Low Carbon Transition Rating
Low Carbon Transition Ratings
Management Indicators Guide
Morningstar Sustainalytics has introduced the Low Carbon Transition Rating to assess the degree to which a company’s projected greenhouse gas (GHG) emissions differ from its fair-share budget for GHG emissions. The primary output of the rating is a temperature, in degrees Celsius, that answers the following question: To what degree would the world be expected to warm if all companies' emissions differed from the budgeted emissions to the same degree as this company?
In this way, the rating does not place the entire burden of mitigating emissions on the highest emitters but acknowledges that all companies have a responsibility to limit GHG emissions according to a set path. Furthermore, the assessment goes beyond simply considering the company’s ambitions and targets to consider the company’s preparedness to deliver business model transformation.
Determining the Management Score
The management score calculated for each scope of emissions is based on a set of management indicators that have predetermined weights based on subindustry. In some cases, however, certain predefined indicators are disabled and the weight is evenly distributed proportionally among all remaining indicators to ensure that the combined weight of indicators within any scope totals 100%.
Click on an indicator to view details.
(An asterisk denotes indicators that are common with the ESG Risk Ratings).
A
C
- Carbon Intensity*
- Carbon Intensity of Generation*
- Carbon Intensity Trend*
- Carbon Offsetting Programme
- Carbon Price Integration
- Climate Transition Community Management
- Climate Transition Resilience Programme
- Climate Transition Workforce Management
- Clinker Ratio*
- Corporate Finance - ESG Integration*
- Credit and Loan Standards*
- Customer Efficiency Programmes*
E
- Eco-Design*
- Energy Efficiency Programme - Aviation
- Energy Efficiency Programme - Shipping
- Energy Intensity
- Energy Intensity Trend
F
- Financed GHG Emissions
- Financial Flexibility
- Fleet Age*
- Fleet Emissions*
- Fleet Emissions Trend*
- Fossil Fuel Investment Management
G
- GHG Emissions Policy - Supply Chain (SC)
- GHG Emissions Reporting - Scope 3 Category 11
- GHG Emissions Reporting - Scope 3 SC
- GHG Emissions Targets
- GHG Intensity - Delivered Gas
- GHG Intensity - Oil & Gas Lifecycle Emissions
- GHG Intensity - Real Estate Portfolio
- GHG Intensity - Scope 3 Category 11
- GHG Intensity Trend - Real Estate Portfolio
- GHG Intensity Trend - Scope 3 Category 11
- continued
G
- GHG Performance Targets
- GHG Reduction Programme*
- GHG Reduction Programme - SC
- GHG Reduction Target - SC
- GHG Risk Management*
- Green Building Memberships*
- Green Buildings Investments*
- Green Logistics Programmes*
- Green Outsourced Logistics Programmes
- Green Procurement Policy*
L
M
O
P
R
- Real Estate LCA*
- Renewable Energy Programmes*
- Renewable Energy Use*
- Responsible Asset Management*
- Responsible Investment Programmes*
S
- Scope of GHG Reporting*
- Share of Green Buildings*
- Solvency
- Sustainable Mobility Products*
- Sustainable Products and Services*
T
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This management indicator assesses the company's performance by comparing its return on assets to those of its subindustry peers.
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This management indicator assesses carbon intensity performance by comparing the direct (scope 1) and indirect (scope 2) emissions of a company in a given fiscal year to the median intensity of its subindustry.
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This management indicator assesses a company's performance with regard to carbon intensity (related to power generation) by calculating the carbon emissions of a company’s own power generation portfolio (i.e. facilities within its operational control) in a given fiscal year.
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This management indicator assesses a company's performance, over time, on carbon intensity. It compares the change in the company's carbon intensity over its three-year average relative to the median subindustry change.
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This management indicator assesses carbon offsetting programmes where a company states that they will utilise offsetting or nature based solution to mitigate >15% of their total emissions aligned to sustainable offsetting principles.
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This management indicator assesses a company's disclosure on the use of an internal carbon price to make carbon management decisions, and the methodology in place to determine the carbon price utilised
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This management indicator assesses a company's initiatives that reduce the wider impacts of low carbon transition and how a company integrates the risks and opportunities associated with a low-carbon transition in the context of impacts on local communities
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This management indicator assesses a company's disclosures on how it is embedding the requirements of TCFD relating to resiliency, whereby a financial company must assess their resiliency utilising scenario analysis. At present, some companies are yet to understand scenario analysis, whereas others are well on their way. This management indicator assesses a company's approach and the use of this analysis in their wider risk and business planning.
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This management indicator assesses a company's initiatives that reduce the wider impacts of transition on their workforce, and the programmes in place to support a just transition for workers.
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This management indicator assesses a company's clinker-to-cement ratio in a given fiscal year and the extent to which that ratio increases or decreases a company's exposure to product-related carbon risks. A higher clinker ratio is associated with increased exposure compared to the subindustry average and vice versa.
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This management indicator assesses the quality of a company's programme to incorporate environmental, social and governance (ESG) issues in its financial services to the corporate sector, including ESG risk assessments, monitoring and audits.
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This management indicator assesses the extent to which a company has policies or standards to integrate environmental and social factors into its credit and loan activities, adapted to industry specifics.
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This management indicator assesses a company's programmes to reduce energy, gas or water consumption by customers, including setting quantitative targets and deadlines.
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This management indicator assesses whether a company considers the environmental aspects of its products during the research and design (R&D) stage of product or service development.
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This management indicator assesses companies programmes that improve the efficiency of its fleet through currently viable technological and operational measures.
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This management indicator assesses a company's programmes that improve the energy efficiency measures in place to aid in reducing emissions from ocean shipping.
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This management indicator assesses the company's energy efficiency performance based on the energy intensity of the company's energy use.
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This management indicator assesses a company's energy efficiency performance based on the trend in intensity of the company's energy use.
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This management indicator assesses the total absolute carbon emissions that financial institutions support through lending.
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This indicator provides an assessment of the company's cash flow ratio in comparison to other companies in its subindustry. The financial ratio data is obtained from a third party research firm and translated into an indicator score by Sustainalytics. A relatively low return on asset ratio is a signal the company is more exposed to ESG issues.
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This management indicator assesses a company's airline fleet age relative to the average age of fleets in its industry group.
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This management indicator assesses a company's performance with regard to its average fleet CO2 emissions in a given fiscal year.
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This management indicator assesses a company's average fleet CO2 emissions compared to the average of the three fiscal years preceding the reporting period.
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This management indicator assesses the programmes in place that support the transition from fossil fuel investments, by assessing the engagement and divestment activities that financial institutions engage with to reduce their fossil fuel involvement.
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This management indicator assesses a company's board level commitment to reducing supply chain emissions indicates the strength of a company's ambition to manage associated risks.
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This management indicator assesses a company's reporting on its Scope 3 Category 11 emissions, which relate to the use of its products.
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This management indicator assesses a company's disclosure of its upstream Scope 3 emissions (categories 1-9). Category 1-8 as defined by the GHG protocol, are emissions associated with a company's upstream supply-chain activities. Category 9 is associated with wider supply-chain distribution and transportation activities, outside of the company's operational control. Therefore understanding if a company reports on these emissions or not, is a good proxy to understand the strength of supply-chain emissions management.
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This management indicator assesses a company’s strength and coverage of emissions reduction targets. Emissions targets are important for assessing the commitment companies have to abating emissions and can be considered a critical component to determining a company's likelihood of doing so.
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Assesses a company’s GHG emissions intensity performance from its delivered gas relative to industry standards. The industry standard is fixed but is occasionally reviewed and adjusted to reflect prevailing data.
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This management indicator assesses a company's GHG emissions relative to its oil & gas production and compares that value within its industry.
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This management indicator assesses a company's energy intensity performance of real estate.
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This indicator provides an assessment of the company's carbon intensity for its Scope 3,
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This management indicator assesses if a company's disclosure speaking to organisational renumeration tied to emissions reductions or wider climate-related targets.
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This management indicator assesses the strength of a company's programme and associated initiatives to manage and reduce GHG emissions associated with its operational boundary.
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This management indicator assesses if a company's disclosure speaking to organisational renumeration tied to emissions reductions or wider climate-related targets.
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This management indicator assesses the strength of a company's programme and associated initiatives to manage and reduce GHG emissions associated with its operational boundary.
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This management indicator assesses a company's programmes and policy in place to effectively manage GHG risks from supply chain and supplier emissions through supplier engagement and supplier reduction targets.
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This management indicator assesses a company's supply chain emission reduction target, and the extent to which a company is managing its supply chain emissions in accordance with a transition to a low carbon economy.
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This management indicator assesses a company's initiatives to mitigate and reduce climate change related transition risks including downside risks and the release of GHG emissions. It does not include risks relating to the physical impacts of climate change.
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This management indicator identifies whether a company is a member of national or international initiatives that promote sustainable buildings. Examples of such initiatives include: national Green Building Councils, the International Initiative for a Sustainable Built Environment (iiSBE) and the Cement Sustainability Initiative by the World Business Council for Sustainable Development.
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This management indicator assesses a company's programmes to increase the share of sustainable buildings in its total property portfolio, and whether the company has defined any quantitative targets with clear deadlines for reaching them.
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This management indicator assesses a company's programmes to reduce and manage the release of GHG emissions from its own logistics activities. This includes all fleets of vehicles or logistical activities that are under the operational control of the company.
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This management indicator assesses a company's programmes to minimize the overall GHG impact of its outsourced logistics. This includes all fleets of vehicles or logistical activities that are not under the operational control of the company.
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This management indicator assesses a company's commitment and initiatives to purchase products and services that cause minimal adverse environmental impacts and generally integrate environmental considerations (from manufacturing to disposal) into purchasing decisions.
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This management indicator assesses a company's programmes that are in place to manage GHG emissions associated with the intensive growing of plant materials.
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This management indicator assesses a company's initiatives designed to employ bespoke solutions or newer technology or innovation that will allow it to meet some of its low carbon energy needs, and as such is supporting wider sustainability principles, innovation, or circular economy elements, that are smaller scale, but are significant to the transition.
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This management indicator assesses a company's performance relating to low carbon lending as a percentage of low carbon loans proportional to total loans. The thresholds for relative category are fixed but are occasionally reviewed and adjusted to reflect prevailing data.
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This management indicator assesses the programmes in place to manage methane emissions from agricultural sources, in order to reduce the methane intensity of agricultural operations.
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This indicator assesses a company’s programmes and initiatives in place to reduce methane emissions from oil and gas production.
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This indicator provides an assessment of the company's net income margin in comparison to other companies in its subindustry. The financial ratio data is obtained from a third party research firm and translated into an indicator score by Sustainalytics. A relatively low net income margin is a signal the company is more exposed to ESG issues.
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This management indicator assesses a company's programmes to reduce and manage the release of GHG emissions from its outsourced logistics services. This includes all fleets of vehicles or logistical activities that are not under the operational control of the company.
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This management indicator assesses a company's initiatives in place to to reduce the use-phase GHG emissions of its products.
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This management indicator assesses a company's programmes to reduce the emissions associated with the in- use phase of the company's products or services.
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This management indicator assesses a company's programmes to minimize the environmental impacts of its products and packaging at their end-of-life stage. The indicator tracks a company’s initiatives to collect used products or materials from consumers and reintroduce them to the original processing and manufacturing cycle.
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This management indicator assesses a company's initiatives to apply life cycle analysis (LCA) or a whole life carbon assessment to its new real estate projects. LCA considers the full environmental impact of a building, from construction through to disposal at the end of the building's life. The whole life carbon assessment, however, addresses only the carbon footprint of a building across its life cycle.
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This management indicator assesses a company's initiatives to increase the use of renewable energy for its own operations and the quality of the renewable energy programmes. The renewable energy sources considered include solar, wind energy, hydropower, ocean and geothermal, along with the mechanisms in place to support companywide renewable energy use. Consumption from bioenergy is considered only when generated from operational by-products.
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This management indicator assesses the share of renewable energy used in a company's own operations. The renewable energy sources considered include solar, wind, hydropower, ocean and geothermal. Consumption from bioenergy is considered only when the raw material used to produce bioenergy is generated as a by-product while manufacturing something else.
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This management indicator assesses a company's performance with regard to responsible investment. This implies the consideration of ESG issues into investment decisions, and the encouragement of sustainable business practices within investee companies.
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This management indicator assesses a company's commitment to responsible investment practices by integrating environmental, social and governance (ESG) criteria into the investment decision-making process.
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This management indicator assesses the greenhouse gas (GHG) emissions associated with a company's business activities, including both direct (scope 1) and indirect (scope 2 and 3) emissions.
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This indicator provides an assessment of the company's debt-equity ratio in comparison to other companies in its subindustry. The financial ratio data is obtained from a third-party research firm and translated into an indicator score by Sustainalytics. A relatively high debt-equity ratio is a signal the company is more exposed to ESG issues.
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This management indicator assesses a company's performance with regard to its production of automobile components, solutions and technologies that improve sustainability in transport vehicles (both electric and traditional). Examples include filters, electronic parts and powertrains, as well as braking components and tires that increase fuel efficiency.
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This management indicator assesses a company's disclosure of products and services that have clear environmental or social benefits and the share of revenue generated from them.
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This management indicator assesses a company's disclosures on transition risks and opportunities, and the alignment with Task Force on Climate-related Financial Disclosures (TCFD), speaking to Governance, Strategy, and Risk and Opportunity Management.
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This indicator provides an assessment of the company's preparedness to invest in a low carbon transition. It is not a measure of the investment itself, but rather of the tools and processes the company has in place to invest in carbon- reduction initiatives.
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This management indicator assesses a company's performance with regard to electric power transmission losses between sources of supply and points of distribution, as well as in the distribution to consumers (and including pilferage).