Moody’s new scores to reflect ESG risks on miners

With the ongoing transition to green energy set to boost for demand of key materials including copper, cobalt, nickel and lithium, many miners have trumpeted their green credentials. Companies, however, have not been assigned scores for their undertakings nor for how they would impact their risk exposure.

Moody’s is integrating more ESG in its credit analysis, which provides greater clarity, consistency and differentiation on risk exposure and the degree of credit impact.

“Nearly all metals and mining companies, including coal companies, have exposure to environmental considerations that carry very high credit risks,” Benjamin Nelson, Moody’s VP-senior credit officer, said in a statement.

Environmental groups, who have tended to target the energy industry, are now turning their attention to big energy-consuming industries, especially mining, which is responsible for about 4% to 7% of global greenhouse gas emissions.

Climate advocates are also looking at likely impacts of mining the metals used in digital and other devices, which has spread attention from the resources sector to technology groups. 

Carbon transition is the biggest environmental risk for thermal coal companies, especially in the US, which is driven by growing global demand and policy support for less carbon-intensive and cleaner energy.

Moody’s believes that metals and mining companies face the most risk from their dependence on natural capital and the physical damage that mining can cause.

It also says that social risks are significant in the sector. “[They are] driven by health and safety issues and responsible production risks, with some differentiation by commodity and location of operations,” Nelson said.
Whether it be inequality, damaging the environment or labour rights, companies are now called out when they are perceived as doing wrong.

A company’s ability to mitigate these various ESG considerations and their significance relative to other credit drivers determines the degree to which the considerations affect its credit rating.

Strong governance is an important mitigant for many highly rated companies in the metals and mining and coal sectors, says Moody’s.

Moody’s ESG issuer profile scores are opinions of an issuer’s exposure to ESG considerations that could be material to credit risk.

ESG credit impact scores communicate the impact those ESG considerations have on an issuer’s credit rating.

Both scores use a five-point scale – one is positive, two neutral to low, three moderately negative, four highly negative and five very highly negative.