Fitch forecasts rise in sector vulnerability to environmental, social and governance threats

Fitch Ratings has forecast a doubling in global water sector vulnerability to impaired creditworthiness through environmental, social and governance (ESG) impacts by 2050.

In a wide-ranging report on international, pan-utility exposure to long-term stress from ESG developments, Fitch predicted the ESG risk to global water sector credit ratings – its “vulnerability score” (VS) – would grow steadily to 20 by 2050 from 10 today.

It said: “Regulatory regimes are more likely to come under pressure as investment needs rise over time due to rising populations and changing weather patterns. However, by 2050, the status of water as an absolute necessity should contain risk levels to a minimum, leading to a score of 20.”

It said the chief threat globally was demand for water outstripping supply. But in Europe it saw demand remaining flat or declining through greater efficiency in its use. “Companies in Europe will pursue leakage reduction, promote greater household water efficiency and explore regional interconnection, building reservoirs and desalination plants to increase supply,” it reported.

Fitch said the initiative behind the VS approach “follows feedback from investors requesting a longer-term credit view.”