Despite the overall momentum for more rapid decarbonisation of the global economy, high-interest rates and slowing global growth could dampen green investment in 2024 and impede the execution of capital-intensive projects

 According to a recent analysis by Moody’s Investor Service, environmental, social, and governance (ESG) factors are expected to have an increasing impact on how debt issuers are rated and evaluated. The major ESG credit topics that will be actively watched throughout the year are outlined in the study, which was written by Moody’s analysts under the direction of Vice President and Senior Credit Officer Rebecca Karnovitz. The purpose of this examination is to predict potential short- to medium-term credit risk manifestations of these topics.

The paper states that advances in green technology and disruptive innovation will increasingly influence investment and business decisions in industries most sensitive to the carbon transition. However, economists stress that despite the present push for more rapid decarbonisation in the global economy, issues such as rising interest rates and declining global growth might likely limit green investments in 2024, hurting the implementation of capital-intensive projects.

The Moody’s research highlights the challenging environment that companies and financial institutions are operating in when it comes to ESG regulations, particularly in light of the fact that many countries are moving towards making climate and sustainability disclosures legally required. In contrast to the oil and gas industry, which is more vulnerable to market and policy risks, the power utilities sector is better positioned to quickly shift to a low-carbon economy, according to the report.

Even if the US and China recently decided to resume working together on climate-related problems, Moody’s analysts warn that any success depends on how their diplomatic ties develop. Additionally, the study examines data from around 12,000 organisations that have been given an ESG score; the results show that 15 per cent of entities and 3 per cent of issuers have a “discernible negative impact” and “pronounced negative impact” on their credit ratings, respectively. Moody’s concludes by highlighting the many obstacles that financial institutions and enterprises will face as they negotiate this changing ESG landscape.