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Environmental, social and governance (ESG) issues increasingly influence credit quality assessments and investment decisions, Moody's Investors Service said in a note Monday.
In the report summarising key ESG trends and considerations impacting individual sectors and regions, a part of its recently published 2020 Outlooks, Moody’s said stricter climate policies will raise transition risk for the most exposed carbon-intensive sectors, including utilities, oil and gas, auto manufacturing, airlines, building materials and shipping.
"One major trend is that climate change and the transition to a low-carbon economy are growing in relevance for global credit markets," said Ram Sri-Saravanapavaan, ESG Analyst at Moody's.
"Investors are seeking more disclosure from companies about how they are addressing these risks as the financial implications are becoming clearer."
Public interest in preserving natural assets, such as land, water and living things, will increase significantly over the coming years, the ratings agency said in its 2020 Outlooks.
From a credit perspective, matters such as water scarcity, biodiversity, land use, deforestation and food insecurity will put a spotlight on issuers' management of resources.
Other trends include risks and opportunities created by aging populations and socially driven regulation.
Aging is already a big concern in advanced European economies and Japan, and will become a rising credit issue in emerging markets.
Consumer activism and heightened focus on responsible production throughout the supply chain will exacerbate the risks of certain products and services, and encourage regulation of new categories such as e-cigarettes, it said.
(Writing by Brinda Darasha; Editing by Seban Scaria)
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