Climate risk is poised to become a more significant factor in sovereign ratings, according to Fitch Ratings. The agency has introduced a tool named Climate Vulnerability Signals (Climate.VS) to identify countries that are more susceptible to climate risks, thereby allowing for closer scrutiny of their ratings.
Fitch Ratings highlights that major fossil fuel exporters and smaller nations vulnerable to physical risks are the most at risk. The agency has developed Climate.VS to enhance its ability to detect sovereigns with higher potential exposure to climate-related risks, subjecting these ratings to further analysis and consideration.
Climate.VS evaluates the potential exposure of sovereign credit profiles to climate-related risks for the period 2030-2050, rating them on a scale from 0 to 100. Based on these assessments, approximately half of the sovereigns rated by Fitch are expected to have a Climate.VS of 50 or more by 2050. This indicates that climate-related factors could significantly impact their ratings. However, only 6% of these sovereigns are projected to have a Climate.VS of 70 by 2050, suggesting a potential downgrade by three notches. The most exposed nations are major fossil fuel exporters and smaller countries facing physical risks.
The risks up to 2035, which could prompt more immediate rating actions due to climate factors, are relatively limited, with only 7% of Fitch’s rated portfolio showing a Climate.VS of 50. The impact is expected to intensify between 2035 and 2050 as global demand for fossil fuels decreases, global temperatures rise, and extreme weather events become more frequent and severe.
It’s important to note that the actual rating impact may differ from Climate.VS indications, depending on factors such as future climate change, technological advancements, and issuer mitigation and adaptation strategies.
Climate.VS is also a valuable tool for long-term investors who are interested in understanding the potential impact of climate risk on ratings beyond the typical focus period for sovereign ratings.
The report titled “Global Sovereigns: Exposure to Climate Risk” is available at Fitch Ratings’ website. (Colombo/Feb9/2026)
