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Research Announcement:

Moody's - Financial firms that take rapid, predictable pace to zero financed emissions will win the race

12 October 2021


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.

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

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at [email protected] or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Alka Anbarasu
Senior Vice President
Financial Institutions Group
Moody's Investors Service Singapore Pte. Ltd.
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Sean Marion
MD-Financial Institutions
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

Releasing Office :
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore, 048623
Singapore
JOURNALISTS : 852 3758 1350
Client Service : 852 3551 3077

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