Low Carbon Transition Rating
Russia-Ukraine War
Systemic Event Indicators Added to ESG Risk Ratings Methodology
Given the significant and extraordinary events in Ukraine, Morningstar Sustainalytics has introduced a new methodological element to Sustainalytics’ ESG Risk Ratings - namely, Systemic Event indicators. These indicators activate the idiosyncratic events mechanism embedded in our ESG Risk Ratings methodology. The Systemic Events methodology will apply to groups of companies affected by Russia’s invasion of Ukraine.
Based on our analysis, we have introduced two systemic event indicators:
- EV.51 Business Resilience Risk due to Ukraine Conflict: Applied to companies with significant assets in Ukraine, and which face business resilience risk due to Russia's invasion of Ukraine.
- EV. 52 Fallout/Repercussions of Ukraine Conflict: Applied to companies affected by the economic measures/sanctions imposed by several countries and supranational organizations following Russia's invasion of Ukraine.
These Systemic Event indicators will allow us to incorporate into our company ESG Risk Ratings the increased risk caused by the war and related sanctions.
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The methodology also comprises a Beta Overlay, which is already a component of our material ESG issue exposure assessments. The Beta Overlay will be driven by subindustry affiliation as well as the specific sanction scope, e.g. Russian banks excluded from the SWIFT system. Note: Systemic Event indicator assessments do not have any impact on our Controversies assessments. The Systemic Event indicators are a measure of Unmanaged Risk in the context of our ESG Risk Rating only.
For additional information on Systemic Event indicators in Sustainalytics' ESG Risk Ratings, please download the Spotlight & Research PDF posted above.
As the situation continues to develop in Ukraine, further research and ratings updates may be issued and communicated.