Impact of carbon policies is rising globally, Moody's says

Implications of carbon reduction policies are rising globally, creating credit risks for carbon intensive industries but, at the same time, driving significant innovation and change across many sectors, according to Moody’s.

In addition, policy and regulatory risks were creating uncertainty that is in turn hindering investment decisions and investor flows. “While the impact of this uncertainty on most industries is harder to quantify, it is likely to become more significant as global carbon reduction policies tighten further,” the report added.

Uncertainty could also raise questions about the future profitability of a business model, impacting both corporate decisions on future capital expenditure and investor decisions regarding investment allocations to certain corporates or industries.

Brian Cahill, the Managing Director for Moody's Fundamental Group in Asia Pacific said: “An increase in 'direct carbon liabilities', such as carbon permits and/or carbon taxes, as well as the emergence of disruptive technologies, such as solar power, are already having a tangible impact on rated companies in select carbon-intensive industries."

"But such policy action is also driving innovation and change across many industrial sectors; for example, technological innovation is very advanced in power generation where renewable energy, especially in parts of Europe, is established," added Raffaella Altamura, Vice President and Senior Analyst based in Moody's Corporate Finance Group in Europe.

Additionally, Moody’s said many companies in sectors that are high carbon emitters have significant operating and financial flexibility that would mitigate the impact of policies for reducing carbon emissions.