Australian physical climate risk company XDI has partnered with Morningstar Sustainalytics to meet demand from institutional investors. (Courtesy XDI)

ESG analysis firm Morningstar Sustainalytics has signed a strategic agreement with Australian physical climate risk analysis company XDI to expand its line of climate risk solutions and address demand from institutional investors.

The agreement will further a relationship between the two companies formed with Morningstar Sustainalytics’ recently launched Physical Climate Risk Metrics that uses XDI’s Climate Risk Engines.

Physical Climate Risk Metrics is the first new offering in Morningstar Sustainalytics’ suite of Climate Solutions, according to a press release. It applies XDI’s statistical and probabilistic models that assess the impacts of extreme weather and climate change on physical assets and business operations.

A press release says scenario analysis in the Physical Climate Risk Metrics estimates the physical climate risks of more than 12,500 companies worldwide. It uses a database of more than 12 million assets and facilities to gain insights on climate risks across seven types of physical hazards categorizes through High Risk Assets, Asset Damage Risk and Productive Capacity Loss metrics.

Climate change analysis to support investment decision making

The analysis from Physical Climate Risk Metrics can help investors determine risk, climate disclosure requirements, product creation, engagement activities and security selection, it adds.

“Our institutional investor clients are looking for comprehensive climate tools such as ratings, research, and data to respond to TCFD (Task Force on Climate-Related Financial Disclosures) and EU Action Plan reporting standards and to identify and mitigate their climate-related portfolio risks,” said Azadeh Sabour, Morningstar Sustainalytics’ senior vice president of Climate Solutions in the press release.

“Our collaboration with XDI allows us to provide our investor and banking clients with high-quality insights and solutions so they can address the risks emanating from the climate crisis. We look forward to a long and successful relationship with XDI,” Sabour added.

Rohan Hamden, CEO of XDI, said, “We are delighted to team up with Morningstar Sustainalytics and demonstrate the detail and reach of our modelling of physical climate risk to their institutional investor clients.”

Clients of XDI’s Climate Risk Engines include the Government of British Columbia, New York state, the City of Sydney and Lloyds Banking Group.

Morningstar Sustainalytics’ Canadian presence

It is the latest partnership between Morningstar Sustainalytics and a climate risk company. In July, Morningstar Sustainalytics and Canadian climate risk assessment company Teranet Inc. joined hands to monitor climate risk on Canadian properties.

Morningstar Sustainalytics also furthered its Canadian presence with the acquisition of Montreal-based Aquantix, a company that uses AI-driven climate risk models to provide risk metrics for approximately 500 million residential and commercial properties across 180 countries.