Credit ratings agency Fitch Ratings announced today plans to use its Climate Vulnerability Scores, which examine sector exposure to low-carbon transition risks, to enhance the process for identifying potentially credit-relevant climate-related risks for its corporate credit ratings for non-financials.
Fitch’s Climate Vulnerability scores provide the agency’s view of the creditworthiness impact of sectors, companies and debt securities to a rapid low-carbon transition between 2025 and 2050. According to Fitch, the scores were developed in response to a need by investors for a long-term view of transition risks, recognising the implications for instruments of different maturities and strategies, to help manage these risks and support security selection, portfolio management, risk management, monitoring and reporting. Fitch initially launched Climate Vulnerability Scores in 2021 for the utilities, oil and gas, and chemicals sectors, adding a broad range of new sectors last year.
According to a discussion paper by Fitch, the agency is proposing to use the sector-level Climate Vulnerability Scores to identify entities that are potentially vulnerable to climate-related risks, and subject them to additional analysis and consideration in credit rating committees for disclosure in entity-specific reports.
Fitch stated that it would not anticipate any issuers to experience rating changes as a result of the new proposed approach, but expects the proposal to put users in a stronger position to identify and react to the impacts of accelerating climate change policies.
Click here to access the discussion paper.