The Strategist

Moody's: Climate risks affect creditworthiness

09/27/2018 - 12:55

The rating agency Moody's estimated environmental risks for 84 sectors of the economy, which account for $ 74.6 trillion of rated debt (10% more than in 2015) as part of the "global risk heat map". 11 sectors with total debt of $ 2.2 trillion were included in the group exposed to high credit risks, two of which - coal mining and coal terminals, as well as utilities with unregulated tariffs and energy companies - are experiencing considerable credit pressure now.

Policies to reduce emissions require them to revise their business models and reduce margins in developed countries. The remaining 9 sectors - automotive, construction materials and chemical products, mining, oil and gas exploration and production and processing, steel production, and logistics and land and sea transport - will feel the impact of environmental risks on their creditworthiness in the horizon of three to five years, the agency’s experts believe.

Measures to reduce emissions and tighten the environmental regulation of countries within the framework of the Paris Agreement obligations create high and very high risks for 16 sectors with a total debt of $ 3.7 trillion.

The risks of physical climate change can affect operating activities and investments of securities issuers, or cause supply chain and market volatility disturbances, Moody's notes. 13 industries have high and very high risks associated with air pollution, including major pollutants prone to severe regulation. Another 14 sectors, including central and local governments in developing countries, were classified as highly risky due to vulnerability to natural and man-made disasters, and 4 sectors have high risks associated with water shortage.

For 22 sectors with a debt of $ 10.1 trillion, environmental risks are estimated as moderate: either they are less likely to threaten their creditworthiness, or issuers have more time to adapt their business models to a low-carbon economy (this included, in particular, the sovereign debt of developing countries). The remaining 51 sectors, which accounts for $ 62.3 trillion in debt, are not prone to environmental risks, Moody's believes.