As climate change challenges the modern investment landscape, evolving marketplace expectations will require investors to disclose both transition and physical climate risks associated with their investments.
To help investors better understand their exposure to physical climate risks, Sustainalytics, in collaboration with XDI, an award-winning global leader in physical climate risk analysis, are introducing Physical Climate Risk Metrics (PCRM) as Sustainalytics’ first Physical Climate Risk offering to align with evolving reporting needs. XDI's analysis supports decision-making in finance, business, and governments worldwide, with detailed, investment-ready information for physical climate risk.
The Physical Climate Risk Metrics provide forward-looking scenario analysis on direct physical climate risks based on the assets a company owns or leases around the world.
XDI’s analysis has a proven track record for quality and excellence, operating in industry and with governments since 2016.
XDI’s award winning analysis is powered by the computational Climate Risk Engines that provide global scale assessment. Developed and tested in the market since 2006, The Climate Risk Engines now provide the most sophisticated analysis available world wide.
Issuer & Asset Coverage
Over 12,000 issuers with over 12 million assets & facilities are individually analyzed by XDI to enable deep analysis of an organization’s direct exposure to physical risks related to climate change.
Visibility of Business Activity Impact & Asset Impairment
Moving beyond basic exposure assessment, the analysis includes insights into both activities and direct damage to assets independently.
Geographic & Hazard Coverage
Physical Climate Risk Metrics currently provides a global analysis of 7 hazards (coastal inundation, extreme heat, extreme wind, flooding, forest fire, freeze-thaw, and soil subsidence).
Universe & Industry Ranking
Each metric ranks issuers in combination with the year and climate change scenarios, making it easy for investors to compare the issuer’s direct physical climate risk compared to that of its industry peers, similar types of assets, and activities.
How We Build Our Reports
Physical Climate Risk Metrics assess the inherent risk of an issuer to the increasing severity and probability of physical hazards brought about by potential changes in climate. It does this through evaluating the possible occurrence of different physical hazards across an issuer’s portfolio, as well as independently assessing each asset’s vulnerability to each type of physical hazard.
The results of this assessment can be accessed through three distinct reports by subscribing to our Data Services.
XDI's Analysis Features
Engineering-Level Asset Vulnerability Assessment
XDI uses material-specific models to define asset-level vulnerability to specific physical forces that arise as a result of physical hazards.
Global Bottom-Up Exposure Assessment
XDI’s proprietary Asset Discovery Process creates an extensive asset-level database of more than 12 million assets. This enables the identification of which assets are exposed to which hazards, and how that may change over time.
Hazard Risk Data
High-resolution estimations of future probability and severity of natural hazards are produced at a local level, incorporating weather and contextual geographic data. The output is hazard risk maps for a range of 7 hazards that are applicable in the long and short term for the entire planet.
Climate Risk Metrics
High Risk Assets: The degree of direct exposure.
The percentage of a company’s total assets under a high risk of damage from physical hazards.
Asset Damage Risk: the relative vulnerability to direct infrastructure damage
Relative Average Annual Loss due to direct damage as a proportion of total replacement cost
Productive Capacity Loss: The disruption in productivity.
The percentage of annual productivity disruption due to component failure, damage, repairs, and non-physical damage-related loss (e.g. disruption heat stress) of own operations.
Companies are ranked universally and by industry, for each of the 3 metrics: High Risk Assets, Asset Damage Risk, and Productive Capacity Loss. Assessments and rankings are calculated across RCP2.6 and RCP8.5, as well as for five points in time: current research year, current research year + 5, 2030, 2050, and 2100.
The results in Global Climate Risk Metrics are broken down by hazard, providing analysis of which hazards contribute most to a company’s overall risk metrics.
The results in Global Climate Risk Metrics are broken down by asset country, providing analysis of where a company’s risk is distributed across the globe.
For asset owners & managers to assess exposure to physical climate risks through their investments in public capital markets and to report on those risks in response to reporting requirements (e.g., TCFD, other emerging standards).
Manage portfolio exposure through company/security evaluation & screening. Derive proprietary physical climate risk data and insights for stock valuation, universe, or portfolio construction.
Inform management processes & policy requirements with transparency on which, where, and how physical climate risks may impact issuers’ across different time periods and scenarios (across all countries and hazard types).
A Single Market Standard
Consistent approach to ESG assessments across the investment spectrum.
Award-Winning Research and Data
Firm recognized as Best ESG Research and Data Provider by Environmental Finance and Investment Week.
End-to-End ESG Solutions
ESG products and services that serve the entire investment value chain.
30 Years of ESG Expertise
500+ ESG research analysts across our global offices.
A Leading SPO Provider
As recognized by Environmental Finance and the Climate Bonds Initiative.
With Sustainalytics’ Carbon Ratings & Research and Physical Climate Risk Metrics, investors can identify, assess and manage climate-related investment risks and opportunities.Learn More
Carbon Ratings & Research
Sustainalytics’ Carbon Risk Ratings assess a company’s carbon risk, driven by the transition to a low-carbon economy.Learn More
EU Action Plan Solutions
The EU Sustainable Finance Action Plan is arguably the most comprehensive and detailed set of regulations affecting the field of ESG investing. Sustainalytics and Morningstar are helping investors at every step of their compliance journey.Learn More
Related Insights and Resources
Banks’ ESG Risks Related to the Russia-Ukraine Conflict on Investors’ Radars
Investor interest in the banking sector remains high as the impact of Russian sanctions unfolds. Based on Morningstar Sustainalytics’ research, total unmanaged risk has increased for both Russian and international banks with exposure to Russian clients. To what extent have sanctions affected banks’ total unmanaged risk?
Leveraging Blockchain to Improve Supply Chain Management - A Case Study for Household and Personal Products Companies
With growing scrutiny from stakeholders—international regulators and regional governments, NGOs, the general public, investors, and financial institutions—companies accused of human rights violations and environmental damage in their supply chains face substantial risks.
ESG Impacts of the War in Ukraine: Global Food Supply
The invasion of Ukraine highlights the fragility of the global food system. The destruction caused by the war and subsequent trade restrictions on Russia, endangers a significant percentage of the global food supply coming from two of world’s leading agricultural commodity exporters, consequently prompting food prices to surpass the 30-year high.
Biodiversity loss and climate change call for a nature-positive economy – Stewardship may lead the way
Financial institutions funding the supply chains affected by biodiversity loss stand to lose right alongside farmers, producers and retailers—and so, in turn, do investors. ESG stewardship continues to be a powerful investor instrument to mitigate risks on a changing planet. With growing expectations of double materiality, it is an opportunity for investors to have a greater societal impact and support the transition towards a nature-positive economy.