The invasion of Ukraine by Russia has given new impetus to discussions about ESG investment strategies with regard to companies involved in the production of weapons. In this comment, we provide an overview of recent trends in regulations and policies on controversial weapons.

Focus on net zero and rising momentum on biodiversity will drive risk management practices and investment flows across the region

Global sustainable bond issuance moderated in the first quarter of 2022 as global market headwinds intensified, and we now expect full-year issuance will be flat compared with last year at around $1 trillion. Despite the near-term challenges, however, the long-term growth potential for sustainable bonds remains strong.

Efforts to meet national net-zero commitments will increase carbon transition risk for the most exposed issuers in emerging markets. Adjusting to a low-carbon economy will require balancing economic and social considerations with decarbonization efforts. As carbon transition accelerates in emerging markets, sectors with limited decarbonization options will face the most risk.

The UK’s plan to phase out carbon emissions will create additional investment needs across industries, as the government's funding commitments currently represent only a fraction of the overall financial commitment required to achieve its decarbonization objectives.

The critical role that common definitions can play in facilitating social investment has become increasingly apparent. A future EU Social Taxonomy based on the final recommendations by the Platform on Sustainable Finance (PSF) has the potential to further promote investment flows into social financing and strengthen market appreciation of the linkages between social and environmental factors.

Amid weakening demand growth prospects and diminishing access to capital because of the sector’s heavy carbon footprint, several miners are reducing their earnings reliance on this sector by entering new businesses. Diversification will raise miners’ capital spending and entail execution risk. However, failure to diversify could significantly weaken credit quality over the next 5-10 years.

Deforestation and forest degradation are two of the major contributors to biodiversity loss and climate change. Corporate action and accountability on this topic is coming under growing scrutiny. Using Moody's ESG Solutions Assessment data we examine preparedness of companies to tackle deforestation in light a recent EU legislative proposal targeting specific commodities.

Russia's invasion of Ukraine will likely slow Europe’s near-term efforts to cut carbon emissions as many countries prioritise energy security and affordability over decarbonisation. Because of pressing economic imperatives, the only viable alternatives to Russian hydrocarbon imports are other hydrocarbons. Renewables cannot replace Russian natural gas imports, a large portion of which are used for heating and industrial purposes.

India's high growth potential, significant economic development needs and large agricultural sector pose hurdles to achieving net-zero greenhouse gas emissions by 2070 and intermediate goals through 2030. Planned renewable energy investment will depend on low-cost, long-term private capital, as support from external donors is unlikely to be sufficient.

Despite stronger commitments, chemical companies in the US have yet to align their targets for cutting greenhouse gas (GHG) emissions with the Paris Agreement. Credit implications from carbon transition risk will become increasingly visible.

The third and final IPCC Sixth Assessment Report takes stock of the current trajectory of temperature rise based on global climate policies. It examines various possible futures and what it will take to keep global temperature rise to 1.5°C by 2100. We unpack the report's implications for companies and financial stakeholders, including the risk of stranded assets as well as the substantial investment opportunities.