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.
In collaboration with:
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.
Latest Insights
Post-COP15 Outlook: Evolving Investor Responsibilities in Biodiversity
Key Benefits
Reliability
XDI’s analysis has a proven track record for quality and excellence, operating in industry and with governments since 2016.
Unparalleled Depth
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.
Final Reports
Global Report
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.
Hazard Contribution
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.
Country Contribution
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.
Use Cases
Reporting
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).
ESG Integration
Manage portfolio exposure through company/security evaluation & screening. Derive proprietary physical climate risk data and insights for stock valuation, universe, or portfolio construction.
Engagement
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).
Why Sustainalytics?
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
800+ ESG research analysts across our global offices.
A Leading SPO Provider
As recognized by Environmental Finance and the Climate Bonds Initiative.
Related Products
Climate Solutions
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 MoreRelated Insights and Resources
Post-COP15 Outlook: Evolving Investor Responsibilities in Biodiversity
Awaiting COP15’s Global Biodiversity Framework negotiation outcomes, financial market participants could face new regulatory pressure sooner than expected to integrate biodiversity assessment into their investment, decision-making processes.
Danish Delegation Engages Sustainalytics’ Biodiversity Expert, Enabling Front Row Access to COP15 Negotiations
Finance Day within the U.N. Biodiversity Conference (COP15) is fast approaching, and Morningstar Sustainalytics’ team members will be in attendance, each focusing on different investor biodiversity considerations related to active ownership.
ESG Data Market Gaps: 3 Areas of Interest for Investors Measuring Material ESG Risk
Many global investors already incorporate ESG factors into their evaluation of public companies across developed markets. We are now observing increasing interest in applying ESG considerations across a broader set of asset classes and regions.