“The time has come when rating agencies from emerging economies have to take the lead”

“People should know, the country should know how they’re going to be assessed. It has to be a fair assessment and it has to be transparent,” Mr. Mehul Pandya stated to BIZWEEK in respect of Sovereign Ratings. As the Managing Director and CEO of the Indian credit rating agency CARE Ratings Ltd, he travelled to Mauritius this week for the second ESG Summit. This event was co-hosted by CARE Edge Ratings and the Mauritius Institute of Directors (MIoD). Mr. Mehul Pandya addressed our questions in a post-event Q&A session.

Why was it relevant for CARE Edge Ratings to be a partner in this second ESG summit in Mauritius?

We are a responsible rating agency. We are not only present over here, but we have a global presence. We feature amongst the top ten rating agencies globally, and that puts the extra responsibility on us to be in sync with what the global priorities are in the field of climate change, climate financing, sustainability, and so on. From that perspective, we felt that it is imperative for us to participate in this summit and also to drive home the point as to why ESG assessments and ESG ratings are important, over and above developing the framework and the regulations surrounding them. I mentioned in my remarks that we are announcing a sovereign rating methodology today (Editor’s Note: last Tuesday), and in that perspective, sustainability is an important primary driver as far as the economic structure assessment is concerned. It is very imperative for a global rating agency like us to take this initiative, participate and share our viewpoints.

What have been the key features of the present ESG Summit?

I mentioned the five principles. First and foremost is the recognition of the challenge, about which there is no debate. The second principle is in terms of developing the commitment and the regulations for this. We have moved some step ahead on this. The third aspect is having the right frameworks institutionalized in the country. There is some movement, but we would like to see more on this. The fourth aspect is how to generate the funds for this entire initiative. Sustainability-linked funds would mean that the concrete steps that need to be taken so that the objectives of the financing by global investors who are interested in this, including multilateral institutions like the World Bank, are met in totality, and that they are not just like statements of policies, which are on paper. There should be concrete actions. The final principle is that the more the disclosures, the more the standards of the assessment should be there and the rating should also be there. The moment something is assessed, rated and is there in the public domain, it puts an extra accountability on the assessed party, the corporate, to remain true to what they stated. This sums up the importance and relevance of assessment.

There is a debate on the Loss and Damage Fund. We have traditionally had rating agencies from the western world, and we now have new players like CARE Edge Ratings, from India. What are your views on this debate?

I believe that the time has come when rating agencies from emerging economies have to take the lead in this regard. You just can’t allow rating agencies as the domain of only one country. With all due respect to those rating agencies, we do believe that there are parameters in the assessment angles which a rating agency from an emerging economy, like us, can bring to the table. I’m not saying that certain countries should be given a higher rating or a lower rating. At the end of the day, it has to be a fair assessment and it has to be transparent. You can’t have a black box approach. So, what are the parameters that go into the assessment? People should know, the country should know how they are going to be assessed. We have tried to reduce the subjectivity in our assessment. It is more quantitative driven so that it gets captured and understood by the relevant counterparties that, if you are to improve from this rating to that rating, in that case, these are the steps that you need to take. We are transparent about it. So it’s a need of the hour and we are happy that we have taken this mantle on ourselves and that we have taken a confident step forward.

CARE Edge Ratings is very well known here since the last couple of years, and you are gradually moving into Africa. How is Mauritius instrumental in your African project?

Mauritius is central to our African project. We are going to have a hub and spoke model where Mauritius remains at the centre of all that we do in Africa. Though we are establishing a subsidiary in South Africa, and we already have a license in Kenya, at the end of the day, we would like Mauritius to remain as the hub of the entire African operation. To the extent possible, we shall try to do the assessments from Mauritius. We have a big team, a big setup over here, and that’s how we would like to proceed for the future. When we decided Mauritius would be the first step in Africa, that was with a very clear-cut vision that this shall remain as the centre of CARE Edge operations across Africa.

CARE Edge Ratings will be having a separate ESG rating firm to comply with the regulations in India. Will it also be applicable in the region and in Mauritius? Will CARE Edge have a separate entity for ESG ratings for Mauritius and the region?

Yes, that’s also our vision for growing the operations in the ESG space over here. Today, the regulations over here do not require a demarcation of a separate entity. But we feel that with the growing focus on ESG, many of the assignments are different from credit ratings and these require a more insightful concept. So from that perspective, it’s a matter of time before we float an entity over here which would be solely and totally focused on the ESG concepts.

What is the way forward for CARE Edge Ratings?

Greater commitment to Mauritius, greater commitment to Africa.