Big Oil suffered a fresh setback after one of the most influential rating companies warned it may cut the credit score of Exxon Mobil Corp., Royal Dutch Shell Plc and a plethora of other major energy companies due to “greater industry risk” associated with climate change.

The move by S&P Global Ratings comes as the oil and gas industry is on the ropes, unloved by equity investors and facing pressure from multiple policy makers after U.S. President Joe Biden put climate change at the center of his agenda.

“S&P Global Ratings believes the energy transition, price volatility, and weaker profitability are increasing risks for oil and gas producers,” it said in a statement on Tuesday. To factor this change, the rating agency said it had revised its industrywide risk assessment for the oil and gas sector to “moderately high” from intermediate.

If oil producers’ rating is cut, their cost of capital would likely increase, as debt investors demand a higher yield for the risk, potentially putting new projects at risk. Big Oil is already struggling to deliver strong returns on its investments, but so far has benefited from debt investors willing to lend it money at low interest rates.

Beside Exxon and Shell, S&P singled out Chevron Corp., Total SE and several other major Canadian and Chinese oil companies. It cut the outlook for BP Plc to negative.

The credit warning comes days after President Biden took office with an aggressive climate change agenda. On his first day, he signed an executive order for the U.S. to rejoin the Paris climate agreement and moved to limit oil drilling on federal land.

Big Oil has been struggling to keep equity investors on board, particularly after Shell and BP cut their dividends last year, shocking shareholders that have grown used to the reliability of fat payouts.

Cheap Credit

The companies, however, have so far had little trouble with credit, despite rising borrowing levels. They have typically been able to raise cheap debt to fund their multibillion-dollar projects, but that could change if credit ratings are downgraded and financing costs rise as a result.

With the exception of Exxon, whose rating was cut last March after prices collapsed, the largest oil companies in Europe and the U.S. have not suffered from a credit rating downgrade since the 2016 crude rout.

S&P Global Ratings warned the oil sector faces “significant challenges and uncertainties engendered by the energy transition,” which in turn would put “pressure on profitability, specifically return on capital.” During its golden years in the early 2000s, Big Oil generated returns in excess of 10 per cent, but in the last few years some companies have struggled to top 5 per cent.

The companies are scheduled to report fourth-quarter and annual earnings starting this week. Investors will be looking for more clues on how they’ll tackle the energy transition, after European majors last year pledged to become carbon neutral by the middle of this century, and there’s pressure on their American peers to follow suit.

The agency’s views, alongside rivals Fitch Rating Inc. and Moody’s Investors Services, carry significant weight among credit investors, which use their ratings to decide how to allocate their money. After suffering significantly during the oil-price collapse in early 2020, Big Oil has seen a recovery more recently, both in equity and credit markets.

Energy has rallied with the rest of the credit market, as expectations for fiscal stimulus and the roll-out of a coronavirus vaccine have boosted risk assets. Investment-grade energy debt trades around 131 basis points over Treasuries, hovering near a pre-pandemic low, according to Bloomberg Barclays index data.

S&P Global said it expected to resolve the credit-watch placements within weeks.