Credit agencies are ignoring climate risk – report

Projects like Abbot Point coal port are getting investment grade status, but are incompatible with efforts to curb global warming

Abbot Point port is a gateway for coal from planned mines in the Galilee Basin (Pic: Greenpeace/Tom Jefferson)

Abbot Point port is a gateway for coal from planned mines in the Galilee Basin
(Pic: Greenpeace/Tom Jefferson)

By Megan Darby

A massive coal port project at Abbot Point, Australia, got a Baa3 credit rating from Moody’s last year. That says it is a safe enough investment.

But scientists calculate 90% of Australia’s coal must stay in the ground to hold global warming to 2C – the international goal. Effective action on climate change will trash the value of the port.

It is an example of ratings agencies failing to account for climate risk highlighted by the Center for International Environmental Law (CIEL).

In a report published on Wednesday, CIEL found the likes of Moody’s and Standard & Poor’s are systematically overvaluing fossil fuel assets.

“Fossil fuels are on the way out,” said Niranjali Amerasinghe, climate expert at CIEL. “Overstated credit ratings threaten not only investors and markets, but ultimately the global economy.

“They also contribute to overinvestment in activities that cause climate change, threatening our ecosystems and the people who depend on them.”

Analysis: A 7-step plan to avoid stranding your fossil fuel assets

Ratings agencies are trusted to advise investors on hidden risks. Yet they did not flag up problems with sub-prime mortgages that led to the 2008 financial crash.

Similarly, they are still assessing high carbon projects on the basis of a climate trajectory leading to more than 4C of warming.

That is incompatible with efforts by governments to crack down on greenhouse gas emissions and limit warming to 2C.

The polluting projects given an investment grade rating will either trigger catastrophic climate impacts – sea level rise and weather extremes – or lose value as regulations kick in.

In the latter case, CIEL warns the rating agencies could be sued by investors misled into backing worthless ventures.

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