S&P Global — 27 September 2024
Daily Update: September 27, 2024
Multiple Possible Futures for Credit Risk and Climate
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
In recognition of New York Climate Week, S&P Global Sustainable1 published a special edition of the S&P Global Sustainability Quarterly. This week, the Daily Update will review issues raised in the publication.
On April 10, 1815, Mount Tambora on the Indonesian island of Sumbawa erupted, ejecting huge amounts of dust and ash into the atmosphere. As the ash dispersed around the world, global temperatures were noticeably affected. The following year, 1816, became “the year without a summer” due to bitterly cold temperatures that led to crop failures across Europe. Any creditor that lent to a large European landowner then would surely have agreed that the changing global climate was affecting their ability to collect on debts. Today, as we anticipate further shifts in the global climate, it is important to consider how these will impact credit. In the article “How Climate Scenarios Help Identify Potential Credit Impacts,” S&P Global Ratings evaluated the impact that climate may have on credit ratings under various scenarios.
There is a great deal of uncertainty around the exact impact of climate on different industries and sectors. Because of the nature of anthropogenic climate change, choices people are making and will make can create large variabilities in outcomes. Scenario analysis is an effective way of mapping these outcomes.
Climate transition risk and physical climate risk scenarios can be applied to this analysis. The climate transition risk scenarios cover different governmental responses to climate change and include the Green Rules, Inflections and Discord scenarios covered earlier this week. The physical climate risk scenarios are focused on the quantity of emissions and the resulting rise in global temperatures. There are four scenarios for global temperatures, ranging from a 1.8 degree C rise in a low-emissions scenario to a 4.4 degree rise in a high-emissions scenario.
Physical climate risk and climate transition risk — which include public policies, investor and consumer behavior, and the technology and energy mix — are drivers of credit risk. Depending on the approach to energy transition and emissions reductions, there will be potential credit impacts for revenue, costs, capital and funding. A successful reduction in carbon emissions would need to involve changes in regulation, policy and markets, which might have credit implications for certain companies and industries.
“While often looked at in isolation, climate transition and physical risks are intrinsically linked across different scenarios,” the article’s authors wrote. “More rapid decarbonization will lead to less physical risks globally in the medium to long term. By contrast, the potential impacts of physical climate risks are set to increase as long as emissions continue, even if decarbonization is underway.”
Today is Friday, September 27, 2024, and here is today’s essential intelligence. The next edition of the Daily Update will be published Tuesday, October 1.
Electric Vs. Gas: The Future Of Clean Heat In US Buildings
A first-of-its-kind gas ban in Berkeley, California, in 2019 launched policies governing clean heating and the future of natural gas demand in buildings. Since then, cities, states, courts, utilities, industry groups and the US government have shaped these policies. The results will impact the gas industry for decades to come.
—Read the report from S&P Global Commodity Insights
Economic Research: Economic Outlook Eurozone Q4 2024: Consumer Spending To The Rescue
S&P Global Ratings expects eurozone GDP growth of 0.8% this year and 1.3% next year, largely in line with its previous forecasts of 0.7% and 1.4%, respectively. However, it now expects stronger growth for Spain and France this year, and weaker growth for Germany. Consumer spending, and from next year, investment, should become the main drivers of GDP growth as real income growth accelerates, consumer perceptions of disinflation improve, and interest rates fall.
—Read the article from S&P Global Ratings
Fed Risks Policy Missteps As Long-Run Rate Projections Edge Higher
Federal Reserve officials have started shifting monetary policy to neutral, a process rife with economic risks, and one that could end sooner than anticipated. The Fed on Sept. 18 approved a 50-basis-point cut to the benchmark federal funds rate and boosted officials' median projections for the longer-run federal funds rate to 2.9%, up from 2.5% at the end of 2023 and the highest projection in six years.
—Read the article from S&P Global Market Intelligence
Listen: How Can Chemical Distributors Adapt To Europe’s Unique Challenges?
Dorothee Arns, director general of the European Association of Chemical Distributors (FECC), sat down with S&P Global Commodity Insights' senior commodities pricing specialist Abdulaziz Ehtaiba ahead of FECC's annual congress for a discussion on the state of European distribution. Topics include how disruptive geopolitical events exacerbated the industry's weak demand and poor production margins, how distributors are focusing on improving their supply chain excellence to navigate these challenges and how distributors can adapt to Europe's increasing regulatory demands and consumer expectations for sustainable products.
—Listen and subscribe to the podcast from S&P Global Commodity Insights
BRICS To Discuss Energy Markets At Moscow Meeting, With De-Dollarization In Focus
Some of the world's biggest commodities producers and suppliers were set to discuss energy markets during a meeting of BRICS energy ministers scheduled to take place during Russian Energy Week Sept. 26. Since expanding to include OPEC members Iran and UAE at the beginning of 2024, BRICS' energy footprint has increased significantly. Saudi Arabia was also invited to join but has yet to confirm membership. The group accounts for 41% of global oil production and 35% of global oil consumption, if Saudi volumes are included.
—Read the article from S&P Global Commodity Insights
Listen: Next In Tech | Ep. 186: B2B Payments Technology And Markets
We’re all familiar with consumer payments technology in its various forms, but business transactions have a different set of requirements and a very different set of technologies and market participants. McKayla Wooldridge joins host Eric Hanselman to look at the results of a recent study and explore the dynamics of this complex market.
—Listen and subscribe to the podcast from S&P Global Market Intelligence
London: 4th Annual Global Emerging Markets Conference (Oct. 3, 2024)
This in-person event will feature critical discussions on credit and market trends, with thematic panels that bring together senior analysts and external market participants.
—Register for the in-person event from S&P Global Ratings