable development
- Participation in specialised working groups, councils and regulatory initiatives
Qualitative Information about Rating Assignment
GRI 3-3, 203-2
The Agency’s main activity is the assignment of credit and non-credit ratings, and the provision of independent assessments and opinions regarding financial instruments and documents.
Being under the direct regulation of the Bank of Russia, Expert RA fully complies with the requirements of the Federal Law on Credit Rating Agencies No. 222-FZ dated 13 July 2015 to make a fair rating decision.
A rating committee is entrusted with decision-making on any rating action. The rating committee is a collegiate body composed of industry-relevant and expert analysts. In keeping with the rules against conflicts of interest, none of the rating committee analysts has any interest in the business of a rated entities under review.
The Agency realises that the key resource and driver of the rating assignment activities and other rating services are its employees, who must have appropriate competencies and expertise. For this reason, Expert RA makes every effort to encourage its analytical staff and assist them in improving their qualifications and experience, and enhancing the industry profile of the rating analysis.
When making a rating decision, Expert RA’s employees follow, completely and utterly, the Agency’s topical methodology, whatever is relevant to the rated entity. Currently, the Agency has more than 40 methodologies to enable a complete and detailed analysis of a rated entity of any business or sector. The Agency’s Methodology Department reviews existing methodologies and keeps them updated on a regular basis. In 2023, 65 meetings of the Methodology Department working groups were held to review 43 methodologies.
The Agency is implementing automation and digital transformation projects to speed-up calculations and accelerate the rating analysis. Such projects optimise the work of analysts, giving them more time to conduct high-quality analysis and draw more balanced opinions, and decrease the human factor risk involved in the calculation of different metrics.
The Agency tries to respond promptly to different events happening in the country and changes in the state of a particular industry or particular rated entity that may affect its credit and non-credit ratings. To this end, the Agency conducts regular, ongoing and extended monitoring reviews on a systematic basis. The Agency interacts with rated entities to update data on their financial and non-financial condition.
Regular monitoring: part of the rating maintenance process, i.e., a system of a constant monitoring of economic phenomena and trends, the rated entity, the financial environment, and the society. Such a surveillance involves the control of the state of the rate and the assessment of some factors, which, depending on their strength, may influence decisions on whether a rating and/or a rating outlook should be affirmed or revised. The frequency of regular monitoring reviews depends on a rating type and is, as a rule, at least once a quarter or once every six months.
Ongoing monitoring: monitoring, on a daily basis, of any information about the rated entity in the media and the Internet, and analysis of any incoming information from other sources or from the rated entity itself. Ongoing monitoring also enables tracking of the effects of any significant macroeconomic changes on rated entities’ credit quality, and keeping an eye on a rated entity’s possible reorganisation (transformation, merger, spin-off, division, or accession).
Extended monitoring: company review by the rating committee based on the results of an ongoing / regular monitoring.
At the end of the rating process, the Agency publishes a press release on its corporate website as a notification of a completed rating action. The press releases inform the audience of all factors and assessments, including stress factors and support factors, that had a material impact on the rating level. In 2023, Expert RA updated its pattern and structure of press release writing to made press releases easier to read and understand the rating rationale. This change has been positively received by rated entities.
Assistance in Market Infrastructure Development
GRI: 3-3, 203-2
Expert RA has been one of the key figures of the financial market infrastructure for more than 27 years. We came first to assign ratings (to insurers), and thereby contributed to the development of systems, tools and procedures needed by the market to function effectively. To us, the main objective of infrastructure development is to increase the attractiveness, accessibility, speed and expansion of financial resource management tools, while ensuring the proper protection of data and stakeholder interests.
Our experts conduct research and participate in various working groups and councils, allowing the stakeholders to receive more information and opportunities for an effective development of the market infrastructure.
In 2023, Expert RA won the “Cbonds Awards” in the Best Financial Market Analysis Category.
Also, the Agency contributes to the development of financing practices among not only large, but also small and midium-sized enterprises (SMEs). Better developed mechanisms and increased access to financing for SMEs work to the advantage of the economy as a whole (through the development of a healthy competition, creation of new jobs, and incentivation of innovations and new technologies).
An assigned rating increases investor confidence, incentivises rated entities to issue and service their financial instruments, and reveals potential growth areas. All this helps companies to raise funds, enhance their investment appeal in the eyes of all types of investors, and increase their capitalisation.
Infrastructure development also helps increase the number of investors, particularly those from the institutional and individual investor groups. Our work helps increase information transparency, and consequently facilitate informed investment decisions.
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Expert RA employees regularly participate in more than 20 key working groups and councils covering all sectors of the financial market, e.g.:
- Council for the Financial Market Development with the Federation Council of the Federal Assembly of the Russian Federation
- Russian Ministry of Finance Working Group for the Strategy Development for the Russian Financial Market until 2030
- Bank of Russia’s Expert Council for Long-Term Investments
- Bank of Russia’s Expert Council for Issues Related to the Credit Rating Agencies
- Bank of Russia’s Advisory Group for Climate-Related Risks
- Expert Council for the Protection of Competition in the Financial Services Market with the Russian Federal Anti-Monopoly Service
- Moscow Exchange Listing Council
- St. Petersburg Exchange Russian and Foreign Securities Listing Council
- and others
In 2023, Expert RA signed cooperation agreements with a number of entities representing Russian and foreign financial market infrastructure, e.g.:
China Chengxin Green Finance Technology (Beijing);
In 2024, an agreement of cooperation in the area of Islamic finance was signed with Sakhikh Invest LLC.
Responsible Finance and ESG Rating Development
GRI: 3-3, 203-2
Expert RA follows the best practices in conducting its independent assessments and making its opinions, it complies with national statutory requirements, and explores new areas of analysis, beyond financial and reliability risks, with a view to assisting companies in improving the transparency and objectivity of all lines of their operational activity.
The Agency consistently studies international sustainability practice experience for the purpose of stabilising businesses of whatever kind and safeguarding their stakeholders. Internationally, there is an institutionalised practice of independent acknowledgement, verification and assessment of sustainability efforts and performance. In view of the importance of such processes for any type of business and jurisdiction, Expert RA has embarked on promoting the sustainability, responsible finance and ESG assessment agenda in Russia.
In our opinion, the e
III Annual Conference «The Future of the Sustainable Finance Market»
In 2023, our staff took part in the activities of five working groups, expert councils and committees focused on the improvement of regulation and the development / promotion of the ESG finance and rating markets, management of non-financial risks and the disclosure of non-financial information.
In a nutshell, Expert RA sets the following objectives for the establishment and development of a system-based responsible finance and ESG ratings market:
- Disseminate information among corporates and individuals, explaining what ESG, sustainable development, ESG finance, ESG ratings are.
- Inform and educate market players about the current ESG agenda in the country, including the industry specifics, through review and analytical materials and surveys, and join different expert communities and groups.
- Enhance the ESG finance and rating development through lobbying for government support instruments.
- Establish and encourage the demand of individual and institutional investors for ESG investing.
Verification
The Agency realises the importance of developing the ESG finance market and letting it function on an ongoing basis to ensure a systematic funding of sustainable development projects for companies and regions. The implementation of such activities and projects will not only reduce violations of the environmental and labour laws, but will also improve the overall performance in those areas.
Expert RA seeks not only to stimulate the issuance of classic ESG-related financial instruments, but also to take part in new and complex financial instrument verification cases to with a view to setting relevant precedents in Russia’s young ESG finance market.
The decrease in the number of verifications is due to the new geopolitical risks, turbulence and general uncertainty in the financial market.
Pilot verifications
Expert RA pioneered the assignment of ESG ratings to Russian real sector corporates, banks, regions and cities.
Under Expert RA’s ESG Rating Methodology a ESG rating denotes the extent of a rated entity’s commitment to integrating sustainability considerations (related to the environment, the social sphere, and the corporate government) into its key decisions.
Much like the credit rating, the ESG rating is an important element of the comprehensive assessment of a rated entity. This comprehensive assessment helps investors make informed investment decisions. Also, the ESG rating is an efficient tool for selecting counterparties and employees, and is useful for shareholder control of an entity or interacting with government authorities.
Expert RA believes and is making efforts to get ESG ratings regulated directly. This would ensure transparent, unbiased and responsible rating decision making. When assigning a ESG rating, Expert RA fully complies with all procedures set out in Federal Law on the Activities of Credit Rating Agencies, dated 13 July 2015, No. 222-FZ.
The Agency does its best to make its methodologies and press releases as transparent as possible by disclosing key assessment factors affecting its ratings and providing a graphical representation of every analysed component of the ESG rating. We pay special attention to updating the ESG Rating Methodology with account of industry specifics and the market participants’ feedback to issued requests for comment. In 2023, the Methodology was updated with consideration to the update of industry benchmarks, and the recommendations of the Bank of Russia and the national ESG Alliance. Starting 29 December 2023, Expert RA assigns ESG ratings according to its own scale and the Bank of Russia’s scale.
ESG Ratings
In doing our work, we realise not only the role of financial instruments issued to finance specific ESG projects, but also the importance of in-house adoption of ESG practices and ability to manage external impacts on the environment and society.
In our opinion, not only the financial market and the real sector participants may be engaged in implementing the ESG agenda, but the regional and local governments as well. Expert RA was the first Russian Agency to assign ESG ratings to certify entities’ performance and achievements in the ESG field.
At the end of the reporting period, Expert RA was maintaining 19 ESG ratings, which accounted for 40% of the entire Russian ESG ratings market. During the entire history of rating assignments (up to the end of 2023) entities from the banking sector accounted for the largest part of our ESG rating list.
Raising Financial Literacy and Sustainability Awareness
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Expert RA contributes to improving financial literacy of people and different investor groups.
We do our best to disseminate information about the financial market / financial products current status and development trends and about our methods for issuer financial analysis by publishing analytical studies and research papers, holding webinars, and posting news on Telegram and our corporate website.
Our efforts to improve financial literacy have the following objectives:
- Mastering the basic level and raising a more advanced level of financial knowledge and financial analysis skills, including the ability to process and understand the meaning of published press releases about assigned credit / non-credit ratings*
- Getting a wider range of stakeholders covered by this topic, taking account of their age and professional experience
- Promoting a prudent and reasonable investment of available funds
* A credit rating measures the ability of a rated entity to repay its financial obligations; a non-credit (ESG) rating denotes a rated entity’s commitment to adopting sustainability practices when making its key decisions.
Credit and ESG ratings are alike in that both deal with corporate governance, while their difference lies in that the former assess the business and financial risks and the latter assess impact strength and management quality in respect of the environment and the society.
Credit and ESG ratings complement each other and provide a complete picture of the rated entity’s financial and non-financial risks.
A more comprehensive information about the Expert RA’s credit ratings can be found in a special section on the Agency’s corporate website and in the Agency’s special flyer.
Apart from the ESG ratings, the Agency assigns other non-credit ratings, including:
- Corporate Governance Quality Rating
- Asset Manager/ Medical Insurer Reliability and Service Quality Rating
- Open-End Fund Quality Rating
In the year under review, the Agency assisted the organisation of seven “external” events aimed at promoting awareness about the development, regulation and forecasting in the banking, insurance, corporate and other markets, and held seven webinars on its own. The decrease in the number of events is due to the new geopolitical risks and uncertainty in this country.
The list of events held in 2023 can be found at
https://raexpert.ru/events/archive/2023/
In 2023, Expert RA used its Telegram channel to publish articles and posts dealing with the basics of financial analysis, and also addressing new economic reforms and people playing outstanding roles in economics, finance and sustainable development in Russia and the world. At the end of 2023, the channel had more than 22,000 viewers.
The Agency also holds in-house webinars for its employees on its new and updated methodologies related to its different services, including the ESG products and practices. In 2023, 10 webinars were held and attended by 29% of our employees.
https://raexpert.ru/researches/
The Agency publishes different analytical materials, including research, opinion pieces and columns and interviews on a wide range of topics concerning the financial market and the economy sectors.
In addition to organising events, our staff regularly take part in different working groups, meetings, committees and other activities of regulatory and infrastructure agencies, attend conferences and speak in the media. Our staff express their expert opinion at events designed to promote the development and expansion of the market for individual and responsible investment.
At the end of the period under review, the Agency employees were taking part in a number of specialised expert committees, councils, working groups, and commissions dealing with sustainable development.
In addition to promoting financial literacy, Expert RA seeks to improve its information openness and transparency, and shares its experience in financial management, corporate governance and sustainable development best practices as part of engagement with all its stakeholders.
Expert RA’s absolute priority is promoting of the ESG agenda and communicating with its customers and other stakeholders. In particular, the Agency pays special attention to exchanging best practices with its customers and counterparties, and also interacts with higher educational institutions focused on the basic and advanced training of personnel in the area of sustainable development and providing information about the status of the ESG agenda in Russia.