Moody’s: Improving ESG Transparency will Increasingly Affect Access to Capital
Moody’s Investor Services announced the release of its 2021 ESG Outlook report today. In the new report, Moody’s outlines its expectations for ESG issues to continue increasing in importance in 2021 in the actions of policymakers, regulators, investors and corporate decisionmakers. As ESG trends continue to gain in prominence, their impact on credit quality will also be amplified, according to Moody’s.
Included in the key highlights of the report is the expectation for the recovery from the COVID-19 pandemic to increase focus on environmental and social challenges, as major economies attempt to integrate economic recovery and job creation initiatives with longer-term efforts to reduce carbon emissions.
Moody’s also notes the emergence of sustainability standards and reporting requirements and the effect these have on improving transparency around material ESG issues. As transparency increases, the report predicts this will enable increased scrutiny and oversight on the part of investors and financiers, ultimately impacting access to capital and asset values, particularly in high-risk sectors.
On the corporate governance front, the Moody’s report expects an increased focus on board diversity initiatives, and for these efforts to extend beyond gender diversity, addressing racial inequality and underrepresented minorities. The report notes the recent emergence of diversity-focused proposals and legislation to foster greater board diversity, including Nasdaq’s proposal to add board diversity disclosure criteria to its listing requirements, and a recent law passed in California requiring boards of publicly traded companies based in the state to have at least one director from underrepresented communities by the end of 2021.
One other key trend anticipated by the report is the convergence of energy and emissions targets in the US, EU and China, following the recent introduction of 2030 emissions goals the EU and China, and the Biden administration’s plans for a 2025 target to be put to Congress this year as a first step to a net-zero 2050 goal. Moody’s notes the significant impact these new targets can have on companies across a variety of industries and geographies, including automotive manufacturers, energy producers, and other heavy-polluting sectors.
James Leaton, Senior Vice President at Moody’s Investors Service, said:
“The growing landscape of measures to align investment with sustainability goals will hit home in 2021, with increasing disclosure requirements improving the ability to differentiate on sustainability issues. The events of 2020 will have lasting credit impacts, with green stimulus a priority in advanced economies post-COVID, consumers paying more attention to sustainability issues, and international alignment on climate policy restored.”