Abstract
We apply transition scenarios from the global multi-region multi-sector energy-economic MIT EPPA model to assess a large sample of issuers at the company level. We model the evolution of revenues and earnings for companies in the MSCI World Index under several scenarios of global emission mitigation (1.5°C, below 2°C, below 2°C delayed, and 1.5°C with limited availability of carbon dioxide removal technologies), comparing these to current trends. We analyze direct emission mitigation costs, indirect costs from the supply chain, capital expenditures, and cash flow trajectories, and their influence on other economic variables.
We find that a radical shift from the baseline to the 2°C scenario would imply spot losses of up to 8.7% of the index using our discounted cash-flow approach. While the energy sector bears the largest burden of emission mitigation activities, some companies in the utilities sector would benefit from the transition. The credit risk implied by scaling these models at the company level suggests a widespread effect on transition across most sectors and country, depending on the distribution of their revenues.
The global impact on the credit spreads is limited from 2024 onwards. However, local credit spreads, modeled at the company level for every company of the MSCI World Index, could be substantially impacted. For example, the 90th percentiles of additional cost of debt induced by transition are 1% and 2.3% respectively in 2030 and 2040 in the 1.5°C with limited access to carbon dioxide removal technologies scenario.
Authors
