According to a new report by Moody's Investors Service, ESG (environmental, social and governance) risks are expected to have a significant impact on corporate and sovereign credit quality in 2023. The report, 2023 ESG Outlook, identified several key ESG-related trends that will impact credit, such as greater scrutiny of corporate decarbonization plans, elevated social risks driven by high cost of living concerns, greater refinancing risk for lower-rated issuers with governance challenges, and an increasingly complex ESG regulatory and political landscape. The report estimates that 16 sectors with nearly $5 trillion of debt have high or very high inherent exposure to carbon transition risk. On top of the risks to credit quality, the report also identifies several "ESG trends to watch" that have the potential to impact credit in the future, such as enhanced understanding of the financial costs of physical climate risks, circular economy practices and natural capital and biodiversity issues.
Access the report here