Climate and ESG risks hurting 60% of developing countries' ratings: Moody's

By Marc Jones

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Roughly 60% of developing countries' sovereign credit ratings are now negatively affected by environmental, social or governance (ESG) factors, Moody's said in a report on Monday. Referring to 144 countries it rates globally, Moody's said risks range from climate change and the global push away from polluting fossil fuels to aging populations, social unrest and the actions and credibility of the governments in charge.

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Moody's ESG grades feed into its broader Credit Impact Scores (CIS) which help determine its sovereign credit ratings. These are a gauge of a country's financial health and strongly influence its borrowing costs on international money markets.

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For climate and environmental issues, Moody's focuses on five categories; carbon transition, physical climate, water management, waste and pollution, and natural capital. It calculates that 43% of emerging economies have either 'Highly Negative' or 'Very Highly Negative' exposure to physical climate risk. Regionally it is concentrated in 18 African and Middle East countries and 14 in Asia Pacific.

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A total of 23 of the 104 developing countries that Moody's rates have 'very highly negative' exposure to governance factors, its analysis showed.