As scrutiny from investors, consumers and regulators intensifies, supply chain transparency becomes more crucial.
To maintain contractual relationships, suppliers must invest in mitigating social and environmental risks, increasing their operational costs further.
The rise of plastics and packaging regulations
While emissions and deforestation dominate ESG discourse, plastics also represent a significant challenge.
Despite the stalling in finalising a global plastics treaty in December 2024, the EU has moved to implement stricter recycling requirements under its updated packaging directive.
By the years 2025 and 2030, companies in the consumer goods and beverages sectors will need to meet elevated recycling targets and adhere to new limits on single-use plastics.
These changes mean higher costs for waste management and investment in sustainable packaging.
However, there is a silver lining for manufacturers already utilising recycled materials, as demand for recycled content is poised to grow, potentially stimulating market expansion.
Linking debt ratings to climate risks
Moody’s credit analysis highlights how ESG factors are increasingly influencing credit assessments.
Out of 12,610 entities monitored, ESG characteristics have adversely affected the ratings for 17% of issuers, with 3% experiencing substantial credit downgrades.
Another 26% face limited risks currently, though these are expected to escalate over time.
Industries like automotive, power and heavy industry, all of which are exposed heavily to climate risks, are under growing financial strain.
