PG&E Corp.'s bankruptcy proceeding is raising environmental, social and governance issues that could have wider reaching credit implications for the power sector, Moody's Investors Service analysts said in a recent note.

In a recent note of its own, S&P Global Ratings determined that the utility sector is most at risk for potential credit downgrades tied in part to PG&E Corp.'s bankruptcy proceeding. The California utility is facing potentially $30 billion in liabilities tied to a troubled power line at the center of an investigation into the November 2018 Camp Fire, the worst wildfire in state history.

Moody's said broader discussions about California's wildfire exposure, housing market trends, insurance coverage, liability standards and energy infrastructure integrity may result in policy outcomes with credit implications for various segments across the power sector.

ESG factors that may gain more prominence in Moody's credit analysis because of events tied to PG&E Corp.'s bankruptcy include whether climate change is creating more severe drought conditions and, therefore, higher wildfire risks. Moody's noted the most destructive wildfires on record have occurred in the last 20 years.

In addition, Moody's said regulated utilities such as Pacific Gas and Electric Co. are exposed to social issues associated with their license to operate critical infrastructure and the need to maintain the trust of the public and regulators. "If a utility loses the confidence of its regulators or elected officials, policy decisions could weaken the future financial profile," the note said.

Another social issue at play is as people search for affordable housing they are moving closer to wildland areas that are vulnerable to wildfires, which Moody's said increases the number of people and assets exposed to wildfire risks.

"As the state looks to mitigate wildfire risks, it will be forced to reexamine its housing market, which will have important implications for the property and casualty insurance market," Moody's said.

On governance issues, Moody's recalled that PG&E in the past had changed its executive compensation to be tied less to wildfire risks. The news comes as a number of investors are pressing companies to tie specific ESG-related metrics to executive pay.

Moody's noted that PG&E has announced plans to replace at least half its board members and that it expects a majority of the board will be comprised of new independent directors by the time the company holds its annual shareholder meeting in May.