Environmental risks are becoming significant to a growing crop of corporate issuers, Moody’s Investors Service says in a new report.
The rating agency said the prospect of a shift to a low-carbon economy represents a very high, or high, environmental risk to 13 sectors, representing a combined US$3.4 trillion in rated debt.
The amount of debt held by sectors facing high risk is up 49% from 2018, and up 64% from 2015, Moody’s said.
For instance, the rating agency said the integrated oil and gas sector and the auto parts supply sector have moved from the moderate risk category to high risk since 2018.
The report is based on a review of 89 global sectors, with a total US$79 trillion of rated debt.
Additionally, Moody’s said sectors representing US$8.7 trillion in debt have exposure to both transition and physical climate risks.
“Our analysis shows that $8.7 trillion, or 11% of Moody’s total rated debt globally, is inherently exposed to heightened climate risk,” said Ram Sri-Saravanapavaan, assistant vice-president and analyst at Moody’s.
“This highlights the likelihood that the impact of climate risk on issuers’ credit profiles will continue to grow as the transition to a low-carbon economy accelerates and the adverse effects of physical climate change become more evident,” he said.
In terms of individual environmental risk categories, Moody’s said 18 sectors with US$7.2 trillion in debt are facing physical climate risk, 16 sectors with US$4.5 trillion in debt have carbon transition risk, and waste and pollution risk affects 18 sectors with US$5.2 trillion in debt.