Morningstar Sustainalytics, a leading provider of ESG data and research, has announced enhancements to its Physical Climate Risk Metrics product. The updated offering includes two new reports that provide investors with deeper insights into companies’ exposure, financial resiliency, and losses related to physical climate risk. These reports incorporate both direct and indirect risk metrics, aligning with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
In a scenario where global warming continues due to insufficient climate policy efforts, resulting in irreversible climate change and severe physical risks, companies within the Physical Climate Risk Metrics universe may experience significant financial impacts. On average, these companies could potentially lose $0.45 for every $1 of cumulative operating cash between now and 2050. The comprehensive dataset provided by Morningstar Sustainalytics enables investors to evaluate the financial implications of physical climate risks, taking into account a company’s revenue, physical asset value, and operating cash flow.
Azadeh Sabour, Senior Vice President of Climate Solutions at Morningstar Sustainalytics, emphasized the importance of such data and insights for investors to understand their exposure to financial risks arising from climate events. The Physical Climate Risk Metrics, combined with the recently launched Low Carbon Transition Ratings, offer investors a suite of climate-focused solutions aligned with the guidance of the TCFD.
The Physical Climate Risk Metrics assess the adverse impacts of climate change-related physical hazards, including storms, wildfires, and floods. Developed in collaboration with XDI (Cross Dependency Initiative), an acclaimed leader in physical climate risk analysis, these metrics cover a vast range of companies, sectors, assets, and countries. The dataset assists investors in aligning with TCFD recommendations, providing transparency regarding companies’ projected financial losses until 2050.
Traditionally, collecting and analyzing asset-level and climate data has been challenging due to limited resources and data availability. Morningstar Sustainalytics’ Physical Climate Risk Metrics addresses these issues, allowing investors to quantify the physical climate risks faced by their portfolio companies. The metrics offer various assessment views, including specific hazards, countries, estimated asset damage, revenue losses, time series, and climate scenarios.
The Physical Climate Risk Metrics are currently accessible as part of a standard package of five reports through Morningstar Sustainalytics’ Data Services. Later this year, company-level reports will also be available via the online client portal, Global Access.