Our quantitative analysis shows social unrest can have credit effects on companies through financial market volatility, economic performance, and government fiscal and institutional strength.

Stabilizing macroeconomic conditions in Asia-Pacific countries, coupled with a policy and regulatory focus on green and transition finance, will bolster ESG-labeled bond volumes in 2023. We expect annual sustainable bond issuance in the region to total about $230 billion, rebounding from $205 billion in 2022, but still below the peak of $260 billion in 2021.

Last month, the Net Zero Insurance Alliance issued broad guidance for members on interim greenhouse gas emissions targets, recommending emissions reductions of 34% to 60% from 2019 levels by 2030. The guidance, set out in the alliance’s first target-setting protocol, is credit positive for (re)insurers because it will help them manage their underwriting exposure to carbon transition risk.

Mounting pressure on packaging companies to increase their use of post-consumer recycled content (PCR) in the US has the potential to weigh on sector margins because PCR is more expensive than virgin resin. While a jump in PCR demand would benefit solid waste management companies, their recycling investments have been modest to date and are unlikely to accelerate without a stronger push from regulators.

As global issuance of green, social, sustainability and sustainability-linked bonds swings back to growth this year, macroeconomic and market uncertainties and greater scrutiny over perceived greenwashing will temper the pace of recovery.

The US Federal Reserve’s pilot climate scenario analysis is credit positive for participating US banks because it will help identify potential risks and promote the integration of climate risk into their enterprise risk management practices. The Fed exercise is focused on the change in probability of default, loss given default and, where applicable, internal risk ratings, rather than aggregated loss estimates, as are typically the outcome of stress-testing exercises.