DBRS Morningstar Brings Climate Risk Data Into Credit Ratings Research

The world’s fourth-largest credit rating agency, DBRS Morningstar has announced it will source global property-level climate hazard risk data from Morningstar Sustainalytics, considering various climate change scenarios and time horizons, as part of its credit research and analysis across all asset classes.

“Physical climate risk data is becoming increasingly crucial to provide a comprehensive analysis, especially in sectors closely linked to property and casualty, such as insurance, and residential and commercial mortgage-backed securities,” said Christian Aufsatz, head of European structured finance at DBRS Morningstar. “Through DBRS Morningstar research, we aim to arm issuers, investors, and other market participants with informed opinions as they navigate these risks in a credit environment.”

Morningstar acquired a 40% stake in Sustainalytics in 2017 before acquiring it outright in 2020 for €170m and integrating it into Morningstar's indexing business. Amsterdam-based Sustainalytics employs over 1,800 people and helped boost Morningstar’s Q2 revenue growth 12.7%, driven by strong demand for regulatory compliance solutions in Europe. Alongside ESG research, ratings, and data, Morningstar Sustainalytics provides a suite of climate solutions including a dataset aimed at assessing real estate assets' direct exposure to physical climate risks and damages.

“With the frequency and intensity of climate-related hazards like flooding, extreme heat, and wildfires increasing globally, it becomes critical for banks, insurers, and investors to consider financial resiliency related to physical climate risks,” said Azadeh Sabour, senior vice president, climate solutions at Morningstar Sustainalytics. “The metrics for measuring climate hazards enable stakeholders affected by impacts on real estate assets to identify and manage asset exposure and improve risk management.”

Earlier this year, Sustainalytics announced enhancements to its Physical Climate Risk Metrics product, including the addition of two new reports offering deeper views into companies’ exposure, loss, and financial resiliency as it relates to physical climate risk. Within these reports, new indirect risk metrics have been added to better meet the Task Force on Climate-related Financial Disclosures (TCFD) recommendations of disclosing both direct and indirect physical risk and providing insight across the entire business value chain.