The landmark climate change deal being signed today has credit implications for numerous sectors, primarily power and coal companies, reports Moody’s Investors Service.
In a new report, the rating agency says that the Paris Agreement, which is expected to be signed by at least 160 countries today, “will advance the adoption of carbon and other greenhouse gas emission regulations, with increasing credit implications for many sectors globally.”
Moody’s says that it has identified 14 sectors where the credit implications of carbon regulations are material, and/or exposures are “very high” to “high.” The sectors with very high credit exposure to carbon regulations are unregulated power generation, coal mining and coal terminals, it says. Other sectors with high credit exposures include independent oil and gas exploration and production, auto companies and steel. For these sectors, increased carbon regulation will likely constitute a material credit risk over time, Moody’s says.
“Significant uncertainty still exists over the magnitude and pace of carbon emission policies, which, in turn, makes more detailed assessment of the credit implications of the Paris Agreement difficult,” said Henry Shilling, senior vice president at Moody’s. “Nevertheless, the broad trend is clear and broadly negative for those sectors with the highest exposure to carbon emissions regulation that we have identified.”
More specific policies, and improved corporate disclosure, will help improve the assessment of the credit implications of the climate deal, Moody’s notes. And, it says that the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures “could serve as a meaningful starting point for integrating more methodically climate change into our analysis of creditworthiness.”