The Paris Agreement to reduce greenhouse gas emissions has potentially significant implications for certain sectors, but a good deal of uncertainty remains, according to report published on Monday by Moody’s Investors Service.
The Moody’s report follows the conclusion of the latest global talks on climate change, the UN Framework Convention on Climate Change 2015 Conference of the Parties (COP21) in Paris, which aims to limit global warming to “well below [two degrees Celsius (2C)] above pre-industrial levels” and “pursue efforts” to limit the temperature increase to 1.5C by reducing greenhouse gas emissions. Governments will revisit their emissions reduction targets every five years, the Moody’s report notes.
“The Paris Agreement will likely lead to an increased uptake of carbon reduction policies worldwide and, as such, the credit implications for a number of sectors will grow absent substantial counter-balancing initiatives by entities within these sectors,” says Brian Cahill, managing director at Moody’s.
However, there is uncertainty in the deal which makes a detailed assessment of the credit impact difficult, “although the trend is clear and broadly negative for those sectors with the highest exposure to carbon emissions regulation that we have identified,” says Cahill.
“Specifically, we believe that greater clarity on country-specific measures and improved disclosure around the implications of such measures by individual entities will allow market participants to more effectively assess the credit implications for a sector and differentiate between entities in those sectors,” says Henry Shilling, senior vice president at Moody’s.
“Ideally, an entity’s specific disclosure would be done in a globally consistent manner and in a way that is independently verified,” adds Shilling.