From within the big three credit ratings companies — Moody’s Investors Services, S&P Global Ratings and Fitch Ratings — warnings have already been issued, but these have gone largely unnoticed, IEEFA, a US-based nonprofit, said in a statement on Monday.
IEEFA notes that in June, S&P warned that climate change is becoming a “significant” driver affecting credit worthiness, but acknowledged that “very few climate-related rating actions” had taken place since early 2022; Fitch has warned that about 20% of corporates face downgrades next decade due to climate change, while Moody’s has said that credit risks linked to environmental, social and governance factors are rising.
In a recent analysis of an orderly energy transition by 2050, S&P Global Market Intelligence found that companies in five major carbon-intensive sectors –- airlines, automotive, metals and mining, oil and gas, and power generation –- faced a 31-54% downgrade risk. A disorderly transition, meanwhile, would raise the credit downgrade risk by a further 2%-20%, the analysis indicated.
IEEFA says rating companies could adopt near-term and forward-looking alternatives, for example, by forecasting future earnings or impact on cash flows from a climate risk perspective. And regulators should require credit rating committees to include non-voting independent climate specialists as members.