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Investment-grade Firms at Risk of Climate Downgrades

More than 50% of corporations considered at risk of a climate-related downgrade by 2035 by credit ratings agency Fitch currently hold investment grade status. Within a 715-strong cohort, approximately 160 companies, constituting around 22% of the sample, have Climate Vulnerability Signals (Climate.VS) scores of 45 or higher by 2035, signifying “elevated” climate vulnerability, and a substantial risk of negative rating actions unless they take steps to mitigate these vulnerabilities. The data indicates that 56% of these high-risk companies maintain investment-grade ratings. The report shows that a relatively low percentage2.5% of these corporations face the prospect of a multi-notch downgrade with Climate.VS scores of 65 or above by 2035. However, this figure is projected to rise significantly to 17% by 2050. A significant portion of the high-risk entities operate within the oil and gas sector, including producers, pipeline manufacturers, and energy midstream companies, with vulnerabilities primarily resulting from stricter emissions regulations. Another sizable group is associated with coal operations, encompassing utilities with coal-fired plants, mining companies, and blast-furnace steelmakers. Building materials and industrial firms were also identified as facing increased climate risks due to tightening environmental regulations. Fitch Ratings introduced Climate.VS into its rating methodologies earlier this year, as part of its annual review cycle. These signals serve as a long-term tool for identifying transition risks. 

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