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Moody’s 2023 ESG and Sustainable Finance Outlook | Cadwalader, Wickersham & Taft LLP

Moody’s revealed its 2023 Outlook – Macroeconomic challenges to exacerbate ESG credit score dangers on January 9, 2023, laying out numerous macroeconomic challenges it expects on account of climate-related and different points. Amongst different issues, Moody’s expects 4 developments from 2022 to proceed having an influence on credit score threat: (1) macroeconomic, monetary, and geopolitical penalties from the pandemic and Russia-Ukraine battle; (2) persistent challenges related to entry to and the affordability of fundamental companies; (3) continued scrutiny of company decarbonization pledges; and (4) difficulties arising from a fancy regulatory panorama for corporations and issuers’ governance capabilities throughout the credit score cycle. It additionally expects that corporations with excessive publicity to local weather transition threat will set and endeavor to satisfy formidable emissions reductions targets with extra transparency and credibility. Nevertheless, Moody’s additionally concludes that the transition plans of non-financial corporations most uncovered to carbon transition dangers are least more likely to disclose formidable and detailed plans, growing the challenges these corporations confront in gentle of anticipated regulatory and market scrutiny. As well as, the consistently shifting ESG regulatory framework and ranging views on disclosures and investing practices might additional complicate compliance, particularly for monetary establishments. Lastly, because the publicity to and understanding of bodily local weather dangers improves, so will investor deal with corporations that face higher publicity—which can be intensified by growing regulation of high-risk corporations.

Taking the Temperature: Moody’s predictions underscore the longevity of ESG-focused investing and likewise emphasize the credit score dangers that high-exposure corporations and sectors will face sooner or later as they transition to a low-carbon financial system. The inconsistent regulatory panorama and, within the U.S., politicized nature of local weather change, complicate how corporations method governance and disclosure concerning sustainability and different ESG points. Moody’s Outlook succinctly summarizes what we now have been observing and count on to proceed in 2023.

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