- Tool measures impact of climate change on company
valuations
MSCI Inc. (NYSE: MSCI), a leading
provider of critical decision support tools and services for the
global investment community, has today launched a solution to help
investors assess their exposure to climate related risks and
opportunities.
The MSCI Climate Value-At-Risk (Climate VaR), provided by MSCI
ESG Research LLC, provides forward looking and return-based
valuation assessments to measure the potential impact of climate
change on company valuations. It provides financial institutions –
including investment managers, banks, asset owners and insurers –
with the means to identify assets that may be at risk from the
worst effects resulting from climate change, while helping to
identify innovative low carbon investment opportunities, through
security specific modelling.
The tool provides insights into the potential stressed market
valuation of investment portfolios and downside risks, translating
climate-related costs into potential valuation impacts. The tool
covers more than 10,000 companies, assessing all their associated
equities and corporate bonds within the analysis.
The framework is closely aligned to the G20’s Financial
Stability Board’s Taskforce on Climate-Related Disclosures (TCFD),
helping investors seeking to enhance their reporting in a time of
increasing regulatory requirements.
Remy Briand, Head of ESG, at MSCI, commented, “The
world’s attitude to climate change is rapidly evolving due to
dramatic environmental, social and governance shifts driving a move
to a low-carbon economy. As we reach this inflection point,
investors are now publicly expressing a desire to take action and
address the urgent reality of climate change themselves, and they
are also urging others in the investment industry to do so too. As
a result, managing climate risk has become an increasingly
important tenet of the investment process along with the ability to
measure the impact of climate change and build portfolios resilient
to climate risk.
“Until now, investors did not have the tools to measure the
potential impact of transitional or physical risks or the economic
impact of climate change on their portfolios. The launch of the
MSCI Climate VaR is the result of MSCI’s commitment to create
solutions to support investors in the critical quest to integrate
ESG considerations in their portfolios. We acquired Carbon Delta in
2019 and MSCI Climate VaR combines MSCI ESG Research’s industry
leading capabilities in ESG risk management and Carbon Delta’s
expertise in climate change scenario analysis.”
Navigating all aspects of climate related risk
The MSCI Climate VaR has four main applications for
investors:
- Policy transition scenarios: The policy scenarios
aggregate future policy costs based on an end of the century time
horizon. By overlaying climate policy outlooks and future emission
reduction price estimates onto company data, MSCI’s model provides
insights into how current and forthcoming climate policies will
affect companies
- Innovation transition scenarios: The low carbon
technology scenario is based on company specific patent data,
providing insight into the strategic investments companies are
making to help the transition to a low-carbon economy
- Portfolio warming potential: the warming potential
methodology computes the contribution of a company’s activities
towards climate change, delivering an exact temperature value that
signifies what future temperature a company’s activities are
currently aligned with
- Physical risks and opportunities: The physical scenarios
evaluate the impact and financial risk relating to several extreme
weather hazards, such as extreme heat and cold and flood risk.
Actionable insights for investors
The MSCI Climate VaR provides a range of insights into the
physical risks associated with severe weather hazards such as
flooding.
Drawing on MSCI’s asset location database, which comprises more
than 600,000 geo-referenced assets, and through financial
modelling, MSCI ESG Research can assess the associated financial
risks related to asset damage and business interruption. This
enables the attribution of costs to individual enterprises and
feeds into the calculation of MSCI’s Climate VaR metric.
Analysis reveals that nearly 7% of global facilities owned by
MSCI ACWI Index constituents are threatened by coastal flooding
risk and nearly 62% of index constituents had at least one facility
in a flood-prone area, underlining the importance for investors in
considering these risks and integrating this information into their
investment decision making.
Furthermore, Asia had the highest exposure to coastal flooding
risk, in terms of the number of facilities and the level of
potential damage at company sites with 6,257 facilities at risk in
Asia, with USD 2.25 trillion of revenue at risk1 between now and
2050.
The European Union had the second-highest number of facilities
at risk from coastal flooding (2,270), while the U.S. had USD 541
billion revenue at risk. Without significant investment in coastal
protection and adaptation, over half of the global assets at risk
could become untenable by 2050, according to MSCI Climate VaR.
Oliver Marchand, Head of Climate Risk Research &
Development, continues, “The flood risk analysis is just one
example of the powerful insights the Climate VaR can provide,
contributing to the identification and integration of climate
change risk in the investment decision making process.”
The MSCI Climate VaR was developed from MSCI’s Climate Risk
Center in Zurich, the focal point for the development of climate
change risk analytics and tools. The aim of the center is to
develop strong partnerships with leading academic and research
institutions around the world to advance the use of climate science
for financial risk analysis, building on the relationships already
forged by Carbon Delta.
MSCI announced it had acquired Carbon Delta in October 2019. For
more information, please visit msci.com.
About MSCI ESG Research Products and
Services
MSCI ESG Research products and services are provided by MSCI ESG
Research LLC, and are designed to provide in-depth research,
ratings and analysis of environmental, social and
governance-related business practices to companies worldwide. ESG
ratings, data and analysis from MSCI ESG Research LLC. are also
used in the construction of the MSCI ESG Indexes. MSCI ESG Research
LLC is a Registered Investment Adviser under the Investment
Advisers Act of 1940 and a subsidiary of MSCI Inc.
About MSCI
MSCI is a leading provider of critical decision support tools
and services for the global investment community. With over 45
years of expertise in research, data and technology, we power
better investment decisions by enabling clients to understand and
analyze key drivers of risk and return and confidently build more
effective portfolios. We create industry-leading research-enhanced
solutions that clients use to gain insight into and improve
transparency across the investment process. To learn more, please
visit www.msci.com.
The information contained herein (the “Information”) may not be
reproduced or redisseminated in whole or in part without prior
written permission from MSCI ESG Research. The Information may not
be used to verify or correct other data, to create any derivative
works, to create indexes, risk models, or analytics, or in
connection with issuing, offering, sponsoring, managing or
marketing any securities, portfolios, financial products or other
investment vehicles. Historical data and analysis should not be
taken as an indication or guarantee of any future performance,
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MSCI Inc.’s subsidiary, MSCI ESG Research LLC, a Registered
Investment Adviser under the Investment Advisers Act of 1940. MSCI
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or sell, or a promotion or recommendation of, any security,
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of the Information is intended to constitute investment advice or a
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______________________ 1 We define revenue at risk as the share
of current company revenue attributable to facilities affected by
specific extreme weather events or gradual climate shifts. To
allocate revenue, we use the global breakdown by country and map
country revenue to asset locations.
1ESG data provided by MSCI ESG Research LLC.
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