Climate Disclosures Help Identify Risk, Raise Regulatory Scrutiny

With the U.S. Securities Exchange Commission finalizing its climate-related risk disclosure rule earlier this month...

A new report by Moody’s Ratings examines how increased global transparency and standardization will improve the ability to analyze climate risks and opportunities, while some entities will face heightened risks from greater regulatory and market scrutiny. 

Key findings include:

1. Growing disclosures will raise reputational – and potentially financial – risks for companies in high-risk , sectors perceived as taking too little action to address exposure, or seen as overstating green credentials. Also, in many jurisdictions, disclosures for small unlisted companies will remain a blind spot. 

2. Moody’s Ratings analysis identifies 16 sectors with $4.9 trillion in rated debt as highly exposed to carbon transition risk, and 14 sectors with $6.1 trillion highly exposed to physical climate risks. 

3. While most large rated banks disclose how they assess the vulnerability of their assets to climate risks, only a few disclose in detail how climate change might affect their financial performance. 

4. As disclosures evolve beyond carbon emissions, emerging risks that are coming under greater regulatory scrutiny – such as natural capital risks– are expected to be gradually integrated into disclosure standards.