MSCI offers new metric on corporate climate risks

In response to growing investor concern about climate change, MSCI Inc. has developed a metric to give investors a reading on corporate climate risks.

MSCI created Climate Value-at-Risk (Climate VaR) to provide investors with assessments of the potential impact of climate change on companies’ valuations.

“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 firm said, noting that Climate VaR covers more than 10,000 companies, along with their equities and corporate bonds.

“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,” said Remy Briand, head of ESG at MSCI, in a statement.

“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,” he added.

One of the key physical risks of climate change is the heightened threat of flooding.

MSCI reported that its analysis of flooding risks found that almost 7% of global facilities owned by companies that are in the MSCI ACWI Index are threatened by coastal flooding risk, and nearly 62% have at least one facility in a flood-prone area.

“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,” said Oliver Marchand, head of climate risk research & development at MSCI.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.