• Collaboration offers investors new Physical Climate Risk Metrics that can manage physical climate risks and support responding to TCFD reporting standards

Morningstar Sustainalytics, a leading global provider of ESG research, ratings, and data, has established a strategic agreement with XDI, an award-winning global leader in physical climate risk analysis on companies and their operational assets. XDI specializes in statistical and probabilistic models that assess how extreme weather and climate change impact physical assets and business operations. With more institutional investors seeking sophisticated climate data and analysis to manage risks and fulfil climate disclosure requirements, Morningstar Sustainalytics, in collaboration with XDI, is well-positioned to deliver high-quality physical climate risk solutions. Recently, Morningstar Sustainalytics launched Physical Climate Risk Metrics which are powered by XDI’s state-of-the-art Climate Risk Engines.

The scenario analysis in the Physical Climate Risk Metrics quantitatively estimates the direct physical climate risks of more than 12,500 companies worldwide. This company-level analysis is underpinned by a database of over 12 million assets and facilities, enabling comparative analysis for investors. XDI’s Climate Risk Engines power bottom-up analysis of the relative exposure and vulnerability of companies to the physical impacts of climate change across seven physical hazards. The results are expressed as three metrics, including High Risk Assets, Asset Damage Risk, and Productive Capacity Loss. Investors can leverage this scenario analysis, comparable across different companies and industries, to support risk identification, climate disclosure requirements, product creation, engagement activities, and security selection.

See related article: Morningstar Simplifies ESG Investing with New Investable World

Physical Climate Risk Metrics is the first new offering in Morningstar Sustainalytics’ suite of Climate Solutions. The firm has been building its Climate Solutions unit as well as its product suite, research capabilities, and technology infrastructure to advance its innovation agenda. With more than 100 in-house professionals across a variety of disciplines, the firm’s unit is focused on meeting the needs of the financial services industry for climate-related research and data. The Climate Solutions unit is bolstered by Morningstar’s recent acquisition of Aquantix, a Montreal-based technology company that provides property-level climate risk data services for the real estate and mortgage lending industries. With an experienced in-house team, the XDI agreement, and Aquantix’s technology, Morningstar Sustainalytics can provide best-in-class climate solutions to its clients.

“Our institutional investor clients are looking for comprehensive climate tools such as ratings, research, and data to respond to TCFD and EU Action Plan reporting standards and to identify and mitigate their climate-related portfolio risks,” said Azadeh Sabour, Morningstar Sustainalytics’ Senior Vice President of Climate Solutions. “Our collaboration with XDI allows us to provide our investor and banking clients with high-quality insights and solutions so they can address the risks emanating from the climate crisis. We look forward to a long and successful relationship with XDI.”

“Accessing comparable and meaningful company-level physical climate risk data can pose significant challenges for investors seeking to align their investments to broader climate objectives,” said Rohan Hamden, CEO of XDI. “XDI’s ability to geospatially match over 12 million assets to the companies that own or lease them is a unique market differentiator. With our highly focused technology and Morningstar’s scale and expertise, investors can access a robust set of structured metrics to understand the physical climate risks that their portfolio companies may face. We are delighted to team up with Morningstar Sustainalytics and demonstrate the detail and reach of our modelling of physical climate risk to their institutional investor clients.”

Source: Morningstar Sustainalytics