MSCI says it’s launched a new tool to help investors assess companies’ exposure to climate risk.
The new tool, MSCI Climate Value-At-Risk, covers the associated equities and corporate bonds of more than 10,000 companies, according to a press release from the company. The tool provides forward-looking and return-based valuation assessments that consider the potential impact of climate change on valuations of the firms, MSCI says.
Using security-specific modeling, the tool aims to provide companies with a resource to spot assets potentially at risk from climate change while pinpointing low carbon investment opportunities, according to the press release.
The tool has several applications for investors, MSCI says.
First, the model allows insight into how climate policies will affect companies, according to the press release. Additionally, the tool can provide insight into companies’ strategic investments to transition to a low-carbon economy, MSCI says. Furthermore, the tool’s warming potential methodology can calculate a company’s contribution toward climate change, according to the press release. Finally, the tool can assess the financial risk related to extreme weather hazards, such as extreme heat and cold and flood risk, MSCI says.
For example, roughly 7% of global facilities operated by MSCI ACWI Index constituents — the index representing large- and mid-cap stocks across 23 developed and 26 emerging markets — face the threat of coastal flooding, and 62% of the index’s constituents have at least one facility in a flood-prone area, MSCI says. In the U.S., around $541 billion in revenue is at risk from coastal flooding, according to MSCI.
The Climate VaR tool also shows that more than half of the global assets at risk could become untenable by 2050 without substantial investment in coastal protection and adaptation, the company says.
“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,” Oliver Marchand, head of climate risk research and development at MSCI, says in a statement.
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