VW Downgrade Underlines Climate Change Role on Ratings, S&P Says

  • Environment, climate change impact on ratings likely to rise
  • Industries most at risk include oil, gas, power markets

Environmental and climate risks are increasingly impacting corporate credit ratings as the example of Volkswagen AG’s downgrade this month demonstrates, rating agency Standard & Poor’s said in a report.

The rating company identified 299 cases where environmental and climate developments were a significant factor in influencing a revision or rating analysis, the company said on Oct. 21. It examined 38 industries since 2013, when it last changed its methodology.

A rating move or outlook change occurred in 56 cases, with most changes being linked to the oil industry, regulated utilities and unregulated power and gas producers, it said.

S&P downgraded Volkswagen to A- from A on Oct. 12, citing the company’s admission that it manipulated diesel engine emissions. 

“Alleged illegal behavior in the U.S., the inadequacy of internal controls, and the management of environmental and social risks were factors in our revised assessment of VW’s management and governance, which was the reason for the downgrade,” S&P said in the report.

Rating changes can be positive, the report noted. S&P in April 2014 upgraded Tenneco Inc. to BB+ from BB citing “its leadership position in clear-air products, an area that stands to benefit from stricter vehicle-emissions regulation and accounts for two-thirds of the company’s revenues.”

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