Moody’s says green tech, ESG and sustainability requirements will shape credit outlook in 2024

While the US and China agreed to resume cooperation on climate-related issues in November, progress will largely depend on the evolution of the two countries’ broader diplomatic relationship, according to the report.

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“Businesses and financial institutions will navigate a complex ESG policy landscape, with mandatory climate and sustainability disclosures coming into effect in several jurisdictions,” the report said.

Policy support is driving green investment in China, reshaping investment strategies and carbon-transition risks for companies in the most exposed sectors, according to Moody’s.

In May 2022, the State-owned Assets Supervision and Administration Commission of the State Council issued a working plan and expected all listed central government-owned enterprises to have adopted its voluntary ESG disclosure guidelines, including climate-related metrics, by the end of 2023.

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However, in China, companies in carbon-intensive sectors tend to lag behind global peers in setting detailed decarbonisation targets, according to Moody’s.

Moody’s analysis of 485 listed non-financial companies from mainland China and Hong Kong shows that as of May 2023 only about 4 per cent had set decarbonisation targets with information that can be associated with a specific temperature pathway, compared with about 29.5 per cent in Europe and 19.9 per cent in advanced economies in the rest of Asia-Pacific.

Electricity utilities were better placed for a rapid shift to a low-carbon economy, while the oil-and-gas sector is most weakly positioned, given rising policy and market risks, Moody’s said.

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Moody’s analysis of the nearly 12,000 entities that it has assigned ESG scores to shows that such attributes have a “pronounced negative impact” on credit ratings for 3 per cent of issuers and a “discernible negative impact” for 15 per cent of entities, according to the report.

Meanwhile, Swiss bank UBS remains cautiously optimistic about the energy transition as an investment theme in the medium to long term, according to Ken Liu, its head of China and Hong Kong utilities research.

“The overarching trend of energy transition in the medium and long term has not changed,” said Liu, speaking at the UBS Greater China Conference on Tuesday.

“We maintain a relatively cautious and optimistic attitude towards new energy, wind and solar energy [investments].”