Two-Thirds of MSCI ACWI Exposed to Climate Risk

    Stockholm (NordSIP) – MSCI announced the launch of its Climate Value-At-Risk (Climate VaR) tool, a service to help investors assess their exposure to climate-related risks and opportunities.

    Provided by MSCI ESG Research and covering 10,000 companies, the Climate VaR provides forward-looking and return-based valuation assessments to measure the potential impact of climate change on company valuations. It allows investors 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 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.

    “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,” Remy Briand, Head of ESG, at MSCI, commented. “ 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,” Briand added. “ 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.” MSCI announced it had acquired Carbon Delta in October 2019.


    According to MSCI, the Climate VaR can be used to consider policy and innovation transition scenarios to consider how national and global climate policies and the technological investments that companies are making will affect businesses. The tool also allows investors to calculate the contribution of a company to climate change and allowing to match company emissions with the global temperature path its emissions are consistent with. Finally, the VaR will also enable investors to evaluate the impact of physical risks and opportunities facing companies due to climate change.

    According to an analysis conducted by MSCI based on its Climate VaR tool, coastal flooding risk threatens nearly 7% of global facilities owned by MSCI ACWI Index constituents. The research also showed that almost 62% of index constituents had at least one facility in a flood-prone area. Asia had the highest exposure to coastal flooding risk, with 6,257 facilities at risk in Asia, with US$2.25 trillion of revenue at risk 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 US$541 billion in revenue at risk.

    “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 & Development, argues.

    MSCI is not the first company to provide this service to its clients. Last year, NordSIP had the opportunity to hear from Ovidiu Patrascu, Sustainable Investment Analyst at Schroders about the asset manager’s inhouse Carbon VaR and its predictions.

    Image by analogicus from Pixabay

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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