As climate-related risks rise, the share of companies that are at risk of a credit rating downgrade due to elevated climate transition effects is on the rise too, Fitch Ratings reports.
In a report released Wednesday, the rating agency said 20% of the corporate issuers it rates could face a downgrade by 2035 due to climate-related risks — up from its previous estimate of 18%.
The revision follows a reassessment of the long-term climate transition risks for various corporate sectors, Fitch noted.
In particular, the risks facing the airline sector have increased, as have the risks for certain agricultural segments in developed markets.
“Issuers in more vulnerable sectors will, over time, face higher rating pressure from long-term climate risks, in the absence of mitigation efforts,” Fitch said, noting that 52% of the issuers at heightened risk are investment-grade companies.
The most at-risk sectors include coal-based utilities, oil and gas, and certain mining sub-sectors “due to significant emissions and lower demand forecasts,” Fitch said.
At the same time, sectors such as tech, media, telecom and waste recycling “will be less susceptible to transition risks,” and, certain sectors, including renewables, “will benefit from the energy transition,” the report said.
Additionally, Fitch said it believes gas-fired generation companies in North America have seen decreased climate risk, “reflecting rising demand from the power sector, new liquefied natural gas export terminals under construction, and favourable policy changes since the escalation of the Russia-Ukraine conflict in 2022.”
While Fitch said it doesn’t anticipate taking any immediate rating action driven by the rising risks, it will be closely monitoring “the transition strategies adopted by issuers facing higher climate vulnerability risk, to assess their substance, implementation and effectiveness.”