S&P warns 13 oil & gas companies of likely credit downgrading

February 24, 2021

The increasing competition from renewable energy has pushed global ratings agency S&P to warn 13 oil & gas companies of a likely credit rating downgrade – including giants such as Chevron, Exxon Mobil, Royal Dutch Shell and Imperial Oil. Others at risk of downgrade include Australia’s Woodside Petroleum, Shell Energy North America, Canadian Natural Resources, China Petroleum & Chemical Corp and French group Total. The rating agency raised its risk rating for the entire oil & gas sector to “moderately high”, due to the move away from fossil fuels, poor profitability and volatile prices. The downgrade will initially be kept to one notch, but S&P will not exclude increasing this to a two-notch downgrade upon revision due to industry risk and other material factors.

S&P’s move captures a looming reality: that businesses too slow to act on climate change will financially suffer in the approaching low-carbon economy. This is not the first hurdle that has been thrown at lagging industries as of late. More prominently, the world’s largest asset manager, BlackRock, will urge investee companies to disclose their net-zero 2050 plans, after constant accusations that the finance giant has been holding equity in highly polluting industries. This initiative does not come without shortcomings, as it seems it will simply request for companies to comply and will not demand that the targets are science-based. However, BlackRock’s move is both a positive step and a cautionary tale for those unwilling to change. Several other firms in the financial sector are also pledging to cut financial ties with climate laggards. Aviva recently announced it will fully divest from 30 oil, gas, mining and utility companies, unless they up their efforts to tackle climate change over the next few years. Bank of America has committed to a net-zero portfolio by 2050, and will work on the development of interim science-based emissions targets for high-emitting portfolios. Despite the loopholes and pitfalls, the finance giants are sending a message: the slow-to-act will take the hit.

Author: Irene Gracia