Expressed as an implied temperature rise, the ratings will help identify and manage transition risks, respond to global regulatory requirements and disclosure initiatives, build climate investment strategies, and advance engagement activities, Morningstar Sustainalytics said.
The group has been working on the ratings for two years and has built on the firm’s ESG risk ratings. The team also used the outcomes of scenario analysis from the PRI-commissioned Inevitable Policy Response and included more than 85 management indicators weighted by GHG emissions and grouped by Taskforce for Climate-related Financial Disclosures themes.
The ratings cover approximately 4,000 of the largest public companies and plans to expand to include over 12,500 companies by 2024.
“As the effects of climate change further materialise, companies are likely to face rising transition costs tied to decarbonising the global economy,” said Azadeh Sabour, senior vice-president of climate solutions at Morningstar Sustainalytics.
“Investors are becoming more aware of these risks and need a structured way to decipher corporate transition plans to determine whether companies are prepared to deliver the required business model transformation to transition to a low-carbon economy.
“Leveraging the consistent framework behind our low carbon transition ratings, investors can benefit from a distinct signal to understand the most material aspects of a company’s transition plans and how they compare across industries and geographies.”