Moody’s sets new course to rigorously assess carbon transition net-zero plans as a business imperative
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Key Findings
Moody’s has developed a resource to gauge company progress on carbon transition plans.
The tool provides a description of a company’s plan, as well as an analysis of its credibility, likelihood of success and governance commitments.
The tool provides a description of a company’s plan, as well as an analysis of its credibility, likelihood of success and governance commitments.
The paradigm shift by Moody’s and other credit agencies raises questioning of corporate carbon transition plans to an institutional level.
Introduction
People who are interested in the progress that companies are making on the carbon transition have a new resource for objective information: The credit raters.
After being stung by the long-term impact of failing to warn about the mortgage meltdown, credit rating agencies (at least, Moody’s Investors Service and Fitch Ratings) have responded by creating a lens for investors to review corporate carbon transition plans. This commentary examines the new Net-Zero Assessment (NZA) tool developed by Moody’s as a prime and leading example of this initiative.
Many efforts have been launched to provide enhanced information to investors and the public related to the carbon transition. Most voluntary efforts have created resources that move the needle forward, but there is a steady drumbeat of concern that the models, data and paradigms that have been produced are quite limited. For example, the Teachers Insurance and Annuity Association (TIAA), which has $1.3 trillion in assets under management, discloses it cannot create a reasonable carbon footprint analysis for 70% of its portfolio due to limitations in the current state of carbon accounting. Also, the political structure can hinder governmental regulatory oversight from setting even modest climate disclosure requirements—a particularly controversial issue in the United States.
The new Moody’s diagnostic tool exceeds even the most stringent disclosure standards. The credit agency emphasizes performance, subjects company claims to independent assessment and publishes a report with a credibility ranking.
The tool arrives at a time when the public has seen most major companies make large emission reduction commitments. It is time to see if those commitments can become promises kept.
