New Delhi: Welcome readers, as the world continues to grapple with the impacts of the ongoing pandemic and geopolitical conflicts, the focus on Environmental, Social, and Governance (ESG) considerations has become more important than ever. In this context, the 2023 ESG Outlook from Moody’s Investors Service provides valuable insights into the key ESG trends that are likely to shape credit quality in the coming year.
The report highlights a number of key risks, including increased scrutiny of corporate decarbonization plans, elevated social risks, heightened refinancing risks, and an increasingly complex ESG regulatory landscape that could have significant implications for businesses and investors alike.
We invite you to read on for a more in-depth understanding of these trends and their potential impact on the corporate world.
According to the 2023 ESG Outlook from Moody’s Investors Service, the macroeconomic, financial and geopolitical fallout of the pandemic and Russia-Ukraine conflict will continue to exacerbate ESG credit risks. In the report, Moody’s has identified four ESG trends that will shape credit quality in 2023:
- Increased scrutiny of corporate decarbonization plans amid heightened execution risks for green investments which will heighten policy and market risks for companies highly exposed to carbon transition risks.
- Elevated social risks for a range of public and private sector entities due to high cost of living concerns.
- Heightened refinancing risks for lower-rated issuers for which governance attributes tend to weaken resilience to external shocks.
- An increasingly complex ESG regulatory landscape that is raising reputational and financial risks for financial companies in particular.
Additionally, the report notes that a greater understanding of the financial costs of physical climate risks and adaptation will increase investor focus on the most exposed entities, raising credit risks. Other trends to watch out for include circular economy solutions rising in prominence and natural capital and biodiversity issues attracting more regulatory attention, heightening credit risks for certain sectors.
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