Fitch Ratings launches long-term ESG vulnerability scores

Fitch Ratings has launched a pilot report that evaluates the vulnerability of sectors' and entities' creditworthiness to ESG-driven risks up to the year 2050. The first report on Fitch's ESG Vulnerability Scores (ESG.VS) covers 29 utilities sub-sectors and is now available on the Fitch Ratings website for review and feedback.

ESG.VS illustrate the vulnerability of creditworthiness to an ESG-focused stress scenario, which includes policy changes required to achieve a transition to a low-carbon economy by 2050. The level of vulnerability is assessed at five-year intervals throughout 2025-2050.

If the pilot report is well received, Fitch intends to expand coverage to other corporate and infrastructure sectors, entities and their debt.

In contrast to credit ratings, which are weighted towards the near future, ESG.VS reflect pressures from ESG factors that could change ratings over much longer timeframes in a scenario where greenhouse gas emissions are cut sufficiently to limit global warming to two degrees Celsius.

The scores reflect Fitch's core scenario, the Inevitable Policy Response's "Forecasted Policy Scenario", as commissioned by the UN Principles for Responsible Investment, combined with adjustments to reflect the views of Fitch's sector experts.

This initiative is the next step for Fitch's ESG credit-related analytical activities and follows feedback from investors requesting a longer-term credit view, "beyond the rating horizon". 

ESG.VS complement Fitch's ESG Relevance Scores (ESG.RS) launched in January 2019, which provide insight into the material factors influencing an issuing entity's current credit rating.

Fitch has since published ESG.RS for more than 10,750 issuers, including more than 150,000 ESG data points. Fitch recently launched ESG.RS as a data feed.

Earlier this month, Fitch Ratings was named "Most Transparent Credit Ratings Agency for ESG" by "Environmental Finance" for the second year running.