Policy more risky to credit than climate threats warns agency

Policy and regulation in environmental, social and governance (ESG) matters present greater credit rating risk to corporates than actual ESG issues according to a recent report by Fitch Ratings. But the water sector is “one of the least vulnerable,” according to Fitch.

Fitch described as a “key finding” its observation that while physical risk can be addressed through investment, “societal and regulatory pressures could completely eliminate sectors exposed to policy-driven changes.” It said there were “significant differences between sector and sub-sector vulnerabilities not only over time, but also between countries and regions.”

The ratings agency said water sector success in combating climate change impacts required government incentives to invest. Fitch said higher customer bills that follow on from greater investment may cause adverse policy shifts: “Regulatory regimes may come under pressure and renege on past promises on investment returns in the sector,” warned Fitch.

“Nonetheless” Fitch added, , “its importance to human wellbeing means that we see the water sector as one of the least vulnerable across the corporate universe even out as far as 2050.