HANOI (Bloomberg): Pork and beef producers in developed markets are becoming more vulnerable to credit downgrades triggered by climate-related risks, according to Fitch Ratings.
The firms face rising costs as a result of stricter government policies to promote cuts to emissions, as well as the introduction of newer technologies and improvements to manure management in pig farms, the credit ratings agency said on Friday in an emailed response to questions.
For pig producers, "emerging markets are significantly less vulnerable, given the stable domestic demand for pork and delayed implementation of climate policies,” Fitch said.
The beef industry is likely to be challenged in developed markets by shrinking demand as populations decline, along with health concerns and the impact of climate targets.
Global food systems account for about a third of emissions caused by human activity, with animal products responsible for about 60% of that total, according to the UN Intergovernmental Panel on Climate Change.
Fitch found that one in five rated corporate issuers could be exposed to downgrade risks by 2035 as a result of rising climate-related vulnerabilities, similar to a previous 2023 analysis. More than half of issuers with elevated risk levels are currently investment grade, according to a report published by the agency.
While coal-fired power producers - particularly outside Asia - also remain at downgrade risk due to the impact of climate action, the natural gas sector in the US is seen as having an improved outlook because of higher demand, the growth of the LNG export sector, and policy shifts since Russia’s 2022 invasion of Ukraine.
Both S&P Global Ratings and Moody’s Ratings have made similar warnings on climate-linked bond downgrade risks in recent years, though these typically haven’t translated into action impacting the more-than $140 trillion market.
Fitch "does not expect to take immediate rating action as a result of our revised climate vulnerability estimates,” the agency said in its statement.
Meanwhile, global equity valuations face potential losses of as much as 40% if emissions abatement rates continue at current levels, the EDHEC-Risk Climate Impact Institute said in a paper last month.
-- ©2024 Bloomberg L.P.
