Climate-vulnerable countries push for credit rating overhaul

By Simon Jessop and Karin Strohecker

LONDON (Reuters) - A group of climate vulnerable nations is using a U.N. meeting this week to push for a credit ratings overhaul, arguing ratings should reflect climate resilience measures, an advisor to the group told Reuters.

The U.N. meeting in New York is the second of four to set goals for a major finance conference in Spain next year, where heads of state will look to step up efforts to meet the world's climate and sustainability targets.

At the forefront of the talks are 39 so-called Small Island Developing States (SIDS) - including Cuba, Haiti, Fiji and the Maldives - that are bearing the brunt of increasing tropical storms, flooding, erosion and rising sea levels.

Proponents of the initiative say the current ratings system undermines their ability to raise funds because it focuses on the potential economic damage from their exposure to the effects of climate change.

"For the first time, the credit rating issue is on the table and it's being negotiated," said Ritu Bharadwaj, director of climate resilience and finance at the International Institute for Environment and Development.

Ratings given by the "Big Three" agencies - Moody's, S&P Global and Fitch - consider the risks and potential for economic harm from climate change. However, they do not typically factor in the social and economic benefits of investing in climate resilience, said a report by the institute.

In response, a Fitch spokesman referred to several documents on the company's methodology but did not comment on the criticism directly. S&P and Moody's did not immediately respond.

A credit rating is essential to attract money from the world's biggest pools of cash - pension funds and other institutional investors. But just 13 of the SIDS have a Big-Three credit rating, and most of those are classified as sub-investment grade or 'junk'. For others, the cost of obtaining one can be prohibitive.

Many nations are expected to struggle to access the private finance seen vital to the total annual $1.3 trillion climate finance goal agreed at COP29 in Baku last month.

"We are pushing to redefine the credit rating and look at the opportunities as well as the risks, so it gives a more balanced view on returns on investment," Bharadwaj said.

The process of assigning credit ratings has come under scrutiny in recent years. The African Union plans to launch a new African ratings agency, arguing the Big Three do not fairly assess the risk of lending to the continent.

Describing the current ratings process as "illogical, punitive, and backward looking", Gastone Browne, prime minister of Antigua and Barbuda, told Reuters he wanted to see a "more equitable" system that was "fit for purpose".

(Editing by Christina Fincher)