The latest data on global greenhouse gas emissions signal growing climate-related credit risks as countries fall far short of their commitments to curb emissions, says Moody’s Ratings.
In a report, the rating agency noted that new data from the UN Environment Programme showed that global emissions set a new record in 2023, as emissions rose 1.3% from 2022 levels.
According to that data, “countries are off track to deliver on their 2030 emission reduction commitments … creating conditions for a global temperature rise of 3.1 degrees Celsius by 2100,” the Moody’s report said. This projection is far from the Paris Agreement’s target of limiting global temperature rise to 1.5°C, it noted.
“Unless countries take substantial policy action to close the gap between ambition and implementation, physical climate risks and related economic and financial losses will significantly increase,” Moody’s warned.
Companies, governments and infrastructure projects in vulnerable regions, including small island nations and urban areas, particularly in emerging markets, face rising credit risks as a result, the report suggested.
“The prevailing pace of carbon transition will not prevent significant climate impacts and associated economic costs, and a delayed transition will translate into higher negative effects from physical climate risks and growing adaptation investment needs,” it said.
To get back on track with the Paris Agreement commitments, countries would have to commit to cutting emissions by 42% for 2030, and by 57% for 2035, it noted.
The increase in global emissions in 2023 also means that the reductions needed are larger, and it said that “7.5% must be shaved off emissions every year until 2035 to reach the 1.5°C target.”
The drastic action on emissions needed to meet those goals “would significantly raise transition risks for the most exposed issuers,” Moody’s said. It considers companies with a combined US$4.9 trillion of debt as having high exposure to carbon transition risks.
“Carbon-intensive industries would face high stranded asset risk, project cancellations and the need for a massive scale-up of investments in new technologies,” it said.
Any effort to implement the needed emission cuts will also face “major challenges,” the report said, including concerns about energy security, the rising cost of living and financing constraints that will “make it more likely that these targets will be missed.”