According to Moody's Investors Service, green technology, climate financing, and sustainability disclosure requirements will shape the outlook for credit ratings in 2024
Environmental, social, and governance (ESG) concerns will increasingly determine the sentiments of debt issuers and the strength of their ratings progressively over time, according to a report published by Moody Investor Service.
The report identifies the key ESG credit themes Moody's will monitor this year and explains how they may crystallise into credit risks over the short to medium term.
Moody's analysts, led by Vice President and Senior Credit Officer Rebecca Karnovitz, have stated in their report that investment and business decisions in sectors most exposed to the carbon transition will increasingly be driven by green technology and disruptive innovation. However, they also highlighted that lacklustre economic conditions and geopolitical strains may hinder achieving net-zero ambitions.
Despite the overall momentum for more rapid decarbonisation of the global economy, high interest rates and slowing global growth could dampen green investment in 2024 and impede the execution of capital-intensive projects.
Though the US and China have agreed to resume cooperation on climate-related issues, progress will depend largely on how diplomatic relations between them progress.
"Businesses and financial institutions will face a complex ESG policy scenario, with several jurisdictions implementing mandatory climate and sustainability disclosures,” according to a report.
Moody's noted that electricity utilities were better placed to transit quickly to a low-carbon economy. At the same time, the oil and gas sector was most weakly positioned, given rising policy and market risks. The report analysed nearly 12,000 entities with assigned ESG scores and shows that such attributes have a "pronounced negative impact" on credit ratings for 3 percent of issuers and a "discernible negative impact" for 15 percent of entities.