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Climate risks may lead to credit rating downgrades for one-fifth of global companies by 2035, according to a new report from Fitch Ratings.

Citing its new climate vulnerability scoring metric, the rating agency said that only about 2% of global companies are expected to face elevated climate risk scores by 2025, signalling a material threat of a downgrade. But that share rises to almost 20% by 2035.

Firms with elevated climate vulnerability risk scores are considered at risk of a rating downgrade due to their exposure to a rapid transition to a low-carbon economy between 2025 and 2050.

“The most prominent drivers of transition risks are the decline in oil use after 2025 or 2030, depending on the region, the decline in natural gas usage, the gradual phase-out of coal (although also with large variations across regions), a strong push for emissions reduction in heavy industry and buildings, and a rapid phase-out of internal combustion engine vehicles in key markets,” Fitch explained.

The sectors with the largest proportion of companies at an elevated risk are oil and gas producers, pipelines and midstream energy companies, it noted, with companies in these sectors accounting for almost half of the issuers with elevated climate risk.

Companies that fall just below the threshold of “elevated” risk are also potentially vulnerable to downgrade, Fitch said, as these companies “have business models that will need to adapt, sometimes through big capital investments,” to address their transition risks. This includes airlines and building materials companies, it said.