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Companies are affected by climate change in different ways. Extreme weather could damage assets at a company facility or the introduction of new climate change policies could require technological change. Both effects have in common their ultimate influence on a company’s balance sheet. By calculating the financial risks from climate change per security and per scenario, MSCI ESG Research's Climate VaR provides a framework that helps investors identify and understand these risks and take necessary action for portfolio performance optimization, risk management and regulatory reporting purposes.

The approach is closely aligned with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) in that it assesses both transition and physical risks and opportunities. The climate value-at-risk metric provides insight into the climate-stressed valuation of assets based on specific scenario pathways such as the 2ºC goal of the Paris Agreement. Using climate value-at-risk, investors can assess how much they stand to lose or gain from climate change impacts.

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Modeling approach

Modeling approach

MSCI ESG Research’s Climate VaR provides insights into the potential climate- stressed market valuation of investment portfolios and downside risks. MSCI ESG Research’s financial modeling approach translates climate-related costs into valuation impacts on companies and their publicly tradable securities. In this way, the Climate VaR framework helps investors to understand the potential climate-related downside risk and/or upside opportunity in their investment portfolios.




Impact modeling



Cost/ profit calculation


Cost/ profit


Security valuation



Portfolio aggregation




Modeling approach part 2


MSCI ESG Research’s climate change risk and opportunity calculations cover more than 10,000 companies, assessing all of their associated equities and corporate bonds as part of the analysis.


Assess portfolio vulnerability to scenarios

Assess portfolio vulnerability to scenarios

MSCI ESG Research analyzes several scenarios per company, providing a n extensive overview of exposure to climate change risks and opportunities.

Transition risks and opportunities

Transition risks and
The policy scenarios aggregate future policy costs based on an end of the century time horizon. By overlaying climate policy outlooks and future emission reduction price estimates onto company data, the Climate VaR model provides insights into how current and forthcoming climate policies could affect companies.

The technology scenarios identify current green revenues as well as the low carbon patents held by companies, calculate the relative quality score of each patent over time and forecast green revenues and profits of corporations based on their low carbon innovative capacities.

Physical risks and opportunities

Physical risks and
Physical climate scenarios define possible climate consequences resulting from increased concentration of GHG emissions. They describe changes in global temperatures, precipitation levels, extreme weather events such as storms, snowfall, wildfires, etc. Using the past 35 years of observed extreme weather to set a historical base-line, MSCI ESG Research brings current and future extreme weather developments into perspective for the coming 15 years.

Current physical climate scenarios modeled by MSCI ESG Research include costs of extreme weather events relating to temperature changes (extreme heat and cold), extreme precipitation, extreme snowfall and wind patterns.

Portfolio warming potential

warming potential
MSCI ESG Research’s “warming potential” methodology computes the contribution of a company’s activities towards climate change and provides a tested approach for 2ºC alignment analysis.

It delivers an exact temperature value that signifies which warming scenario (e.g., BAU, 3°C, 2°C, 1.5°C etc.) the company’s activities are currently aligned with.
Thereafter, a “portfolio warming potential” can be computed as a weighted aggregate of the company-level warming potential. The warming potential methodology can be applied to companies as well as real estate assets.

Transition risks and opportunities

The framework provides a large number of scenarios which incorporate different temperature as well as socio-economic pathways to help assess the climate impact of investment portfolios. The robust and sophisticated transition assessment has been development by climate and policy experts over the last five year and incorporates model development enhancement from large global institutional investors.


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Scenario analysis for real estate

Scenario analysis for real estate

The physical impacts of climate change on the built environment are becoming more significant and have the potential to be extremely costly. With their locations fixed, buildings themselves may be at risk of suffering significant damage costs from climate change impacts. More so, buildings are often energy-intensive to build and operate. They are responsible for over a third of global final energy consumption and CO2 emissions, with operational emissions mostly through space heating and cooling, and water heating (IEA, 2019).

MSCI Real Estate’s scenario analysis for commercial and residential real estate enables investors and real estate managers to evaluate both transition and physical climate-related impacts in their portfolios.

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Scenario analysis Footnotes



MSCI ESG Research LLC. is a Registered Investment Adviser under the Investment Adviser Act of 1940. The most recent SEC Form ADV filing, including Form ADV Part 2A, is available on the U.S. SEC’s website at

MIFID2/MIFIR notice: MSCI ESG Research LLC does not distribute or act as an intermediary for financial instruments or structured deposits, nor does it deal on its own account, provide execution services for others or manage client accounts. No MSCI ESG Research product or service supports, promotes or is intended to support or promote any such activity. MSCI ESG Research is an independent provider of ESG data, reports and ratings based on published methodologies and available to clients on a subscription basis.  We do not provide custom or one-off ratings or recommendations of securities or other financial instruments upon request.

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