MSCI, the global index compiler, said its subsidiary has agreed to buy out a climate analytics firm to help investors better understand the impact of climate change on their investments.
Carbon Delta, a Zurich-based firm founded in 2015, will strengthen MSCI's modelling technology that analyses climate scenarios and evaluates physical risks, the New York-based index compiler said in a statement on Monday. A new metric, MSCI Climate Value-at-Risk, will be introduced to calculate the impact of climate change on a company's market value and highlight the relevant risks within a client's portfolio, it said.
"We believe climate change will become one of the most important investment factors over the long term. Institutional investors should be able to analyse the exposure of their portfolios to climate risk while also being able to report on their climate strategy," said Remy Briand, head of environment, social responsibility and governance (ESG) at MSCI. "We are pleased to come together with Carbon Delta to provide our clients with state-of-the-art climate risk analysis capabilities that can help shape investment management practices of the future."
The acquisition of Carbon Delta, estimated at as much as US$5 million, will be completed next month and be funded by cash on the balance sheet, MSCI said in the statement. The Zurich office will serve as MSCI's centre for analysing climate risks in the future, developing partnership with academics and research firms across the world to further advance the use of climate science for financial risk analysis, it said.
While ESG has become an increasingly important issue among investors who have been paying more attention to companies' performances beyond profits, Asia excluding Japan is lagging behind the US and Europe when it comes to "responsible" investing, according to a report by Global Sustainable Investment Alliance. The region had a total of US$52 billion in responsible investment in 2016, a tiny fraction of the US$12 trillion in Europe and US$8.7 trillion in the US, the report said.
In Hong Kong, it has been mandatory for listed companies to make general disclosures about their ESG policies since 2015, when the local bourse upgraded its requirements from "recommended and voluntary" to "comply or explain".
Companies must explain how they plan to deal with operational risks that have implications for the environment and society, and if they are in line with laws and regulations. This year, Hang Seng Indexes introduced two indices that track the ESG performances of the companies on the Hang Seng Index and the Hang Seng China Enterprises Index.
The HSI ESG Index has risen 3.1 per cent this year, underperforming a 3.4 per cent gain on the Hang Seng Index. The MSCI World ESG Index has advanced 16 per cent in the period.
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