Rob Fauber, Moody's CEO joins Yahoo Finance’s Brian Sozzi and the Yahoo Finance Live panel to discuss Moody’s acquisition of RMS for $2B.
Video Transcript
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ZACK GUZMAN: Well, ratings company Moody's is expanding well beyond just focusing in on the financial risks companies might be facing. A new $2 billion deal is now setting them up to include climate risks as well. The company announced it's paying $2 billion to buy a catastrophe risk management and modeling firm, RMS.
And for more on how that sets Moody's up to play a stronger role in digging into climate change risks associated with investments, happy to bring on the CEO of Moody's with us today, Rob Fauber alongside Yahoo Finance's Brian Sozzi. And Rob, when we dig into it. I mean, $2 billion is obviously a lot to spend but why is it worth now to focus in so much on the climate risks associated with things that we're continuing to see pop up pretty much everywhere?
ROB FAUBER: Yeah, first of all, Thanks for having me. You know, whether it's wildfires in places like Turkey or the American West, extreme flooding in China and Europe, I think we all understand that climate change is a serious issue that requires some very urgent resolve. And our customers all over the world-- and we have a very broad customer base, including financial institutions, and corporations, and governments, they're all seeking to better understand and measure and manage the financial impacts of climate change. So our acquisition of RMS is going to help us do exactly that. We're going to be able to increasingly integrate this content into a wide range of our offerings to help our customers be able to better manage and measure the impacts of climate change, as well as think about and informing investments in climate resilience.
BRIAN SOZZI: Rob, how will this change the earnings power of Moody's moving forward?
ROB FAUBER: Yeah, I guess, the way I think about that is we view this as an area where there's going to be long-term demand. We see the issues related to climate change being issues that are going to have to be addressed over decades. And you think about building, understanding the physical risks related to climate change over the coming decades, and making investments around risk mitigation, adaptation, and resilience. So we see this as a place where they'll be long-term customer demand to support our ongoing growth.
BRIAN SOZZI: And Rob, you just officially took over as CEO earlier this year, no stranger to Moody's, you've risen through the ranks there. Is this acquisition a signal to investors that you will be aggressive on the M&A front?
ROB FAUBER: No, I think really this is about us executing on our strategy and delivering for our customers as their needs are evolving. And what I mean by that, if you think about what's going on with our customers, they're having to manage a wider range of risks than ever before. The impacts of climate change are one but financial crime, cyber-attacks, those are all things that our customers are dealing with. And so we're building out our capabilities both organically and in this case, inorganically to help serve the evolving needs of our customers to manage a wider range of risks.
AKIKO FUJITA: Rob, how do you prepare for those risks when there are no disclosure rules that are standard? What you have in Europe, for example, is completely different from the US, the SEC still trying to debate that. When you're trying to calculate the financial risk, how do you do it when there's no uniform standard in place?
ROB FAUBER: Certainly, additional disclosure is helpful and additional disclosure around ESG for instance, would be helpful in further dimensioning. But there's a lot that is available in the public domain that we're able to collect and house in our databases and to inform our models.
AKIKO FUJITA: What are some of those? If there is no uniform disclosure regs, there's no standard for ESG, as Moody's, how do you calculate that financial risk?
ROB FAUBER: So when it comes to ESG, there are a number of places that we can get data around environmental, social, and governance factors. A lot of that is disclosed in companies' financial reports, it's disclosed in their corporate and social responsibility reports and other places, and we're able to aggregate a lot of that. We then input that into our scoring and rating methodologies, ultimately, to then get a view of the ESG risk of any particular firm.
AKIKO FUJITA: Is there a number that you can put on that? I mean, you know, there's so much-- we've seen so many companies come forward with disclosures that are set forward by them and yet, you know, we see, for example, if you look at the banks, you look at the carbon footprint in sort of their immediate portfolios but then there are the lenders of the lenders who also have the risk and the exposure only increases with that. I'm curious how you're looking at the totality of the financial risk as we see these climate concerns really elevate?
ROB FAUBER: Yeah, certainly like I said, disclosure is going to be very valuable in continuing to advance the ability to assess these kinds of risks. One area where I'd say we'd benefit from additional disclosures around assessing carbon transition risk. So you have many companies that have set net-zero commitments for 2050, and the market is going to need to understand how customers, how organizations are going to meet those commitments. What does it mean for their strategy? What does it mean for their investments in research and development? And so that's an area where I think disclosure will be quite helpful.
ZACK GUZMAN: Yeah, especially around potential tax implications too as we get farther out around all this. But Rob Fauber, appreciate you coming on here. The CEO of Moody's alongside Yahoo Finance's Brian Sozzi as well. Thanks again.