Climate change and the transition to a low-carbon economy are growing in relevance for global credit markets, Moody’s Investors Service says in a report which was released yesterday, that summarises key ESG trends and considerations impacting individual sectors and regions, from its recently published 2020 Outlooks.
Mr Ram Sri-Saravanapavaan, ESG analyst at Moody’s, said, “Investors are seeking more disclosure from companies about how they are addressing these risks as the financial implications are becoming clearer.”
Stricter climate policies will raise transition risk for the most exposed carbon-intensive sectors, including utilities, oil and gas, auto manufacturing, airlines, building materials and shipping.
Rising concerns of future asset write-downs and reduced cash flow may raise companies’ cost of capital or reduce access to funding, impairing their ability to raise, service or refinance debt.
Public interest in preserving natural assets, such as land, water and living things, will increase significantly over the coming years, according to Moody’s 2020 Outlooks. From a credit perspective, matters such as water scarcity, biodiversity, land use, deforestation and food insecurity will put a spotlight on issuers’ management of resources.
Other trends include risks and opportunities created by ageing populations and socially driven regulation. Ageing is already a big concern in advanced European economies and Japan, and will become a rising credit issue in emerging markets. Consumer activism and heightened focus on responsible production throughout the supply chain will exacerbate the risks of certain products and services, and encourage regulation of new categories such as e-cigarettes.