US index provider MSCI has launched a research product enabling investors to assess the climate risk of equities and corporate bonds within their portfolios.

The Climate Value-At-Risk (VaR) tool provides forward-looking and return-based valuation assessments to measure the potential impact of climate change on company valuations and help investors identify where potential stressed market valuations may arise and downside risks.

The product has four main applications including a low-carbon technology scenario based on company-specific patent data, which provides insight into the strategic investments companies are making to help the transition to a low-carbon economy, and a physical scenario tool that evaluates the impact and financial risk relating to several extreme weather hazards, such as heat, cold and flood risk.

Climate VaR also offers a warming potential methodology that 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.

“The world’s attitude to climate change is evolving rapidly due to dramatic environmental, social and governance shifts driving a move to a low-carbon economy,” said Remy Briand, Head of ESG at MSCI. “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.”

The framework is aligned to the G20’s Financial Stability Board’s Taskforce on Climate-Related Disclosures, which aims to help investors enhance their reporting in a time of increasing regulatory requirements.

MSCI analysis revealed that nearly 7% of global facilities owned by the 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.

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Published: February 1, 2020
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