Moody's Corporation (MCO) Earnings Call Transcript & Summary

Okay. Welcome, Arlene, and thank you for joining us at the Reuters event, Responsible Business Europe. I hope you're well?

I am well as well as can be expected in these turbulent times, Liam. Thank you for having me. And we are excited about our sponsorship and the event, the responsible business summit.

Yes. Well, again, thank you for your guys support on this event. Very much appreciated. And yes, we've got now 15 minutes ahead of us to learn some -- about some of the great work that you guys are doing, yourself and your team at Moody's. So I'm going to dive straight in for the sake of time. So just like the ESG finance space, Moody's has evolved quite a lot over the past few years through both investments and innovation. So can you spend a few minutes talking to that journey and where you are now? And maybe some key accomplishments along the way?

Certainly. So what I would say is that our journey in regards to a comprehensive CSR and ESG approach, has been relatively recent. So in 2017, actually based on some trends in the importance of corporate citizenship that we were observing in Europe we decided to reengineer our corporate social responsibility approach to be more research based, aligned with our global footprint and intersected with our business. And in that construct, we identified 3 pillars. And again, with research behind it. And the 3 pillars were we would strive to empower small business with financial knowledge because we know that small businesses are significant contributors to GDP and job growth, and they struggle with accessing credit, which is where we have a significant amount of expertise. The other pillar that we decided to focus on was activating an environmentally sustainable future. It was an important movement across the world and continues to be even during the crisis that we've observed in 2020. And while we don't have a significant physical footprint, we don't own a lot of physical assets. We knew that given the expertise and the resources that we had, we could make a significant contribution to the evolving sustainable finance market. And then the third pillar was on helping young people reach their potential, particularly as it relates to supporting organizations that encourage young people to explore careers in finance, economics and technology, really building up the pipeline of talent that we and other financial services firms need for the future. At the same time, this was happening in regards to our sort of enterprise-wide focus. There was increasing investor and corporate appetite to better assess the ESG risk of their portfolios, their customers and their supply chain. And there was a nascent, but growing sustainable finance market. The availability of ESG assessments were vast, but was highly fragmented and not standardized nor transparent. And so there was a call for established rating agencies to bring more discipline to the market. And so we began to incorporate ESG factors in our credit ratings but there was also increasing demand for assessing noncredit related ESG risk. And so in 2018 and 2019, we acquired adjacent businesses such as RDC and REIS to really supplement the enterprise risk management business that we had. And in 2019, we invested in ownership interest in Vigeo Elris, Four Twenty Seven and SynTao to increase our capacity to serve the marketplace, specifically in ESG.

It's quite a lot of change and quite a lot of both innovation internally, but also investment. So I imagine, yes, imagine it's been quite an exciting few years for you guys. So I know now -- I understand that you have a dedicated ESG solutions team. So what are their responsibilities? And how are they contributing to the evolution of ESG assessments and sustainable finance?

Great question. So I talked about all of the activity, the acquisitions. And so in 2020, we knew we had to stand up a team that was going to be responsible for the coordination and collaboration of all those resources across the organization. So we stood up what is referred to as an ESG solutions team. It is led by Andrea Blackman, who is doing a phenomenal job regarding sort of not only understanding all of the capacity we have across the enterprise. But also positioning Moody's in a place where we're really meeting customer needs. And so the most important aspect of this was to enhance our customer experience by providing some clarity on the resources we have available that can really support their ESG needs. We have a collaborative approach across the enterprise in how we decide on participating in thought leadership initiatives with strategic partners, such as yourselves and other sort of industry leaders in this space. And we believe that we're helping to really advance the discussion on ESG in the global markets. And a rapidly evolving sustainable finance market.

That's great. That's great. And with all this great expertise at your fingertips, it's great to hear how you're, obviously, helping the market, helping key stakeholders and customers with their expertise. But obviously, with all this at your fingertips. There's an opportunity here for you guys to reshape Moody's itself as a business. So is that happening? Are you and your colleagues, and Andrea, you mentioned there, are you all being called upon to be involved and help shape future business strategies?

I will tell you, Liam, one of the most exciting aspects of my work is that for Moody's, this is really not just an exercise in amplifying our brand. But it is important for us that we authentically live our values while incredibly and authentically providing a high level of expertise and service to our stakeholders more broadly. And so to ensure alignment on the position of our enterprise with our views in the marketplace, we have councils and working groups that are comprised of all functional areas and commercial operations, which convene systematically and on a regular basis to decide on actions that we should take operationally or to reconcile our house views with our commercial views because we believe that the essence of Moody's brand is the credibility that we offer to the marketplace. And we can promote that credibility and authenticity by ensuring that there is alignment between who we are as a company and what we offer to the marketplace. So we've got some specific examples around our recent efforts to enhance our environmental management initiatives, where this sort of collaborative approach and the utilization of the resources that we have were instrumental in regards to how we deployed our own sort of strategic framework around environmental management.

Sorry, I was literally about to kind of come in, let's talk -- ask for an example because we hear this, and you were going to probably hear this a couple of times -- a few times over the course of the next 3 days is, companies are both walking the walk and talking the talk. So -- but the truth is what is found in example. Where the company -- where you can talk to the change and stuff. So all examples where yourselves and Moody's has aligned on its enterprise-wide ESG profile and its product offerings because that would really be where you are kind of getting that north star alignment. So are there anything you can talk to there?

Absolutely. And we continue to sort of evolve and offer best-in-class services in the context of ESG. But I will tell you that one of the things that I am proudest of, and I think a really concrete example of how we've been able to sort of align our citizenship with our product offerings was actually in response to the recent unprecedented events, including the global pandemic, the resulting economic downturn, particularly for small businesses and the highlighted racial inequities and social injustices. So as with many other firms, we made some significant financial contributions. It's a very worthwhile global causes to address the health and humanitarian crisis in the communities where we do business. We also, though, increased our commitment to our social investment partners by providing nonrestrictive funding and offering pro bono services to help them pivot to virtual programming and expand their potential funders. However, I am particularly proud of the contributions we made to provide much-needed support and insights to the wide swath of our stakeholders. And that included providing free access to research and webinars around the economic and credit impact of COVID, the economic downturn, the impact of racial injustices on the economic future of not only the United States, but of the world and other insights that we believe have been really important in providing a perspective to not only investors, but a broader swath of our stakeholders. The other thing that I would point out is we were able to harness our data analytics power, particularly for policymakers and others who were seeking to formulate fiscal responses to the crisis. And so we lent some expertise as it relates to the data that we had, how to analyze it based on what they were trying to accomplish, of which they were extremely appreciative of. And then finally, we also had an opportunity to really modify our product offerings which was a real demonstration of innovation in the company. We had existing technology platforms that we were able to modify in very, very short order to enable lending platforms for small businesses where there was fiscal stimulus in the U.S. and in the U.K. in particular. We also created actually a product, and we did it in less than a week, but we were able to create a product that helped hospitals across the world to really assess the risk of their supply chain, particularly given the issues related to PPE and being able to source that in a very rapid fire but safe manner. And with that, while we're proud of the financial contributions that we made, the value of the services and products that we offered were tenfold of our financial contributions. And so from our perspective, that was an opportunity to really show our stakeholders that what we do as a company is integral to the communities that we operate in and our corporate citizenship as it relates to really helping to drive a more sustainable and environmentally friendly world.

Arlene, that's great to hear. And it's encouraging, and it's great to hear how companies are stepping up like yours has. And you talked about that rapid innovation, and we've seen that across a multitude of industries, but the innovation that's actually trying to solve the social and environmental issues we see ahead of us. It's great to see in a such a troubling year for many -- for businesses and persons. So that, the fact that it's still there, the innovation is there, the desire there. It fills me of hope that as we go into next year, entities like yourself will keep driving that ambition. And all I can say is thank you for that. Thank you to you and the team. I'm sure many who are watching right now are really, really excited by some of the stuff you're doing, and look forward to hearing about the new innovations and new investments that will no doubt keep you busy over the months ahead. But thank you. And unfortunately, that's all we have time for. But I want to say thank you. Thank you for joining me. Thank you for sharing your thoughts. And again, thank you to you and your colleagues for supporting this event. Again, that support is much appreciated. So Arlene, thank you for joining us.

Thank you, Liam. Thank you for the opportunity. I think as corporations think about long-term value, increasingly, we will all be seeking ways to contribute to a better world. So thank you for the opportunity, and we look forward to being innovative and serving our customers in an authentic and credible way.