Moody's developing new rating system to assess companies' "carbon risks"

"Issuers assigned the highest scores, CT-1 and CT-2, exhibit advanced positioning for carbon transition. These companies typically have a business model that benefits from the transition to a low-carbon economy. By contrast, companies assigned the lowest scores, CT-9 and CT-10, exhibit poor positioning and typically have business models that are fundamentally threatened by carbon transition over any time horizon, including the long term."

Why it matters: Carbon transition risk is already built into Moody's existing credit ratings, but it's not a large part of those ratings, largely because it's far from clear that a major carbon transition is actually going to happen. Now that Moody's is separating out this risk into a discrete CTA score, investors will be able to get a much clearer idea of which companies are successfully positioning themselves for a green future.