Moody’s Investor Services, Research Announcement, 12 October 2021:
Moody's - Financial firms that take rapid, predictable pace to zero financed emissions will win the race
Singapore, October 12, 2021 --
Financial firms are under rising regulatory and commercial pressure to support the global sustainability drive
Those that take a rapid, well-communicated and measurable pace to net zero financed emissions will be able to preserve their credit quality
As the race to net zero emissions accelerates, banks, insurers and asset managers will need to ramp up climate risk assessments and set clear goals for reaching net zero in their financed emissions, says Moody's Investors Service in a new report. A delayed and disorderly carbon transition would pose the greatest risk to financial firms, while a rapid, well-communicated and measurable transition would keep risks lower.
"Financial firms will lend to and invest in green businesses and new technologies as the transformation to a low-carbon economy creates vast financing opportunities. At the same time, they will help fund the capital needs of corporate clients in carbon-intensive sectors who are aligning their business strategies with low-carbon business models," says Alka Anbarasu, a Moody's Senior Vice President.
Across the G-20, financial firms hold $22 trillion in loans and investments subject to carbon transition risk. Green lending and investments will bring major commercial opportunities to financial firms, but the credit impact of carbon transition will begin to hit home in the second half of this decade when scrutiny of their interim climate goals is likely to intensify.
"A scenario in which concerted action to achieve carbon transition is delayed beyond the end of this decade by uncoordinated government and regulatory policies poses the greatest threat of losses for the financial industry. It risks triggering sudden, large-scale and drastic action in later years by governments, firms, and regulators to limit climate change, hurting the quality of loans and invested assets," says Sean Marion, a Moody's Managing Director. [my yellow highlighting]
Financial firms adopting a rapid but predictable shift towards climate-friendly finance will best preserve their credit quality. In this scenario, financial firms integrate climate risk considerations into their strategic decisions, business processes, governance structures and risk management frameworks, while setting out clear goals for reaching net zero in their financed emissions.
Subscribers can access the report "Financial institutions - Decarbonizing finance: Financial firms need to rise to the challenge of supporting carbon transition" at: http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1298854
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