Welcome to Moody's Investor Day. I'm Shivani Kak, Head of Investor Relations at Moody's Corporation. Before we start the formal part of today's proceedings, I'd like to call your attention to the safe harbor language which can be found in the deck we published earlier today. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31st, 2021, and in other SEC filings made by the company which are available on our website and on the SEC's website. These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements.
With that, I will hand over to Rob.
Thanks, Shivani. We got the really interesting stuff out of the way, right, out of the gate. Good morning. I'm Rob Fauber, excuse me, President and CEO of Moody's, and it's really my pleasure to welcome you here to our 2022 Investor Day, especially those of you who are here in person. It's really wonderful to be able to spend some time together. Before we get started, I do wanna take a moment to touch on the unfolding tragedy in Ukraine. It goes without saying that we are deeply saddened by the terrible impact of these events, and our thoughts are with all of our people and all of the people that are affected by this.
We recently announced that Moody's is suspending commercial operations in Russia while maintaining analytical ratings coverage from outside of Russia. We, of course, are going to deliver ongoing support for our Moscow-based employees, and we really are profoundly grateful to them for their professionalism. In addition, the Moody's Foundation has made a $250,000 donation to the International Rescue Committee to provide relief to the people of Ukraine. Now turning to our agenda for the day, our goal is really to discuss our vision of how we will build upon our strong foundation and execute our strategy to drive future growth. The last time that we held an in-person Investor Day was actually back in 2018.
I was thinking back to our last Investor Day was in 2020, and in the middle of that virtual Investor Day, the WHO declared a global pandemic, and I'm not sure anybody heard another word after that. It's really great to have you all here in person. Since 2018, Moody's has really evolved and expanded, and I really couldn't be more proud of our accomplishments over that period. Our revenue has grown 40% since 2018, and knowing this audience, I know you already know that's a 12% compound annual growth rate over the last three years to $6 billion in revenue in 2021.
These impressive results are partly attributed to the investments that we're making back into the business, and that's really allowed us to further penetrate existing markets, but I think very importantly, also expand our reach into new markets and serve new use cases. It's accelerated the growth of our current addressable market from something like $27 billion to now we think of that current addressable market, a little over $40 billion. I think you're gonna see that our commitment to investing in high-growth markets to meet our customers' clearly evolving needs, that's gonna be a recurring theme today. Along the way, we have returned more than $4 billion of capital to our stockholders through share repurchases and dividends.
We really are confident in our ability to continue generating strong results, even amidst what's going on in the world today, and we'll talk about that today. Let me turn for a moment to our most important asset, and that is our people. Without their commitment and their expertise, frankly, none of this would be possible. I talk with our employees, it's pretty simple. We want Moody's to be a place that people wanna come and stay, a place where people can be their authentic selves, and we have created an inclusive workplace where diverse top talent can thrive. That's important at a time when companies are competing to attract and retain talent. We're really pleased to have been recognized as a leading employer through a number of prestigious awards.
Recently, a perfect score on the Human Rights Campaign's Corporate Equality Index. This stuff matters right now. We're also very proud that our market-leading products and solutions are being recognized by the customers that we serve. It's a real validation. Our growth and success are really a testament to the value that we bring, and I do believe a result of executing on these strategic priorities that you're gonna continue to hear more and more about. I was reflecting, coming into this Investor Day, on my first earnings call as CEO. It was a little over a year ago. I talked about and I introduced those three strategic priorities. It's what I talk about over and over and over at the firm.
To help Moody's really realize the full potential as what we think of a global integrated risk assessment firm. We are successfully executing on those priorities. They're gonna continue to drive our growth. First, we are focused on our customers in enhancing the quality of experience with us, but very importantly, in better understanding their evolving needs because those needs are changing. I'm sure you can appreciate that. Why are we doing that? That our customers wanna deepen their relationships with us. We're investing with intent to build new capabilities to better serve those evolving needs and to access new markets. Across the company, we're modernizing and collaborating and innovating. I really think in new and exciting ways to really accelerate our growth.
That includes providing easier access to more of our data and analytics and in integrating it across our offerings, where our customers want and need it, again, with a goal of enhancing and deepening the ways that we serve our customers. This combination of focus on strategic priorities and commitment to our people, you know, I kinda think of this as a secret sauce for us, but it's never been more important than in this day and age. We're gonna continue to use this successful recipe to further accelerate our growth as we help our customers decode risk and unlock opportunity. I do believe that Moody's has never been more relevant than we are at this very moment.
In times of crisis, and certainly we are in a very challenging period right now, Moody's brings clarity and transparency to the markets. As we meet today, Russia's invasion of Ukraine is clearly causing significant increase in financial market volatility and uncertainty. There really is tremendous desire from markets and organizations to understand the immediate and the longer-term impacts of this crisis. I think the parallels to the pandemic are real, and it's why we've made our research freely available on this topic. We're still contending with higher inflation and global supply chain disruptions. Central banks are poised to raise interest rates and unwind their balance sheets. There's no doubt that geopolitical risks are impacting debt capital market activity. The fundamental drivers of issuance over the medium and longer term, we believe that those remain firmly intact.
While interest rates are forecast to rise this year, GDP is still expected to grow, even as market volatility has resulted in, you know, credit spread fluctuations. If you look at all-in financing costs, they still remain well below historical averages. That cost of borrowing remains historically low at the moment. More than $4 trillion in debt needs to be refinanced in the next four years. Guided by our century-long experience over many credit cycles, we believe that the long-term conditions for capital market expansion, namely economic growth and disintermediation, those remain intact. We're also investing in our capabilities, and we have what I believe are the most experienced analysts in the industry.
That really is never more important than times like the last two years, where you've had a pandemic and now we're in a period of geopolitical conflict. Our deep experience and extensive coverage and thought-leading research has really served to reinforce the confidence that issuers and investors place in us. That makes us. We have a phrase that we like to talk about in the rating agency. We wanna be the agency of choice for issuers and investors. We're investing in the long-term future of our business by expanding geographically and enhancing our capabilities. We're building out our coverage, domestic coverage across Latin America through Moody's Local. We recently announced the acquisition of GCR, which really gives us an unmatched presence across the African continent, serving domestic markets there. I think of that as kind of a generational investment.
That's a long-term investment in our future. We're committed to building out our ESG and sustainable finance offerings, and by year-end, we expect to have something like 10,000 ESG Credit Impact Scores, providing extensive analyst-engaged ESG coverage. We've also rolled out over 400 Carbon Transition Assessments on companies in the most carbon-intensive industries. By executing on our strategic priorities, we're well-positioned for a future where we remain that agency of choice in cross-border and domestic markets. Now let me pivot to MA for a moment. As we announced back on our last earnings call, we've changed the reporting structure of MA to provide you with some greater insight and transparency into that business. MA is a much larger business today than when we started in 2007.
In fact, I specifically remember back in 2007 when Moody's Analytics was a PowerPoint idea. It's really gratifying to see the growth in that business. It's grown at a 12% compound annual growth rate from 2007 to 2021, has tripled it's annual revenue since inception, and it really is fundamental to our global integrated risk assessment strategy. From the Q1 onwards, MA will have three reporting lines of business. The first is Data and Information. That really houses our best-in-class, curated, proprietary datasets that are available to customers on a variety of flexible delivery platforms. These proprietary datasets on companies and securities and credit profiles, they fuel a wide range of risk assessment use cases, and they support our competitive positioning in our other offerings. It's kind of the...
It's an important foundational platform for us. Second is Research and Insights, through which we provide macro and industry and company research, models, analytics, expertise to help our customers identify, measure, and manage risk. That includes our web-based CreditView platform, credit models and tools, and our extensive predictive analytics and economics offerings. The third is what we're calling Decision Solutions. Well, it integrates elements from Data and Information as well as Research and Insights, and it provides comprehensive solutions and workflow tools for specific use cases. Helping companies with KYC and customer screening and onboarding and monitoring may be never more important than right at this moment. Helping banks and insurers with credit and insurance underwriting and risk and finance functions, among others.
We believe that this change provides you with a better understanding of the markets which MA operates in, and the value propositions that we are serving for our customers. MA's got some great momentum. It's consistently demonstrated its resilience since 2007, and you think about the cycles that we've been through in those 13, 14 years. All three of MA's lines of business have very strong rates of retention and recurring revenue. That consistent strong performance, I think it really reflects the mission-critical nature of the use cases that we serve for our customers, as well as the investments that we've made to meet our customers' evolving needs. I think importantly, MA operates in large and growing markets, and that provides a tremendous source of future opportunity for us.
Let me just try to dimension it for a moment. As of year-end, we estimate that MA's current addressable market is something like $30 billion, and we project that that will grow in the low double-digit range over the next five years. There's a variety of secular trends that are gonna be powering the growth of those end markets. The need to manage heightened reputational and operational risk. The accelerating proliferation of data creation and what our customers tell us is the need to understand the signal from the noise. A complex and dynamic regulatory environment which is going to continue to result in new risk management and disclosure requirements for our customers, and of course, increased pace of digital transformation across a range of industries, and I think that was really catalyzed by the pandemic.
We're making investments to meet these needs by continuing to invest in our people, in our technology, in our products, and we're complementing that investment in the business with inorganic investments to build our presence in targeted high-growth markets, and you've seen us do that over the past, let's say, 18 months. We believe that is going to help us outpace market growth by up to 20% over the next five years. Our goal is to grow faster than our end markets are growing. We're excited about the momentum across our portfolio, and we look forward to realizing the opportunities ahead of us. With that, let me hand the stage over to Mark Kaye, our Chief Financial Officer.
Good morning, and thank you, Rob. As we noted earlier, the conflict in Ukraine is deeply concerning for all of us. In times of uncertainty such as these, markets and organizations look to Moody's for our expertise and our insights. As we continue to fulfill our purpose to bring knowledge and clarity to an interconnected world. When we announced our FY 2022 guidance on February 10th, we anticipated constructive market conditions with the prospect of interest rate increases driving opportunistic issuance in the H1 of 2022, at least in line with the prior year period. Indeed, first-time mandates in the first two months of the year were strong and consistent with our expectations. However, the markets and stakeholders we serve have been impacted by the unfolding conflict in Ukraine and the accompanying uncertainty and volatility.
These geopolitical tensions, as well as various macroeconomic factors, have resulted in significantly lower year-to-date issuance. Specifically, average daily investment-grade activity has declined by almost 50%, and we have experienced over 15 days with no high-yield issuance. Conditions that we do not anticipate will substantively change for the month of March. Consequently, we are projecting Q1 rated issuance and MIS revenue to decline by up to 40% and up to 30% respectively, versus the Q1 of 2021. Moody's Q1 adjusted diluted EPS is forecast to be in the range of $2.50-$3. Per our regular reporting cadence, we plan to refresh our FY 2022 outlook as part of our Q1 Earnings Call materials. Looking forward, the fundamentals of our business remain robust, and we are pleased to reaffirm our medium-term targets.
We are confident in our ability to achieve revenue growth of at least 10% on an average annualized basis and to grow adjusted diluted EPS in the low double-digit % range over the coming five years. We are keenly focused on continuing to invest in high-growth markets, including investments in Know Your Customer solutions. These are important tools for governments, companies, and other organizations around the world as they work to comply with evolving sanctions. Our proprietary databases provide company information on corporate structures, adverse media, sanctions, and watch lists. By helping our customers understand and manage their obligations related to these sanctions, we're enabling them to conduct business responsibly.
While making more informed decisions. As we have for the last century, Moody's will continue to provide value to the capital markets and deliver sustainable value to our stockholders. I'll now hand it back over to Rob for final remarks.
Thanks, Mark. As you can see from today's presentation and the videos that we released last week, that was Shivani's homework to all of you. There are a number of key takeaways that are at the core of our ability to help our customers. Again, you'll hear this phrase, decode risk and unlock opportunities. Above all, we have confidence in the future for three reasons. One, we're laser-focused on our customers. We're focused on their experience with us and understanding their evolving needs, and we've expanded our capabilities across a wider range of risks so that we can deepen our customer relationships. That is going to help us achieve growth over the medium term and achieve those targets that Mark just talked about.
Second, I'm a runner, so I like to say that we're running our own race here. The ratings business is a great business and the structural drivers for growth, they remain intact over the medium term, even though we are experiencing some near-term volatility. Moody's is built on a unique set of capabilities, and it's anchored by this integrated risk assessment strategy that I think positions us for resilience and sustainable growth. Third, we've got a great team. That includes our more than 13,000 colleagues worldwide. It also includes the management team. We're fortunate to have a group of dedicated and experienced and passionate leaders at this company who have been through many cycles and many situations together. I really am excited that you're gonna get an opportunity to hear from some of them today.
Beyond Mark and I, who you're always hearing on the earnings call. I'm sure you're getting tired of us. With that, we're gonna play a short video that highlights some of the exciting things going on here at Moody's.
For over 100 years, Moody's has played a foundational role in facilitating access to the global debt capital markets. We rate more than $72 trillion in outstanding debt for over 35,000 issuers and transactions. We're renowned for independent, in-depth, and transparent opinions globally. Our broad coverage, extensive customer access, as well as deep credit expertise help our stakeholders make better decisions every day.
Regardless of market or economic conditions, issuers and investors count on Moody's to consistently provide valuable credit risk insights through our ratings, our research, and our market engagement.
Moody's has long been a trusted partner helping customers and market participants assess and understand credit risk. We are increasingly asked by our customers to do the same for other risk domains beyond credit. They are looking to us for the tools and services to support their growth, deliver on their risk management goals, and ultimately build resilience in a rapidly changing and uncertain world. We provide these and more. We build and curate unique datasets, develop best-in-class analytics and models, and integrate all of these into cloud-based software tools. With decades of experience in multiple risk domains, Moody's brings best practices and risk management to drive better decisions. This is our integrated risk assessment strategy, and it supports more effective and sustainable growth for our customers.
Our success is evidenced in our strong track record since our inception. 12% compound annual growth, over 90% recurring revenue, customer retention rates in the mid-90s, and proven organic and inorganic investments.
We are solving problems no one else can.
Few issues are poised to multiply risk or opportunity more dramatically in capital markets than climate change. Now, in order to understand how climate change will shape global finance today and in the future, market participants will need better tools to identify, measure, and manage climate risk. Moody's ability to serve these emerging needs can provide us with a considerable business opportunity. An important milestone for our journey is the acquisition of RMS.
RMS is delighted to join the Moody's family. Having established the risk modeling market more than 30 years ago, we bring with us over 400 risk models across 120 countries. Our climate capabilities focus on physical risk, the financial impact on individual assets, and how this correlates across portfolios. As a result, Moody's can now better model the impact of many climate hazards, such as floods, hurricanes, and wildfires, both today and out until the end of the century. We also model many non-climate hazards that are important to robust risk management, such as earthquakes, infectious disease and pandemics, and cyber risks.
What makes us different is our holistic view of ESG risk and impact, transparent methodology, global analytical pool, and strong company engagement. At Moody's, we have hundreds of analysts and decades of global analytical expertise. In addition, issuer engagement gives us access to non-public information directly from issuers and helps compensate for weak and inconsistent public disclosures. This puts us in a unique position to provide robust, consistent, and comparable assessments of ESG credit risks.
Last month, we reported strong results for 2021, exceeding our financial targets that we introduced at our Investor Day event in 2018. Since that time, Moody's revenue has increased by approximately 12% on an annualized basis. The adjusted operating margin has expanded by more than 200 basis points to approximately 50%, and the annualized adjusted diluted EPS has grown by approximately 18%.
Our historical results demonstrate the resilience and growth potential of our business. As we look to the future, we believe there is a significant opportunity to unlock even greater value through our integrated risk assessment strategy. This is reflected in the new medium-term financial targets that we released on February 10th of this year.
Our clear and defined philosophy around capital management and allocation has supported our impressive financial performance since 2018. Across the firm, we'll remain focused on introducing new and exciting products and solutions to help our customers identify, manage, and measure risk, as well as unlock opportunity. In summary, we believe we are in an excellent position to deliver on our integrated risk assessment strategy, all while driving sustainable value creation and ensuring financial resilience.
At Moody's, data and technology are core to our business strategy.
We're focused on innovating and developing new enhanced products that meet our customers evolving needs. We're also enhancing our product development processes to increase our speed to market.
We're continuously exploring new technologies with the goal of enhancing the digital journey of our customers and bringing new insights and efficiencies into their decision-making process. Most importantly, we wanna meet the customer where they are.
It is clear there is a lot of exciting work going on here at Moody's. Our people come up with creative, differentiated, and comprehensive technology solutions that help our customers navigate the risk landscape. We are on the forefront of extending the reach of our global integrated risk assessment business.
Hello, and welcome to the Q&A session of our Investor Day today. Before I start, just a few legal words that I need to say. I would like to call your attention to the safe harbor language which can be found in the deck we published earlier today. Today's remarks may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In accordance with the act, I also direct your attention to the Management's Discussion and Analysis section and the risk factors discussed in our annual report on Form 10-K for the year ended December 31st, 2021, and in other SEC filings made by the company, which are available on our website and on the SEC's website.
These, together with the safe harbor statement, set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. Let's start. If you could submit your questions via Slido, please.
Nothing in the room?
No. Just purely by Slido 'cause we want to make it available to people who are watching virtually. I'd like to introduce my panelists who I have Stephen Tulenko, the President of Moody's Analytics. I have Anne Van Praagh, who is our Global Head of Sovereign Risk Ratings and Research. I have Rob Fauber, President and CEO of Moody's. I have Mark Kaye, Chief Financial Officer. I have Isabel Gomez Vidal...
Hi.
Isabel who's the Chief Revenue Officer of Moody's Analytics. I have Mike West, who's the President of Moody's Investors Service. As a reminder, if you can access Slido, the QR code is on your badges if you would like to be submitting questions. Starting with the first question that I've got through, and I think it's very topical today, is Russia and Ukraine.
Mm-hmm.
The first question is: What is the impact on the Moody's business? If we can possibly touch on that.
Yeah, Shivani. By the way, I love the video. It's a great way to start. It's better than the disclaimer. Russia and Ukraine, I think there's a few ways to think about this in terms of the impact. The first is on our people and operations in Russia. The second is, you know, on the impact to our business and business outlook. And then the third is really thinking about, you know, what does this mean for, you know, from kind of a macro and systemic perspective. What is this gonna mean for the markets? I mentioned in my remarks that we had suspended commercial operations. We announced that on Saturday morning. We're continuing to provide the ratings, and that's very important.
We're doing that from offshore. It's very important because we're continuing to provide the transparency for our investors. A theme that I think you're gonna hear today is, you know, this is when our customers need us the most. This is when they're looking to us.
Mm-hmm.
We're gonna continue to provide that analytical Coverage. From an overall revenue perspective, you know, in terms of revenue coming out of our Russian business, it's immaterial to Moody's. It's a good bit less than 1%. But I think we're gonna talk more about what does this mean in terms of financial market volatility. Mark gave you a sense of, you know, what the impact has been through the Q1 , and I'm sure we'll talk more about that. But I think it might also be interesting, Anne, I'm gonna turn to you here in a second. Just we're still figuring out how this is effectively, you know, how this is unfolding and kind of what the transmission mechanisms are of this crisis. I don't know, maybe you could give some insight on that.
Sure. Yeah. Happy to. As a head of sovereign, it feels like we've had a front row seat to a lot of what's been unfolding. Analytically speaking, we've been thinking about sort of three key channels to credit markets, credit risk. The first, obviously, the direct impacts of sanctions and the retaliatory measures that the government of Russia has taken against those sanctions, direct impact for Russia and Ukraine. The reality right now is that if you are a non-resident holder of debt coming, you know, owed to you by Russia, you are not getting paid. That's pretty immediate impact of a crisis. Most Russian issuers are gonna have, if they haven't already defaulted, very high default risk. Same for Ukraine.
Ukraine is under a major onslaught at the moment. Now, there are a couple of other related issuers that will also be directly impacted. The second main channel of risk and with broader spillover effects is energy prices and inflation. Energy prices now with oil at over $100 per barrel and very volatile conditions. Gas prices have spiked and had already spiked in the fall. This is coming on top of what was pretty entrenched inflationary pressures already. That complicates the picture and creates some new downside risks that we're seeing. Third main channel of risk that we're looking at is market volatility, financing conditions, and of course, it's always the weakest position to have external financing needs that are feeling the effects of higher and more volatile interest rates.
That's something that we're thinking about, and we can get more into that in a little bit.
Thanks, Anne.
I think the next question that we've got is people just wanting more detail on the impact specifically to MIS and MA. If I could just ask how is that impacting the businesses?
Do y ou wanna go first, Mike?
Yeah. I'll take that. From an MIS perspective, I think that some of the prelim remarks covered in terms of the issuance impact so far, the impact as Rob mentioned, is pretty small in terms of direct revenues. It's all now about volatility in the market. That volatility and the duration of that volatility, at the same time there is uncertainty around those interest rates. What we're expecting to see, as Anne had outlined, is that transmission effect across our portfolio and the extent to which that impacts others and their decisions to issue debt. What Rob had also mentioned is that this is also a great opportunity. This is a really great opportunity for MIS to really show their capabilities at this time.
As a business, we've been through many different crises, and this one is about the short-term impact, but overall, the long-term robustness of how we operate, what we do, is very much intact. Steve, I don't know if you wanna add anything.
Yeah. The rating analysts are working hard to make sure that we're on top of this, of course. We're working very hard in Moody's Analytics as well. I often talk about when risk is higher, people tend to call us more, and this is one of those occasions where we're very actively supporting our customers right now. Usage on our website is up, as you can imagine. Usage of our product called Orbis, which is the core product that provides private company information, is up literally at peak levels of all time. Maybe just to give you an example of the kinds of things we're doing, you know, today, you may have read about, you know, there's certain people have been sanctioned today in the news.
If I were to give you an example of how this plays through with our KYC business, you know, we have to make sense of these sanctions and then relate them to all of the potential ways in which our customers might interact with the individual or the entity that's been sanctioned. Just to play this through, there's an example we can show you when you step out and look at our product here. The example you'll see on the screen is there's three individuals that were sanctioned last week. Those three individuals are associated with two banks. Those two banks own 40 other individual organizations. Then there are beneficial ownership that's greater than 50% for another 194 entities.
Those three individuals need to be related to 194 entities in order for you to comply with the sanctions that are being levied by the various organizations. Just to give you a sense, we've had over 5,000 entities sanctioned this year, right? You can imagine how this fans out and how much work there is to do for us to make sense of that and make sense of it for our customers, so that, you know, our customers really look to us to sort of get a sense for who they're doing business with. At times like this, they're eager to get that answer as fast as possible. We're very busy supporting customers right now.
Yeah, maybe just to build on that too. I mean, you've heard us talking about customers wanting to have a 360-degree view of risk, you know, of who they're investing in, who they're lending to, who their customers are. That's the moment we're in right now.
Yep.
Our customers are asking, "Am I gonna get paid back? Can I do business with this entity? And do I want to do business with this entity?
Yeah.
Yeah. I think the next questions come from your comments on the Q1 , the update. Why aren't you updating guidance today? You showed the numbers for the Q1 looking down.
Yeah. Mark, I'm gonna let you take that one.
No, go ahead.
All right. Thank you. Thanks, Rob. Geopolitical tensions have, as you heard from Anne and Steve just a moment ago, have rapidly escalated over the last several weeks. That includes, you know, the recent sanctions on Russian oil and gas exports, which have caused energy prices, as Anne noted, to rise. That taken together with higher market volatility and wider credit spreads than what we had assumed just a month ago, plus the expectation for persisting inflation and likely rate increases, does mean that year-to-date issuance is significantly behind the assumptions that we had incorporated into our full year 2022 outlook on February 10th. As such, we now expect Q1 issuance to be up to 40% lower than the prior year period.
We're more than 75% of the way through the Q1 at this point, and so we just wanted to acknowledge the impacts that that's likely to have on our Q1 MIS revenue and adjusted EPS results. To the specific question, given there are still significant uncertainty around how the conflict in Ukraine is going to evolve, as well as ongoing evolution of global sanctions, it makes better sense for us to refresh that update for full year guidance rather as part of the Q1 earnings call. Also at that time, you know, we're gonna have the benefit of observing what actions the Federal Reserve may take next week to address underlying inflation.
Yeah.
Mark, you know, there's the duration and severity of the Russia-Ukraine crisis, but like the pandemic, there's also a question, I think, just in terms of how are governments gonna react.
That's right.
You know, what's gonna happen in terms of maybe fiscal, monetary, other kinds of support depending on where this heads? We're in the process of trying to evaluate that, and we'll be able to give you an update in April.
I think people are still focused on the MIS revenue numbers, so the next question's still on the same theme. You know, how are we thinking about the MIS medium-term revenue guidance given the market volatility and now also just the comments you've given on the Q1 ?
Yeah. No, I mean, it's a great question. What we're trying to do here is put the short-term volatility into context. If you think about a treasurer that wants to come to market, they're thinking about, "Is this scheduled? Do I need to bring this debt to market, or is it opportunistic?" It's what Mark is really talking about is that opportunistic debt that's just sitting on the wings, and it's still there. What we're seeing in the market at the moment is some very sizable M&A transactions. Some of the issuers that are coming are in more stable...
Mm.
Environments, and then there's the leveraged loan area that is still seeing funds going to invest into that sector. You've got different activities in the very short term.
Mm.
If you recall what Rob put back up on that slide, you have to think about the longer term driver, that's GDP. We still have an anticipation of GDP growth, albeit at a slower pace than what we saw in 2021. We are also thinking about the overall conducive conditions, and that's back to the treasurer's view. Do I need to come? How much cash have I got on my balance sheet? There's quite a bit of cash on the balance sheets at the moment.
Mm.
At what point is it like a new normal?
Mm.
What volatility metrics am I looking at? Overall, the rate is still relatively low, as Rob mentioned, compared to historical metrics. You've got this maturity wall. I think in the packs we talk about the maturity wall over $4 trillion, and that built up during the pandemic as people, particularly early on in the pandemic, issued shorter term duration debt and then extended that. That's building up this maturity wall. When you think about who do people need to work with when they come to market, this is about issuance. It's not about Moody's not working with the various issuers or the market. This is just about issuance getting there, and the buildup of the supply continues. I think Mark referenced the buildup of the overall pipeline.
It's about when that comes to market. It's a timing issue, but the longer term view is that we still believe in that medium-term growth.
Mike, if I were to pick up just on that point for a second. Annually on average, we do expect MIS revenue to grow in the low- to mid-single-digit % range. That is coming off of two very strong years of issuance, 2020 and 2021. Yes, while there may be periods of short-term volatility like we're experiencing in Q1...
Mm-hmm.
The fundamental drivers of the business over the medium term really do remain intact. You know, I'd also add that given our medium-term outlook for MA and MIS, we do see a path organically to achieving MCO revenue growth of at least 10%. Then any incremental M&A that we participate in over the coming years will serve to augment the benefits that we're going to realize from some of these multi-year organic investments that we are making in the business.
Thank you. Just pivoting slightly, you've also been talking about but staying on the topic of medium-term growth targets. You set some for MA and I'm curious. Can you give us just more details on how you plan to accelerate growth in MA?
Yeah. Good. Okay, so maybe the first thing to say is, you know, we've got a pretty good track record of demonstrating growth. I think Rob mentioned 12%, the video mentioned 12%. The CAGR since we created the unit in 2008 is a 12% CAGR. I'll add in, we have very intentionally shifted the revenue mix more and more toward recurring revenue. We're in the mid-90s now. You've got a more predictable, you know, ballast to the business in some respects. We have great retention rates on that recurring revenue base. You've had really good organic net revenue growth from that recurring base in the last couple of years.
I think we're at 9% in 2020 net organic revenue growth, 10% in 2021, good sales in 2021, in the H2 especially. We, you know, our confidence levels are increasing here that, you know, the range of outcomes is starting to look like those medium-term targets make a lot of sense. I think we see, like you just said, a path organically to get there. I'll add in the growth vectors, you know, tremendous, you used the word juggernaut earlier. You know, tremendous, recurring base of revenue that's growing at very nice yields from existing customers, good new sales work, as well, and a tremendous distribution force, one we're very proud of, where we do a really good job.
Anyway, the confidence level I think is increasing. We feel better about it. You know, Isabel.
Yeah.
You're here and represent...
Yeah.
The sales force very well as our Chief Revenue Officer.
Yeah, absolutely. Let me build on some of the comments that you just made. If you think about what we've been doing over the last 18 months, we've been really focused on our vision as an integrated risk assessment company. We made a number of significant organic and inorganic investments to really accelerate our speed to market and be able to provide a much wider range of solutions to the evolving needs of our customers. That's bringing us wonderful set of opportunities right now because if you think about our customer base is growing and it is expanding and is diverse. Just to put things into context, we are serving over 14,000 customers globally across all segments and industries, and we're engaging with many, many more customer personas.
We're having conversations with chief compliance officers, with chief risk officers, with the head of underwriting, with sustainability teams, just to name a few. We've been able now to serve them through many more use cases. What this does is open a platform of cross-selling opportunities because now we're able to continue deepening and expanding those customer relationships. Now, the last thing I'll mention, please do remember, we are operating in high growth markets. We have a loyal and a strong customer base. You know, our customer retention rates are in the mid-90s, and we've been able to generate growth through upgrades and pricing in the high single-digit range. Overall, we feel very, very positive and have a great deal of confidence about the prospect of growth in the medium and long term.
Mm.
Thank you. The next question, I'm smiling 'cause IR gets asked this a lot. Pricing power, the 3%-4%...
Mm.
Across Moody's. Does this change now given inflation and market volatility?
Yeah. I'll take that one. This is really, I think, at the MCO level as well, Shivani. It's interesting because I got this question a lot as the pandemic was unfolding and people saying, you know, "What's gonna happen to your, you know, kind of pricing power and ability to pass through price?" I do not wanna sound glib. I used to run the sales team at MIS. You know, this stuff is tough work.
Uh.
I have the same answer now that I did then, which is, well, this is when our customers need us the most. If you think about, let's just take the perspective of one of our issuers for a moment. You're in the pandemic or now you're in this situation with tremendous market volatility. You're focused on market access, and it's really important to you that you have a credit analyst who's been through cycles, who understands your industry and who understands your company and can communicate that credit story effectively to investors. If you're a CFO or a treasurer, that's right at the top of your list of most important things to you right at the moment.
You know, that's what we're focused on delivering on, is delivering on that value proposition to our customers when they need us the most. It's not just ratings. I mean, you've heard, you know, Steve mentioned, you know. I would strongly encourage you to take a look at our KYC stuff out there.
Yes.
Think about right now, you running your customer list and trying to figure out whether you're doing business with sanctioned entities. The most important thing is that Moody's is helping you with that. Our approach continues to be, I always say this, a prudent long-term approach to price and to support the pricing opportunity. We think about how can we find ways to enhance that value proposition to our customers. In ratings, that means things like ESG, and it means things like helping them with sustainable finance. We're gonna be doing second-party opinions for our issuer customers. In Moody's Analytics, it's about the integration of content sets in places that they want and need. A great example is taking that climate content and putting it into our lending platforms or our commercial real estate platforms. That's valuable to our customers.
That's what, I think Shivani, that's really what supports, I think that, you know, kinda 3%-4% on average pricing opportunity across all of Moody's.
Right. It's intact.
It's intact.
We do get asked. The private credit markets have been growing significantly. Is that an opportunity for Moody's? Is it something you cover?
I'll take that one. To Shivani. MIS actually wrote a piece on this not long ago, where the private credit market has now topped $1 trillion. That is about 40% direct lending and about 60% through mezzanine funds and special situations. If you compare the private credit market versus the public market, one thing that's a big differentiator is the lack of transparency. The second thing is about the potential illiquidity of the position as a lender that you may find yourself in should there be a change in the credit environment. That's what the paper wrote about. Where we think the issue is where the opportunity is. It's in that transparency.
The opportunity to look at assessments, look at private credit ratings, look at overall evaluation at both a fund level and a loan level, and bring a greater level of transparency to a market. From the agency, we believe we've got some of the insights. We already rate the BDCs. The private credit market is much larger than that.
Yeah.
The opportunity is much greater. I actually also think about some of the stuff that MA can do as well, but I don't know. Steve, do you wanna talk about it?
Yeah. I mean, I think we should acknowledge this is all a part of the recipe or the formula, right? You've got content and expertise in the rating agency integrating different risks and understanding how they might apply to this new, you could call it an asset class. You could certainly call it another group of potential issuers of debt in whatever format it might take. Then we can collect, aggregate, synthesize that expertise and content and the opinions that the rating agency creates, package that up, and commercialize that like we do in the world of credit today. We have a very nice business there, of course. It's just a...
I think of this as just another example of us applying the integration of bringing the opportunity together in order to commercialize it through an integrated way.
Good question.
I think this question's coming off the comments of this morning about coming off a period of low interest rates, high and we're expecting high inflation, another shock driven by geopolitical risk. How are you thinking about the macroeconomic factors impacting Moody's and the broader economy?
Anne.
I can take that one.
Yeah.
Okay. I mentioned a few of the channels earlier, but I just, you know, hone in on a few things. I think the February forecast that Mark mentioned really set out our baseline view for global economic growth for the next two years for the G20. At that time, in early February, we basically said, "Well, actually we think growth momentum will continue. The picture looks pretty positive. It'll be slightly lower growth than last year, but still very positive growth. And then growth will start to taper in 2023 as things start to normalize." Of course, the Russia-Ukraine crisis injects some new risks into that outlook. We are reevaluating our macroeconomic outlook at this point, and we're focused on a couple of things.
One is the commodities prices that I mentioned, and it's not just oil prices and gas prices, but it's food prices. Corn and wheat come out of Ukraine in a big way. Those are gonna have some bigger spillovers for food prices. We're also thinking about business disruption. A lot of companies, and you're seeing this in the news every day in the last few weeks, pulling out of Russia, stopping Russia operations, disrupting their businesses, and either because Russia is an important supplier and input to their business. Think about the European industrial machine. A lot of it relies on European Russian gas to power itself. A lot of it relies on important inputs, certain commodities inputs.
Maybe it's palladium through the auto channel, or the auto sector, or it's important metals that come from Russia and Ukraine and into even the semiconductor sector. A lot of spillovers, and we're in the process of kind of digesting all of this and reevaluating our forecasts. I think there's a couple of things that help me get comfortable or a little bit more, you know, positive about things. One is that we don't know how governments are gonna respond, and Rob alluded to this. During the pandemic shock. Governments came in in a big way, both fiscal measures but monetary policy measures that really helped stabilize financing conditions for a lot of borrowers. Households, corporates, and banks really took a lot of stability from those measures.
There's nothing to suggest that governments can't do the same in response to this crisis. Also, broader issues like geopolitics and the global world order may prompt some countries to rethink how much they spend on defense. We've already seen that out of some European countries. That kind of defense spending, you know, can also be a type of support for the economy. Yes, there are some major downside risks. There are also some potentially mitigating factors. I think the macro view is still developing, still a bit murky, but...
Fluid.
Fluid, yes. Good summary.
All right. I'm gonna jump back, and I think this question comes from the Q1 update that we gave this morning, and it's related to, and I know we've done this on earnings call, but can we provide just color on the seasonality of our revenues and expenses given the Q1 update this morning?
Sure. I am happy to spend just a minute on this. We expect the majority of the MIS revenue or transactional revenue shortfall to occur in the Q1 .
Mm-hmm.
Appreciating that it is unlikely that we're gonna make up for that shortfall as the year progresses. That's really a direct result of some of the comments you've heard from us this morning, duration and the severity of the conflict in Ukraine, the prospect for multiple interest rate hikes, higher all-in financing costs really as the year progresses. The seasonality has obviously shifted. To the question from what we provided back in February as well as what we actually experienced in 2020 and 2021, where you saw more than half of the FY issuance occur in the H1 of the year.
Mm.
There are some positive signs in terms of the number of new mandates that we are seeing in underwriting. That has continued at a very strong pace consistent with what we saw last year. We have at least the 1,100 new mandates that we wrote last year that will provide a ballast in a way to MIS transactional revenue as the year progresses. On the expense side, we are taking action to partially offset the reduction in revenue. We wanna be smart about the approach that we take here, so we may temporarily deprioritize some of the lower priority initiatives. We're gonna certainly want to accelerate some of the real estate optimization. We're gonna look to continue to progress on the automation programs and process improvement programs that we have in-house.
We definitely will exercise that muscle. I wanna emphasize again, and this is really important as we think beyond just the quarter, we will look to invest approximately $150 million back into the business this year in some of the high priority markets that you heard from Steve and Mike.
Mm.
In addition to that, another approximately $50 million to attract and retain the best talent so that we're able to effectively and comprehensively execute on our medium-term priorities and objectives.
We as a management team frequently have a discussion when we hit these kinds of situations, and we've hit many of them, right? The question we ask ourselves is, "Is this a structural change in the outlook for the ratings business?" That's due to what we think about market activity, but also the business dynamics for ratings. Is it structural or, excuse me, or is it cyclical?
Yeah.
That is really important in thinking about how do we then manage expenses. You know, at the moment, we think this is cyclical. Like, I mean, you're hearing from us, we think the medium term, you know, the foundation for debt capital market growth and for our business remains solid.
Mm.
At the moment, this is cyclical, and that informs how we then think about, you know, managing expenses.
Exactly right.
Okay. Just a topic that comes up quite often, so I'm glad it's being asked, is RMS. It's been six months, well, since September, since we closed. What have we learnt, and what are you most excited about? What does it impact any changes to the $150 million revenue synergies that we expect by 2025?
Six months in, where are you? Yeah. Thank you. The RMS. Everybody's probably familiar with what we're doing there. We're very excited about this. Our people are very excited about this. Our customers are very excited about this. This is one of those acquisitions where people sort of say, "that's a pretty interesting idea." So that's quite gratifying. We're busy at work integrating, you know, doing the work you would do with respect to systems and making the RMS family, well, making that group of people a part of our family. Some of that's you know, technology and infrastructure oriented. All that work is going on and progressing nicely. Maybe just as you would expect, we're working hard to think about what groups need to come together.
I was just in California, I think it was probably 10 days ago, with all of the leaders of all of the teams that are related to climate risk, climate change, and climate analysis. We met in the offices of the RMS headquarters, the group where they were originally headquartered, and had people from London and France, people from California and New York, and sat down and looked at what we need to do to bring our research, our data, and really some of the modeling capabilities that RMS brings to the table together to help understand physical risk and think about what we can do in terms of bringing products together. That's I think an exciting move for us, and we're already bringing...
We've literally officially brought the organization together. We have a team now dedicated to climate, and that's happened and been announced. The other group of people that we've merged and brought together organizationally is the sales group. In fact, our whole client coverage team is now brought under the Moody's umbrella and working together in our very new, you know, our team selling environment. We're excited about that. There's another one, Isabel, it'd be good-
Yeah. I'd love to-
If you offered a couple comments on that.
I'd love to add some-
Yeah.
Look, this is an exciting time for our business right now. With the acquisition of RMS, we're bringing best-in-class climate capabilities. We're also adding more than 400 risk models across 120 geographies that nobody else has. We're able now to open this cross-selling opportunity across many sectors and many industries. What is most exciting for me as I'm talking to customers is what we are hearing from our customers and the incredible and positive response from our customers. We now have integrated the sales teams, and we're going out there seeing customers together. I thought I'd take a couple of minutes just to talk a little bit about what I'm hearing from customers.
I was talking to the Chief Risk Officer of a major insurance P&C company in Europe, and he told me that he has three major priorities, enhance climate-related capabilities in terms of modeling, thinking more deeply about the cyber assessment to price risk, and then the third was around digitization, the underwriting process, so that he could pre-populate customer information. Let's think about this for a minute. With the RMS capabilities in climate and cyber, and then you add more than 400 million of private company data that we have, now we can answer those three questions, and we are now the partner of choice for this customer. This is an example in the insurance, right? We're talking also with government institutions because we're helping them to figure out what is the climate impact to critical infrastructure. Just think about ports, think about military base.
What is most exciting is our banking customers. We have over 2,000 banking customers that now, with RMS capability, they are able to have a financial estimate due to physical risk on a very specific location of a building. Think about whether they are residential or whether they are commercial real estate. As you can imagine, huge excitement and huge opportunity.
Mm.
Thank you. Sorry. Get this up and running. Sorry. Just trying to get to Slido. It's gone quiet for a second.
Mm.
Shivani, can I surmise?
Sure.
That we may get a capital allocation question?
Mm-hmm.
Yeah.
So maybe let me-
Yeah.
Talk about capital allocation just for a minute while you continue on with the...
I think we are gonna get asked about bolt-on acquisitions.
I...
So-
Just surmise.
You know, what's happening in the next 12-18 months in integration.
Thank you.
You wanna talk about that.
Capital allocation priorities remain unchanged. Thank you.
Thank you.
We think, you know, ultimately the approach that we take, you know, really helps to optimize the long-term value for our stakeholders. I know you've heard me say this before, but it's really important. We really do optimize and prioritize organic and inorganic investments back into the business. That's really because it brings us the suite of talent, products and solutions and insight that, you know, help to enrich our overall ecosystem that you've heard us talk about this morning. Once that organic investment or inorganic investment process is complete, we do look to return capital to stockholders. There are two key messages I wanted to share this morning. One, we are reaffirming that we will look to return at least $2 billion of capital to our stockholders this year.
Again, subject to available cash, market conditions, M&A opportunities and other ongoing capital allocation priorities. Of that $2 billion, we're reaffirming at least $1.5 billion will be through share repurchases this year. That includes the $500 million ASR that will complete in the H1 of this year, as well as $500 million in dividends. Maybe just my last remark, we will continue to anchor our capital strategy around a BBB+ rating. We do think as a management team that provides us the best balance between lowering the cost of capital and ensuring financial flexibility. Good on time?
Good on time. Thank you.
Okay.
Now Slido's back up again. It's...
The pandemic has taught us to be agile.
Yes, absolutely. That's actually on the topic of acquisitions. We've done a number over the last 12-18 months. Are we busy integrating? You touched on RMS earlier, Steve. How is the integration going across the business?
It's true, we've made a few acquisitions recently. I guess maybe the way I'd answer that question is just big picture. Just how do we think about all this? This is a part of our product development program, the way we think about responding to customer needs. In a lot of ways, we have our product roadmaps. We have, you know, a bunch of people who are working hard to understand what customers are looking for and then weaving the understanding of that into new value propositions and thinking about how we can bring those things together.
A big part of the idea behind these acquisitions we've made is to make sure that they integrate with our existing products and help us to round out the value propositions and the help our customers do their job every day. You know, we have a great organic product development program as well that's been going for years and years, but this supplements it. I mean, a couple good examples, of course, would be if we think about PassFort or Kompany, you know, in light of what we've been talking about today, those are really good examples.
PassFort was a company we bought that specializes in a workflow technology that helps to bring customers on board and do checks and screening to make sure that you're comfortable doing business with them. That's a workflow technology that we of course we're looking forward to building and we're gonna accelerate our time to market and our ability to respond to customer needs with that right away. Kompany's another example of that, where Kompany goes out and confirms that organization exists with the local national registries or the local authorities and does it through API technology so that as you're considering this name, and maybe it's a supplier or maybe it's a customer you're gonna do business with, PassFort's workflow capability helps you keep track of that.
Kompany does an API call out to maybe the authority in Germany to confirm that that particular entity exists, which is in and of itself a useful thing these days. I think that's maybe a fair way to describe how we think about these acquisitions and the integrations.
Steve, maybe to give you a little insight, you know, when we're contemplating these acquisitions, you know, Steve referenced we've got these product roadmaps, obviously, as you'd expect, right? What do the customers want and need? What are we missing? Where are the gaps? Well, one thing that gave us great confidence around PassFort and Kompany was the customers were already asking-
Right.
For integration of these. There was integration of Kompany and Orbis and Grid into PassFort.
Right. That already existed.
The customers were leading us to that, and we said, "Okay, having this workflow platform will be really important for us 'cause now it allows us to integrate all of our content sets into this workflow platform." That stuff is critical, especially in this kind of M&A markets.
Mm.
It's really, really frothy. You've gotta be the right owner.
Right.
One way to get confident you're the right owner is the customers are asking-
Right.
You know, you too, to pull these capabilities together.
Very good point.
Just on kind of following up from that and just kind of we've been evolving and changing a lot, you know, how do we think about the customer engagement model and ensuring that we're keeping pace with customers? Rob, just touching on what Isabel...
Yeah. Perhaps I'll take that one. Look, when we think about our customer engagement model is really focusing on leading with customer centricity and really creating additional and focus on reinforcing, getting to know our customers really well. We have been evolving, and we now organize our customer engagement model and our customer teams by customer segment. We have re-emphasized the orientation towards use cases, which is really important, and we have sharpened our focus on solution value selling. Why this is important because that enable us to bring different pools of talent and expertise and skill set to engage with our customers at the right time, in the right place with the right customer.
We have been very focused on investing in a number of roles to help with that customer engagement. We have now relationship managers, we have industry practice leads, we have sales specialists, and we have customer success team that are really focused on making sure that our customers are extracting most value for the solutions that they are engaging with us. I would also say that this ecosystem of roles enable us to serve our customers deeper and wider in those discussions as our customers are really having multi-dimension and multifaceted problems to deal with today. The last thing that I will mention, we're very focused on building a scalable go-to-market strategy.
We are implementing a number of best practices and standards in our go-to-market, like thinking more deeply about customer segmentation and where we should be spending most of our time. Thinking about standards around incentive strategies, and how we onboard and upskill our talent, so we can drive more productivity and really enhance the customer experience as we engage with all our customers globally.
Yeah. Isabel, that's a great point, and I think it's an important takeaway here because we've been getting asked a lot of questions about...
Yeah.
Well, what's been giving you confidence to
Yeah.
To hit these medium-term targets? When we're talking about capabilities and new mar. This is an important part of...
Mm.
Of what's giving us confidence is that reorientation, solutions-based selling.
Mm.
It's an important takeaway.
Yeah.
Touching now on ESG, we get asked a lot, and this question is asking us about our approach versus some of our peers. We talk about our strategy in the space of ESG.
Yeah. Let me take a crack at that. I'm gonna talk about ESG and climate together, and I would say that we continue to hear that our customers, they want us here. They appreciate our transparency and our rigor, so they, you know, they want us to be in this space. As you think about ESG, maybe I'm gonna think about it in terms of we're thinking about how do we drive relevance.
Mm.
With our ESG products? I mean, that at the end of the day, that's one of the ways that we compete, right? You're relevant. Your views matter. And so if you think about what we're doing around ESG scores and building out our coverage and reinforcing our relevance, it starts with. You've heard reference already today about the fixed income investors are asking us, "Well, what's the impact of E, S, and G on credit ratings and credit profile?" Well, we're building out that coverage, engaging with our issuers. Our analysts are engaging with issuers, and we're gonna have, by year end, something close to 10,000 ESG Credit Impact Scores where we're engaging with our customers on ESG, impact of E, S, and G.
Mm.
If you think about the information available to us, so that's information as part of our rating relationship. You've got broader than the rated universe. You've got, I'll call it kind of the public company universe, and there the disclosure and availability of information is varied. We've got scores that then cover, you know, thousands and thousands and thousands of companies that are both rated and unrated that are used for things like portfolio construction and monitoring. You think about private companies, and that's really, you know, you think about in our wheelhouse.
Mm.
We have developed something called an ESG Predictor Score. It's out there. I encourage you to look at it. We're producing modeled ESG scores and with climate and carbon data as well that we're modeling.
Mm.
On over 140 million companies. We're integrating that into things like, again, you know, whether it's commercial lending or it's know your supplier, sustainable supply chain solutions.
Yeah.
There's a lot of interest in understanding the ESG and climate profile of who you're doing business with. I think that, you know, that's a really interesting way for us to be able to compete and leverage those massive company data sets along with our ESG and climate expertise. Let me move to climate for just a moment.
Mm.
Climate, I see two distinct areas for us. One is around understanding the physical impacts of climate change, and we've talked a little bit about that already.
Yeah.
Isabel touched on it. We see RMS as a very important component of that because of the models and the data and the expertise that they have. This is banks understanding physical impact of climate change across their portfolio, complying with stress tests. It's corporations thinking about supply chain vulnerability. It's governments, like Isabel said. The next is around carbon transition.
Mm.
This is where there's a very significant gap in the market today. Many, many companies and countries have put out net zero targets. That's great. I saw some Oxford study that something like 80% of the world's economy is covered by net zero targets. That's super. The same study says about 20% of those are deemed credible. The market is asking, "Okay, you put out a net zero target...
Yeah.
How are you gonna get there?
Mm.
What does it involve?" It's gonna involve a change in your business mix. It means you're gonna do acquisitions and divestitures, capital allocation, R&D. There'll be new regulations. It's in order to achieve that net zero target, the market is gonna need insight, and the market's gonna need to understand what a common decarbonization pathway looks like for any given industry, and how is then a company doing relative to that decarbonization pathway. This is important because there are going to be trillions of dollars of capital that's gonna get allocated to finance carbon transition over the next two decades. We have a real role to play there, we believe.
Yeah.
We've rolled out these Carbon Transition Assessments. We have deep climate. We're building carbon data, and we think we have a real role to play in helping the market there.
This came up on the earnings call, and we mentioned it again this morning, which is why I think we've got the question. The $150 million of investment, where is it going exactly?
Mm.
Mm.
Yeah. Where is it going? Some of the things that you've heard today, fortunately, right? First is around sales and go-to-market. We're building out what Isabel talked about. We're further building out those sales and go-to-market capabilities. That's important. Second, we're building out product offerings. You heard, you know, we've talked about KYC. We've acquired, but we're also investing significantly organically against that product roadmap. Another place where we're doing that is in our banking business, where we've got that software-as-a-service transition in that business, ESG and climate as we've talked about, so investing in those product roadmaps. Third is around, I'm gonna say data access and technology interoperability.
Yeah.
I never talk to a customer who tells me they don't want our datasets integrated into some of our technology platforms. I never hear that. I always hear, "When are you gonna get more of the data into more of your offerings?
Yes.
Right? "When are more of these offerings gonna be working together so I can get more holistic, you know, a more holistic solution?" We are investing in data access for our customers through a variety of different channels and data and technology interoperability where the customers want and need it. We're not making things all work together just because it's we think it's a good thing to do. Where the customers want that integration.
That's where we're investing. You heard Mark talk about you know, I would be remiss if I didn't say we're investing in our people. In order to achieve this strategy and those medium-term targets, we've gotta have world-class people.
Yeah.
The needs at the firm are evolving. You know, you think about the skill sets that we need, you're bringing in climate and technology developers and those kinds of things, so we're investing in people. I don't wanna leave out also we're investing in the rating agency. As I said, it's one of the world's great businesses, and there's a real opportunity for us. You saw us invest in domestic markets. You hear about us making investments in ESG. Mike, maybe just a second on how we're, you know-
Yeah
Kind of investing there is probably worthwhile.
Yeah. Just picking up on two things. First of all, getting in front of the market, and second, going where our customers expect us to be. When I think about domestic markets, domestic debt markets, they are the future cross-border markets, and that's where we will continue to play. There was a great data point I picked up, actually, from the UN, and that about 55% of people live in cities at the moment. By 2050, about two-thirds of the global population will be in urban areas. That means over that period, about 2.5 billion people will be moving, and 90% of those movements will be in Asia and Africa.
If you think about the reference that we had to our intent to purchase GCR, that's some of the underpinning rationale when you think about the growth in those markets and those economies and the infrastructure. We've already talked about ESG. We need to get the skill sets. We need to build out our ESG capabilities. The same goes for cyber.
Mm.
We haven't touched much on cyber, but if you read every day, there's something about cyber. How do you base that? How do you incorporate that into a corporate strategy, and what is the cost and what is the impact? You've got the technology. Our customers expect us to be delivering all these insights in a very different way, research, data, ratings. They want it faster. They want it digitized. We have to think about how can we get there. That's quite a bit of the investment. From my side is risk and making sure that you're making good decisions in the markets that you're going into. As we can see, there's a lot of volatility out there. Understanding the risk in order to create the value.
That's what we're trying to do in MIS, and I'm very grateful to Mark and Rob for allocating funds to.
It's a great business, and we're gonna keep it that way.
Uh.
Yeah.
I'm gonna keep on the theme of great businesses and we, you know, KYC, we've referenced it, and I think people want to know, you know, why is it growing? Why is Moody's doing so well in this space?
Yeah.
Mm.
Perhaps I start, and then.
Sure.
I'm sure everybody has these very strong opinions in this panel about KYC. Look, there is an incredible and an increasing demand for KYC checks, right? You think about regulations globally are impacting not just banks, but also corporations and also insurance companies. It's not going to decrease. It's actually going to increase over time.
Yeah.
It's a rather difficult thing to do, right? Because you need to understand, have the right data, you need to have the right tools and technology and the expertise to do this really well, to do that at scale, and to do that accurately. When I think about the customers that we're engaging with, they want to answer the question, Should I be? Why should I be? Who should I be doing business with? That's number one. Number two, Why does it matter? Then I have to be able to do that at scale, and I have to do that constantly and continuously. Just think about the consequences of doing business or boarding a customer with unethical business practices. Just think about potential customer boycotts, reputational risk, right? Regulatory sanctions. You talked about interpretability before.
This is the perfect example of what we have done. We have brought datasets that nobody else has on individuals and private companies. We have brought workflow tools, and we've brought screening capabilities and expertise and able to provide an end-to-end solution to answer the questions of our customers have.
Yeah. I would encourage you to take a look at what we're calling this Omni out there. It's kinda pushing the boundaries of what we think we can do for our customers, and we're thinking about integrating into CRM platforms where, you know, before you're even thinking about originating a customer relationship, you say, you know, "Do I want to? Can I, and do I want to?" And then you're able to monitor that. You've heard us again. I made this point, and I think it's worth reinforcing. You know, you've heard us talk about this, you know, understanding the risk of who you're doing business with.
Yeah.
That's what customers are dealing with right at the moment. Do I really understand who my customers are?
Rob, they are suppliers.
Yes.
They are customers.
Business relationships.
Business relationships of any kind.
Yep.
Yeah.
I think we're almost at time, so I'm gonna squeeze in just a question that is not on the Slido, but I know given we've been talking about volatility, we've been talking about uncertainty, we've used the phrase fluid. Just Rob, what keeps you up at night? There's a lot going on in the world at the moment.
Oh, wow.
I suppose I could go through a laundry list of things that could keep me up at night. You know, a number of the things certainly that you know, Anne and Mike talked about. There's no shortage of risk. I'm gonna come back, Shivani, to this theme of but that's exactly when our customers need us the most. You know, this idea of who am I doing business with, this idea of what are the impacts of what's going on globally? And there are few organizations that have the reach and the breadth and the coverage and the expertise to be able to give the kinds of insights and support that we're giving to our customers. Am I concerned about the current market volatility and the near-term impacts and managing through that? Yeah.
You know, of course, I'm concerned about that. As I think about our role and how we serve our customers, I guess, Shivani, I'm gonna leave the audience with it really isn't about, you know, what keeps me up at night. It's these things that are giving me real confidence about our future.
Thank you. That ends the recorded section of today's events. Thank you to our virtual audience and also our audience who are in the room. We're going to cut now for a short break, and after the break, we will have 1 hour and 20 minutes of just networking and Q&A. If your questions weren't covered in the panel...
Mm-hmm
There will be plenty of opportunity for all of you to get them addressed.
Yep.
Thank you very much.
Thank you all.
Thank you.
Thanks.