Nearly 20% of global companies could see ratings downgrades by 2035 if they don't address their climate risks, according to climate vulnerability scores released Wednesday by Fitch Ratings.
That is how many companies Fitch estimates will have an elevated Climate Vulnerability Score of 45 or above by 2035. Nearly half of 315 publicly rated issuers above that threshold include oil and gas producers, pipelines and energy midstream companies.
Fitch calculated the vulnerability scores for more than 1,650 publicly rated, non-financial companies based on 2021 financial information. The scores measure financial materiality and the potential effect of climate risks on an issuer's creditworthiness and financial performance, with analysis based on the U.N. Principles for Responsible Investment's Inevitable Policy Response: Forecast Policy Scenario.
A company's score "captures our view of its credit profile's exposure to a rapid low-carbon transition between 2025 and 2050," Fitch said in a news release about the scores. The higher the score, the greater the vulnerability.
For 2025, only 2% of issuers have a score of 45 or above. About 10 companies in the power generation and agribusiness sectors have a low score in 2035 but a steep increase later, Fitch said.
The biggest drivers of risks to companies that aren't preparing for an energy transition, depending on the region, are declines in oil and gas use, a gradual phaseout of coal, the push for emissions reduction in heavy industry and buildings, and a rapid phaseout of internal combustion engine vehicles in key markets.
Companies scoring between 35 and 45, including airlines and building materials producers, will need to adapt as well, but their overall credit profile is less likely to be materially affected, Fitch said.
Fitch plans to update the scores annually for the companies and their sectors.