Right before COP 28 is ready to kick-off, Moody’s Investors Service delves into 90 sectors accounting for USD 82 trillion in debt in our rated universe, exploring the potential credit impacts from five major environmental pressures.

While the UN event will focus this year, as always, on the impact of the climate change and negotiate and chart a course towards a more sustainable, climate-resilient future, the main findings of the Moody’s Investors Service special report’s main findings are:
 

• While coal mining was the only sector that faced very high overall environmental credit risk in 2020, today, there are five more – chemicals, mining (excluding coal), and three oil and gas sectors.
• 14 sectors holding USD 6.1 trillion in rated debt have high inherent physical climate exposure, including risks such as rising sea levels, wildfires, water stress, extreme heat, increased frequency and severity of hurricanes, etc.
• USD 4.9 trillion in rated debt held by 16 sectors has high or very high inherent carbon transition risk exposure. For example, 19 of 23 global automakers Moody’s rates are facing high or very high exposure as tighter emissions standards necessitate substantial investments in carbon-reducing technologies.
• Rated debt held by 14 sectors with high or very high inherent exposure to waste and pollution risk totals USD 4.4 trillion. Industries such as chemicals, exploring/drilling for oil, mining for minerals/metals, and packaging manufacturing are confronting growing demands to reduce the volume of pollutants and waste their operations generate.
• Water management looms large for companies and governments, with risk exposure high or very high for 9 sectors holding USD 1.8 trillion in rated debt. For most Middle East and North African (MENA) countries, freshwater withdrawals significantly exceed renewable supply – and water is scarce even if alternative and nonrenewable water resources are included.
• USD 1.6 trillion in rated debt is held by 8 sectors with high or very high inherent exposure to natural capital risk, such as Brazil’s agricultural industries, which are seeing increased scrutiny of ties to deforestation, leading to higher operational, compliance, and monitoring costs.

Total Moody’s rated debt held by sectors with high or very high environmental credit risk now exceeds USD 4 trillion, more than double the USD 2 trillion held in 2015 when the Paris Agreement climate change accord was signed, according to Moody’s latest analysis. That means a range of global sectors will see their ability to pay their debts exposed to potentially greater risk from rising sea levels, hurricanes, carbon emissions, pollution, threats to biodiversity, and other environmental pressures.

A debt issuer’s credit quality can be influenced by a range of environmental factors, such as pollution, natural and human-caused disasters, or climate change. Another way is through regulatory or policy initiatives that seek to mitigate or prevent these effects.

Coal mining, which is exposed to many of these factors, was the only sector that faced very high environmental credit risk in 2020. Today, there are six: coal mining, chemicals, mining (excluding coal), and three oil & gas sectors.

Rising exposure to environmental risks can also affect consumers. People in areas prone to severe hurricanes may face higher electricity bills as the cost of storm-related damage is passed on. Poor water management in countries contending with extreme heat can curtail access to clean drinking water.

On the flip side, car buyers have a much wider selection of electric vehicles to choose from compared with a few years ago, as automakers invested heavily to meet stricter emissions regulations.

Rated debt that faces heightened exposure has doubled: in 2015, nine sectors facing high or very high environmental credit risk accounted for USD 2 trillion in rated debt. Today, there are 16 sectors facing those levels of environmental credit risk with more than USD 4 trillion in rated debt — roughly the value of Germany’s gross domestic product, the world’s fourth largest GDP.

Find more details on Moody’s website.