By Natali Ganfer, senior vice president of sustainability at Moody’s
Natali Ganfer, Moody’s
Climate change is the defining challenge of our time, and few issues are poised to multiply risk – or opportunity – more dramatically in capital markets over the next decade. As experts warn of the widespread consequences of climate change, there is growing momentum across the financial sector and the wider economy to adjust business models and implement plans for the transition to a low-carbon economy.
Our research shows that the pace of transition needs to accelerate in order to limit global temperature increase to 1.5°C above pre-industrial levels by 2050. Moody’s analyzed the decarbonization plans of thousands of firms and modeled their impact on global temperature paths, estimating that stated emission-reduction plans could result in a global temperature increase of as much as 3°C by 2100 – well above the targets of the Paris Agreement.
At these levels of temperature increase, the implications for physical risk impacts are stark. Based on our research, we anticipate today’s level of flood risk in Europe would double in that 2100 scenario. Companies across all sectors will need to adapt for changing physical risk impacts at the same time as they strive for net-zero. The interplay between these efforts will be critical to enabling appropriate adaptation to a changing climate with different mitigation strategies.
Yet our research has also shown that the economic benefit from the transition to a climate-resilient, zero-carbon economy could amount to nearly a 25 percent cumulative gain in GDP over the next two decades alone, compared with a scenario in which the world fails to act. This creates a considerable investment opportunity for those positioned to take advantage of it.
Seizing the day At Moody’s, we are committed to achieving net-zero by 2040 – 10 years earlier than the Paris Agreement goals. We also continue to make considerable strides in enhancing our climate product offerings to provide customers with a better understanding of how climate issues will shape future performance in capital markets. Our offerings further help market participants advance their strategic resilience and transition to greener, more sustainable practices.
In 2021, Moody’s launched Climate Solutions, a product suite dedicated to climate risk identification, quantification, monitoring and integration into financial decision-making. Climate Solutions helps banks, insurers and investors better assess climate risks and how they can comply with the emerging regulatory requirements for stress testing and disclosures.
As market participants are seeking greater insight and transparency on how climate may affect investment decisions, we also continue to expand our analysis of the complex and interrelated macroeconomic and financial impacts of climate change in many other areas, including credit analysis and sustainable finance.
For example, Moody’s Investors Service’s environmental heat maps identified 15 sectors totaling $4.2 tn of debt that have high or very high exposure to environmental risks. And Moody’s is responding to the strong potential for growth in the sustainable bond segment by expanding and enhancing its Second Party Opinion service, providing assessments of issuers’ sustainability credentials.
Moody’s is determined to tackle the growing climate crisis. We are committed to our climate leadership and the role we can play in empowering organizations to make better, more sustainable decisions. Read more about Moody’s progress on transitioning to a net-zero economy in our 2021 TCFD Report and discover Moody’s comprehensive suite of ESG and climate solutions.
Moody’s Corporation is a global integrated risk assessment firm that empowers organizations to make better decisions. The company’s data, analytical solutions and insights help decision-makers identify opportunities and manage the risks of doing business with others. Moody’s believes that greater transparency, more informed decisions and fair access to information open the door to shared progress.
