Fitch Launches ESG Vulnerability Scores, Starting with Utilities
Credit ratings agency Fitch Ratings announced today the launch of long-term ESG Vulnerability Scores (ESG.VS), with the release of a pilot report that evaluates the vulnerability of sectors’ and entities’ creditworthiness to ESG-driven risks up to the year 2050. The pilot report focuses on the Utilities sector, covering 29 subsectors.
According to Fitch, the new measure aims to illustrate the vulnerability of creditworthiness to an ESG-focused stress scenario, including policy changes required to achieve a transition to a low-carbon economy by 2050.
While most credit ratings tend to be focused on the near-term, ESG.VS considers factors that could impact creditworthiness over much longer timeframes, as GHG emissions are reduced over time, in line with scenarios to limit global warming to 2 degrees C. Vulnerability assessments are provided at five-year intervals throughout 2025-2050.
The new measures complement Fitch’s ESG Relevance Scores offering (ESG.RS), which the company introduced in 2019, designed to show how ESG factors affect credit ratings, by adding a longer-term dimension to the picture.
The agency chose to start with the Utilities sector, which is the largest corporate sector for bond issuance with $1.9 trillion of outstanding bonds, and with sector stability already being impacted by ESG issues, including government policies favoring renewable generation or policies to retire coal-fired or nuclear generation. Fitch stated that if the pilot report is well received, the agency will expand coverage to other corporate and infrastructure sectors, entities and their debt.