Credit ratings, research, and risk analysis provider Moody’s Investors Service announced today that it is seeking feedback from market participants on a new proposed framework to assess the strength of companies’ carbon transition plans, or “Net Zero Assessments” (NZA).
The new framework would initially apply to non-financial corporate entities globally, including public sector and non-profit entities that have business-like revenue-raising capacity, and would be assigned only at the entity’s request, and with engagement with the entity.
The proposed NZA would generate a score based on two components, including an “Ambition Score,” providing an opinion on the of the magnitude of the entity’s targeted emissions cuts, and an “Implementation Score,” assessing the entity’s likelihood of achieving its targeted emissions, considering factors including the entity’s governance and the actions and assumptions in its plan.
The score would be expressed on a 5-point scale, reflecting Moody’s opinion of the strength of the carbon transition plan relative to a global net zero pathway, consistent with the Paris Agreement goal to limit temperature increase to 1.5°C and achieve global net zero in 2050. The top score, NZ-1, for example, would reflect that the entity’s plan is aligned with a global 1.5°C pathway.
Moody’s stated that it may look to expand the framework to financial institutions and governments over time.
Brian Cahill, Managing Director of ESG for Moody’s Investors Service, said:
“Investors face considerable challenges in comparing decarbonization plans across entities because of limited and inconsistent disclosure and substantial variation, both in how entities define their targets and their ability to achieve them. The NZA would assess the level of ambition of the emissions cuts implied by an entity’s targets and the quality of its implementation plan.”