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.
ESG issues will come into sharp relief this year as corporate debt issuers grapple with growing scrutiny over their decarbonization plans, social risks intensify and the rules of the road for ESG investments evolve – all in an environment of heightened macroeconomic, financial and geopolitical risks.
Climate change, which is driving more frequent and increasingly severe natural catastrophes, is a growing threat to reinsurers because they accumulate losses from primary companies.
Access and affordability risks will remain elevated, corporate decarbonization pledges will face greater scrutiny, companies will face a complex regulatory landscape and the credit cycle will test issuers' governance capabilities.
How can users distinguish what makes a good climate risk model versus an inadequate one? Let’s take the case study of Hurricane Ian in 2022 to examine how well a climate risk model can reflect the reality and complexity of climate and weather events both now and in the future.
Our summary of the latest regulatory state of play across key jurisdictions for 2022, 2023, and beyond.
Lasting income and savings losses in Asia-Pacific economies with large informal sectors could constrain private consumption. Post-pandemic labor mismatches risk weakening growth potential and public pressure to address worsening income inequality could heighten political risks or spur additional government spending.