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Moody's Expects to Release a Large Number of Corporate Net Zero Transition Plans

Moody's Investors Service, a provider of credit ratings, research, and risk analysis, said that it is seeking market players' comments on a new suggested methodology to evaluate the soundness of corporations' carbon transition plans, or "Net Zero Assessments" (NZA).

The new framework would initially apply to non-financial corporate entities worldwide, including public sector and non-profit entities with business-like revenue-raising potential, and would be assigned only upon request and engagement with the entity.

The proposed NZA would generate a score based on two components:

An "Ambition Score," provides an opinion on the magnitude of the entity's targeted emissions reductions, and an "Implementation Score," assesses the entity's likelihood of achieving its targeted emissions, taking into account factors such as the entity's governance, actions, and assumptions.

The score would be expressed on a 5-point scale, representing Moody's assessment of the carbon transition plan's strength compared to a worldwide net zero pathway, in accordance with the Paris Agreement target to limit the temperature increase to 1.5°C and achieve global net zero by 2050. For example, the highest score, NZ-1, would indicate that the entity's plan is aligned with a global 1.5°C trajectory.

Moody has indicated that it may eventually seek to expand the framework to include financial institutions and governments.

Moody's Investors Service's Managing Director of ESG, Brian Cahill, stated:

"Investors have a difficult time evaluating decarbonization plans among organizations due to inadequate and inconsistent disclosure and substantial variance in how entities define their aims and their ability to attain them. The NZA would evaluate the level of ambition represented by an entity's emission reduction goals and the quality of its implementation strategy."

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