Daily ESG Briefing: Sovereign credit ratings at risk from stranded assets, warns Fitch

The latest developments in sustainable finance

Countries reliant on fossil fuel exports could see their sovereign credit ratings slashed, according to new analysis from Fitch Ratings. The credit ratings agency has released a report detailing long-term stranded asset risk as demand for fossil fuels declines. “A simulation on FitchRatings’ Sovereign Rating Model (SRM) suggests the fairly direct effects could lead to a fall in the SRM output by around one rating notch by 2040 and two to three notches by 2050 for a major oil exporter,”  it said. Countries in the Middle East and Africa, for whom fossil fuels form a large proportion of GDP, will be particularly badly affected, the note finds – although diversification of the economy and sovereign wealth funds can help mitigate this risk.  

The London Stock Exchange Group claims to have become the first global exchange firm to commit to Net Zero by signing up to the Business Ambition 1.5°C initiative. The group, whose goals are approved by the Science Based Targets initiative, says it will reduce its emissions by 50% by 2030, and engage with its suppliers to set Scope 3 emissions targets by 2025. The London Stock Exchange will also become the first exchange to launch a dedicated segment for transition bonds.

Norges Bank Investment Management has told Reuters that it will vote against the nomination committees of companies without at least two women on the board, unless they have clear plans and targets, or the balance has been affected by recent resignations. Last year, the investor voted against the committees of 16 European and US companies with all-male boards. 

New research by asset manager PGIM, formerly Prudential Investment Management, has found that 40% of global investors don’t incorporate climate change considerations into their investment processes. The Weathering Climate Change report surveyed 100 institutional investors and interviewed 30 leading academics and scientists. Among its other findings were that not enough investors are taking advantage of geospatial data to understand climate risk, and that investors should be more aware of ‘hidden’ climate risks across their portfolios.

The University of Wales has launched a research project investigating the role of sustainable finance in supporting the goals of the Paris Agreement. The researchers are looking for respondents from financial organisations to a short survey.