Moody’s: Global ESG trends amplified by green stimulus, climate policy and disclosure initiatives.

The impact of environmental, social, and governance (ESG) issues in financial markets will accelerate in 2021 as the effect of government stimulus, decarbonisation policies and greater disclosure requirements overlap in 2021, according to Moody's Investors Service. 

"The growing landscape of measures to align investment with sustainability goals will hit home in 2021, with increasing disclosure requirements improving the ability to differentiate on sustainability issues," says James Leaton, Senior Vice President at Moody's Investors Service. "The events of 2020 will have lasting credit impacts, with green stimulus a priority in advanced economies post-COVID, consumers paying more attention to sustainability issues, and international alignment on climate policy restored."

Major economies will try to integrate their recovery plans and job creation initiatives addressing rising inequality with longer-term efforts to reduce carbon emissions, and develop green infrastructure.

The alignment of the major economic blocs on decarbonisation will further sharpen the credit implications of the energy transition. Energy and emissions targets in the European Union (EU), US, and China will converge again, with the EU recently upping its 2030 greenhouse gas emissions reduction targets to 55% from 40%. The Biden plan indicates a 2025 target to be put to Congress this year as the first step to a net-zero 2050 target and the decarbonisation of the US power sector by 2035, while China also increased its emission reduction goals under the Paris Agreement at the end of 2020.

Greater transparency around the materiality of ESG issues will increasingly affect access to capital and asset values in high-risk sectors. A growing landscape of sustainability standards and disclosure requirements, that exposes financial flows to greater scrutiny and oversight, is expected to start having more influence on investment decisions at all levels, from banks to asset managers to consumers.

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4 May 2021

Climate Action