Brian Cahill, Moody’s: Businesses have “a real hunger for knowledge” on how to assess climate-related risks

Author:
Ilario D'Amato
13 July 2016

Brian Cahill, Managing Director, AP Corporates and Financial Institutions Moody’s

LONDON: Investors have “a real hunger for knowledge” about climate-related risks – so business, financial institutions and governments must be able to respond to the threats posed by climate change by quickly translating the Paris Agreement “into actual policy commitments,” says Brian Cahill, Managing Director, AP Corporates and Financial Institutions Moody’s, in an exclusive Climate TV interview.

Speaking at the Business & Climate Summit, brought to you by The Climate Group, the director explains how investors “are taking into account climate-related risks and their credit ratings,” and therefore, Moody’s has been “increasing the amount of research.”

In fact, just days before the historic Paris Agreement was reached last December, the credit rating business released a report detailing the credit impact of environmental issues. It was “a sort of ‘heat map’ research piece,” says Brian Cahill, “that explained how we assess the risk for 86 sectors globally, nearly US$70 trillion worth of debt. It was a ranking system that highlighted the most and the least exposed sectors from climate related-risks.”

That was just a starting point for the company, continues Brian Cahill. “We found that investors responded well to that – but we need more.” In the lead-up to the Business & Climate Summit, Moody’s published a further report that looks at the carbon transition risk and how to assess it.

“We decided we need to […] establish a baseline scenario based on the Paris Agreement commitments,” explains Brian Cahill, “and then we provided an assessment of how you look at the transmission mechanisms by which that scenario can be assessed as a risk, sector by sector.” In particular, the report provided case studies around the water utilities sector.

COP21 TURNING POINT

The Paris Agreement is at the base of this most recent report from Moody’s because COP21 “was a big step change,” says Brian Cahill. It “changed dramatically the dynamic for everybody. It created this belief momentum that the carbon transition was real, that it was going to occur, that there was going to be a pathway towards a low carbon economy.”

However, as many business leaders and forward-thinking policymakers are underlining, there is now the need “to transform that agreement into policy commitments, actual policy outcomes.” The Paris Agreement shows the pathway to the inevitable shift toward a global low carbon economy, “but there is a dramatic amount of investment that needs to go into that, which the global financial community can provide.”

To remain competitive, businesses must move towards this prosperous path, “taking advantage of and adapting to it. But they need policy certainty, and it’s important that these [COP21] policy settings are turning to actual policy outcomes.”

The business community is understanding the opportunities and the risks arising from climate change, “a very complicated subject that is changing rapidly,” concludes Brian Cahill. “Investors are asking questions, setting up their systems and their structures, and asking questions to us, companies and governments.”

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