“Ready or not? Sector performance in a zero-carbon world” by Moody’s
Moody’s released a new report on Monday 8th November, for the UN climate conference in Glasgow (COP26). It analyzes the consequences of the transition to a climate-resilient and zero-carbon economy, compared with a scenario in which companies don’t take actions on climate change. The report shows that a complete transition through an economy with zero-carbon emissions could result in a 25% cumulative gain in gross domestic product (GDP) for the global economy and create investment opportunities for $45 trillion for investors able to take advantage of it.
Moreover, from the data presented, it is clear that carbon transition will become an essential key factor in corporate competitiveness. In fact, comparisons among sectors and businesses have been made and many differences have been found in the race to zero emissions, affecting future performance expectations. In particular, the report underlines that the “sectors least prepared for rapid transition have the widest range of potential default risk outcomes for individual companies”. In this scenario, financial system has a significant role to play in climate change by supporting sustainable and resilient investments in sectors that align with a lower-carbon future.
Turning to the details, the report gives information about the transition of the main carbon-intensive sectors, such as utilities, automotive, airlines, construction, shipping, and oil and gas. These sectors account for 85% of global emissions and represent an important key in pushing global efforts to decarbonize economy. Many of these sectors have made significant improvements, showing to the world that rapid changes in carbon-intensive industries are possible. In particular, the best performers are automotive and utilities sectors, with 18 out of the top 19 global automakers rated in strong or advanced positions for rapid transition. Oil and gas companies are the worst-rated with 4 out of 5 oil companies in poor or moderate position in this process.
In addition, Moody’s ESG Solutions analyzes decarbonization plans stated by the biggest 2700 companies in the world and modeled the implied global temperature increase on the assumption that these companies follow those plans. It is interesting that, about 45% have set emissions targets, and approximately 15% have Net Zero targets. Taking this information into account, the expected temperature increase is 2.6 °C. Although it is clear that there is great commitment of companies towards climate change, many of those are focused on short-term rather than the 2030 goals and only 13 % of companies analyzed have set targets in line with Moody’s model.
Lastly, signs of progress can be seen on climate risk disclosure. Moody’s found an average disclosure rate of 22% across all sectors on the 11 recommendations of the Task Force on Climate-Relative Financial Disclosures (TCFD) in 2021, a marked improvement from 16% in the previous year.
In conclusion, there is significant room for additional improvements in companies’ road for zero emission, but considerable progress has been reached. Therefore, if companies keep following this trend, an important gain in global GDP and interesting investment opportunities could be reached.
Sources:
https://www.moodys.com/sites/products/ProductAttachments/Moodys_ReadyOrNot.pdf
Author: Marianna Cacace
“Ready or not? Sector performance in a zero-carbon world” by Moody’s
Moody’s released a new report on Monday 8th November, for the UN climate conference in Glasgow (COP26). It analyzes the consequences of the transition to a climate-resilient and zero-carbon economy, compared with a scenario in which companies don’t take actions on climate change. The report shows that a complete transition through an economy with zero-carbon emissions could result in a 25% cumulative gain in gross domestic product (GDP) for the global economy and create investment opportunities for $45 trillion for investors able to take advantage of it.
Moreover, from the data presented, it is clear that carbon transition will become an essential key factor in corporate competitiveness. In fact, comparisons among sectors and businesses have been made and many differences have been found in the race to zero emissions, affecting future performance expectations. In particular, the report underlines that the “sectors least prepared for rapid transition have the widest range of potential default risk outcomes for individual companies”. In this scenario, financial system has a significant role to play in climate change by supporting sustainable and resilient investments in sectors that align with a lower-carbon future.
Turning to the details, the report gives information about the transition of the main carbon-intensive sectors, such as utilities, automotive, airlines, construction, shipping, and oil and gas. These sectors account for 85% of global emissions and represent an important key in pushing global efforts to decarbonize economy. Many of these sectors have made significant improvements, showing to the world that rapid changes in carbon-intensive industries are possible. In particular, the best performers are automotive and utilities sectors, with 18 out of the top 19 global automakers rated in strong or advanced positions for rapid transition. Oil and gas companies are the worst-rated with 4 out of 5 oil companies in poor or moderate position in this process.
In addition, Moody’s ESG Solutions analyzes decarbonization plans stated by the biggest 2700 companies in the world and modeled the implied global temperature increase on the assumption that these companies follow those plans. It is interesting that, about 45% have set emissions targets, and approximately 15% have Net Zero targets. Taking this information into account, the expected temperature increase is 2.6 °C. Although it is clear that there is great commitment of companies towards climate change, many of those are focused on short-term rather than the 2030 goals and only 13 % of companies analyzed have set targets in line with Moody’s model.
Lastly, signs of progress can be seen on climate risk disclosure. Moody’s found an average disclosure rate of 22% across all sectors on the 11 recommendations of the Task Force on Climate-Relative Financial Disclosures (TCFD) in 2021, a marked improvement from 16% in the previous year.
In conclusion, there is significant room for additional improvements in companies’ road for zero emission, but considerable progress has been reached. Therefore, if companies keep following this trend, an important gain in global GDP and interesting investment opportunities could be reached.
Sources:
https://www.moodys.com/sites/products/ProductAttachments/Moodys_ReadyOrNot.pdf
Author: Marianna Cacace
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