Publications

- July 1, 2021: Vol. 15, Number 7

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Understanding climate risk: Enhancing data and analytics for better portfolio management

by Will Robson

Increasingly, investors and managers recognise that they need to engage with their various stakeholders over climate-risk exposure. However, there are still two hurdles holding back progress in carbon footprint exposure reporting.

The first hurdle involves climate-risk perception. Some investors still assert that, because their business involves buying and holding buildings for five to seven years, climate risk is less relevant for them — it’s the next buyer’s problem. MSCI has developed a model that quantifies the potential future financial impact of climate change on portfolios, discounting those costs back to present value, to determine the potential value at risk relative to today’s valuation.

The second barrier exists due to a perennial private real estate challenge — data access. It is time-consuming and expensive to obtain detailed energy use data, particularly that which covers entire buildings and not just the part that the owner or manager controls.

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