Moody's: the risks of net-zero promises
The international integrated risk assessment firm, Moody’s, has gained insight into the future risks for carbon-intensive businesses, as the rush to reach net-zero continues.
Based in New York and with a revenue of $417m, Moody’s is integrated across 40 countries and like all businesses, has been forecasting the future and the impact of popular net-zero promises.
What are the risks?
Carbon-intensive businesses are expected to present increased credit risks for lenders. This will lead to ‘A reduced availability and increased cost of capital for fossil fuel projects’ in the next few years.
"We expect pressure to inexorably rise for major producers and users of hydrocarbons to adjust business strategies to implement credible transition plans," said James Leaton, the senior vice president at Moody's Investors Service. "We expect the impact will be more significant than the limited effect to date of patchwork policy implementation, gradual changes in disclosure requirements or moves by investment funds to reduce their fossil-fuel holdings. However, the full implications for this decade of such initiatives will only become clear with the detail, breadth and speed of implementation steps taken under the net-zero initiatives."
As many businesses and industries make the necessary moves towards net-zero, centuries-old practices will have to change and newer ones will take over, with all the modern advantages.
What are carbon intensive businesses?
The most obvious contenders of a carbon intensive business include those involved in:
- Electricity and heat production 25%
- The agriculture industry 24%
- Transport (from cars to freighter ferries) 14%
Yet, the rising popularity of bitcoin is also leaving a significant carbon footprint. Bitcoin is a digital currency which can be brought, sold or traded. Its one modern advantage is that it is a currency without a bank, bitcoin can simply be traded between users. Bitcoins are formed through mining coins on computers via long calculations. As the number of bitcoins grows, it takes more time to mine them and thus more electricity.
The international cryptocurrency could have a carbon footprint as large as London, according to Alex de Vries, a Dutch economist. But currently, bitcoin uses enough energy to match the Republic of Ireland.
FedEx issues sustainability bonds and a carbon neutral goal
FedEx Corp, founded in 1971 and made famous from the 2000 film Cast Away, provides transportation, e-commerce and business services. Headquartered in Tennessee, USA and with an annual revenue of $79 billion the company is making the move to net-zero.
"We have a responsibility to take bold action in addressing climate challenges," said Frederick W. Smith, Chairman and CEO of FedEx Corp.
The company has announced offerings of $1.75 billion of USD-denominated notes and €1.25 billion of euro-denominated notes. The proceeds of the debt offerings will be used with existing cash to redeem $5.8 billion of the company’s existing debt. This will eliminate near-term debt obligations taken on during the early stages of the COVID-19 pandemic.
The sustainability bonds
The transaction includes:
- Substantial Overall Debt Reduction. To be completed later this month, the debt offerings and subsequent redemptions, total the biggest series of related debt transactions in company history. The net reduction will hit $2.6 billion in FedEx debt obligations. By erasing these obligations, it will reduce the company’s total debt portfolio by 11% as well as strengthen its balance sheet.
- Elimination of Near-Term Debt Maturities. FedEx will end all debt maturities through fiscal year 2025 and one tranche in fiscal year 2027, to provide liquidity and flexibility in the coming years, as FedEx maintains its position in the challenging macroeconomic environment.
2040 carbon neutrality
Furthermore, the offerings include an eight-year, €600M sustainability bond tranche in Europe. FedEx will use this to finance its efforts to achieve its target of carbon neutral operations by 2040.
Across their worldwide operations, FedEx will reduce or eliminate their carbon impact, upgrade their transportation fleet to electric and engage with cutting edge technologies across the board.