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Reflect Climate Risk in Credit Ratings, Say Experts 

A new study has found that credit rating committees need to integrate climate risks more effectively into their assessments. The study, co-written by the Aston Law School and the Institute for Energy Economics and Financial Analysis (IEEFA), has recommended that climate expert panels sit on rating committees and called for “enhanced expertise” and transparency in integrating environmental considerations into financial assessments. Dr Daniel Cash, co-author of the report and a reader in law at Aston Law School, said: “In the evolving landscape of finance, it’s imperative that we recognise and address the substantial impact of climate risks on credit ratings […] Our findings point towards the necessity for a systemic shift in credit rating methodologies to include climate risks comprehensively.” In March, IEEFA published a report that demonstrated how environmental, social and governance factors, particularly climate-related risk, were not directly integrated into traditional credit ratings. Climate risks have had little impact on ratings due to the short-term nature of the assessment, making ratings less intuitive in providing an early warning. Because the problem is downplayed, debt issuers that face heightened climate risks in the long term may experience a cliff-edge rating change sooner than expected. 

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