TCFD Disclosure

The Task Force on Climate-related Financial Disclosures (TCFD) framework is gaining significant uptake globally, as it is shifting from a voluntary approach to being the main global regulatory response to climate risk, with many regions now mandating it for compulsory climate reporting.

To help investors navigate the scope of the TCFD recommendations, Morningstar Sustainalytics offers a robust set of Climate Solutions that includes valuable insights into a company’s alignment with global climate goals as well as its exposure to physical climate risks.  

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How Morningstar Sustainalytics’ Climate Solutions Can Support the TCFD Needs of Investors

Our decision-useful metrics not only support investors’ TCFD metrics and target requirements, but also their broader TCFD narrative on their organization’s strategy and risk management processes.

Baseline Carbon Footprint

Quantify the baseline Carbon Footprint of your portfolio.

Our Solutions

Carbon Emissions Data 

Backed by best-in-class multi-factor regression models, Morningstar Sustainalytics’ Carbon Emissions Data provides investors with powerful insights to assess and analyze companies’ greenhouse gas emissions.  

How We Can Help

Understand a company’s historical scope 1, 2 and 3 carbon intensity and footprint.
Gain insights into how investment allocation decisions affect portfolio level carbon intensity and footprint.
Disclose the weighted average GHG emission intensity or carbon footprint of owned or managed investments.

Analyze Low Carbon Transition Risks and Opportunities

Understand Transition Risks from a Low Carbon policy scenario and identify opportunities to decarbonize your portfolio.

Our Solutions

Low Carbon Transition Ratings 

Morningstar Sustainalytics’ Low Carbon Transition Ratings are designed to provide investors with a forward-looking science-based assessment of a company’s current alignment to a net-zero pathway that limits global warming to 1.5 degrees Celsius by 2050.  

How We Can Help

Leverage our Implied Temperature Rise research to identify if a company is aligned with a well -below 2° Celsius scenario. 
Use cumulative total emissions to assess the magnitude of potential transition risk across the value chain of each holding, and incorporate into value-at-risk assessment.
Pinpoint companies highly misaligned with the energy transition, and that have poor management preparedness or conversely pinpoint companies on track to meet net-zero ambitions.
Benefit from our TCFD module to determine the sufficiency and quality of a company’s public climate-related disclosures.
Identify priority topics/themes and companies for engagement activities.

Analyze Physical Climate Risks and Opportunities

Assess the risk of your assets from a comprehensive measure of the physical effects of climate change under two scenarios.

Our Solutions

Physical Climate Risk Metrics 

Morningstar Sustainalytics’ Physical Climate Risk Metrics are designed to help investors understand their direct and indirect exposure to physical climate risks and the potential financial impacts to their portfolio companies.  

How We Can Help

Understand the financial impacts of physical climate risks considering a company’s revenue, physical asset value, and operating cash flow. 
Disclose direct and indirect exposure to physical climate risks for portfolio holdings. Exposure metrics are calculated as separate signals that align to the TCFD recommendations and are aggregated into a single overall assessment.  
Identify companies for engagement to better understand mitigation and adaptation strategies.

Identify Climate-Related Opportunities

Identify the proportion of revenue and business activities aligned with climate-related opportunities.

Our Solutions

Impact Metrics 

Morningstar Sustainalytics’ Impact Metrics are a set of company-level metrics that provide investors with useful measures of companies' environmental and social impact. The metrics are aligned to Sustainalytics' proprietary ESG Impact Framework and the UN Sustainable Development Goals (SDGs). 

How We Can Help

Gain insights into the portfolio’s revenue exposure to climate activities. 
Drill down into the portfolio constituents and identify climate impact alignment at the holding level. 
Support strategies to tilt portfolios to align with the climate objectives. 
Advance engagement, due diligence, and target setting by monitoring and reporting on the degree of impact alignment in portfolios and mandates.

Define Climate Investment Strategies and Engage Stakeholders

Our services enable you to engage business stakeholders to influence action.

Our Solutions

Stewardship Services

Morningstar Sustainalytics’ Stewardship Services help investors to generate positive and meaningful ESG and climate change-related outcomes. Our Net-Zero Transition Engagement Program supports investors looking to align their investment portfolios with decarbonization targets. The program also aims to deliver on investors’ ambitions and stewardship commitments made through various net-zero initiatives.

How We Can Help

Collaborate with our team to engage with high-emitting industries to drive alignment to the Paris Agreement.  
Improve climate-related governance, strategy, and risk management, and strengthen climate-related financial disclosures. 
Disclose net-zero engagement activities and progress.

Key Benefits
Features

Comprehensive Measure of Low Carbon Transition Alignment

Analyze low carbon transition exposure and management preparedness across a business’s value chain for each scope of emissions. Our assessment delivers more than just an Implied Temperature Rise rating. It goes beyond looking at a company’s ambitions and targets. Investors can identify areas where each issuer is performing well and opportunities for improvement.

Analyze Expected Issuer Emissions Against the 1.5°C Required Policy Scenario*

Our Low Carbon Transition Ratings are driven by a bottom-up scenario analysis, evaluating companies’ emission trajectories against expected regional policy and technology pathways required to meet the Paris Agreement and net-zero ambitions by the year 2050. Additional scenarios for further analysis are in development.

*The 1.5°C Required Policy Scenario (RPS) is from the UN PRI commissioned Inevitable Policy Response (IPR).

Support Investor TCFD Reporting and Assess Issuer Disclosure

Paired with our Physical Climate Risk Metrics and Carbon Emissions Data solutions, our Low Carbon Transition Ratings enable investors to meet most TCFD recommendations. Additionally, investors receive a detailed assessment of issuer TCFD disclosure with respect to their quality of management across each thematic area of the TCFD.

Access our Transparent Methodology and Granular Data

Our Low Carbon Transition Ratings are underpinned by a transparent methodology, multiple levels of data and clear indicator guidance, which allows for validation and customization of the weighted data points to generate unique insights that align to investors’ objectives.

Holistic Integration of Management Preparedness

With more than 85 general and subindustry-specific management indicators - weighted by a company’s distribution of GHG emissions across Scopes 1, 2, 3 upstream, and 3 downstream across the full business value chain – investors can integrate granular climate insights into their company assessments and valuation models.

Ratings Expressed as Implied Temperature Rise

The top-level ratings are expressed as a simple contextualized signal, estimating the Implied Temperature Rise of issuers’ current low carbon transition performance. This expresses what global temperatures could rise to if the whole economy had the same percentage of misaligned emissions between now and the year 2050. This output enables investors to seamlessly categorize and compare different levels of performance across issuers.

Dedicated TCFD Module to Assess Issuer Disclosure with TCFD

A TCFD module is included in the rating to assess and track the comprehensiveness of issuer disclosure and translate our assessment of issuers’ managerial preparedness across the four thematic areas recommended by the TCFD (governance, strategy, risk management, and metrics and targets).

Five Categories of Alignment

The Low Carbon Transition Ratings are categorized across 5 levels of net-zero alignment: Aligned (0°C -1.5°C), Moderately Misaligned (1.5°C - 2°C), Significantly Misaligned (2°C -3°C), Highly Misaligned (3°C -4°C), and Severely Misaligned (4°C +).

5,000+ Companies Covered

Sustainalytics' Low Carbon Transition Ratings span more than 5,000 companies and encompass most major global indices. Future expansion of the company database will align with the coverage of our ESG Risk Ratings.

Flexible Accessibility

The Low Carbon Transition Ratings are available through Global Access with screening and reporting tools, data-feeds, and application programming interface (API). They will be made available for several third-party distribution platforms in the future.

Delivery Options

Support analysis and reporting with access to all company and portfolio-level assessments through Morningstar Sustainalytics’ user-friendly investor interface, Global Access.

Data Servicing Access through our FTP or API services is available to integrate Climate research through an internal system of your choice.

Assess Issuer Disclosure with TCFD

A TCFD module is included in our Low Carbon Transition Ratings to assess and track the comprehensiveness of issuer disclosure and translate our assessment of issuers’ managerial preparedness across the four thematic areas recommended by the TCFD (governance, strategy, risk management, and metrics and targets).

Report Insights

1. TCFD Disclosure Sufficiency

An overall score indicating the proportion of TCFD-related indicators that the company is reporting of the total indicators it is expected to report. A view into the company's ranking for its subindustry is also provided.

ESG Risk ratings report showcasing company rating

2. Management Quality

A summary of how the overall Low Carbon Transition management score of the company is scored for each TCFD thematic area is provided at a glance.

ESG Risk ratings report showcasing value chain analysis

3. TCFD Reporting Assessment

The TCFD Reporting Assessment evaluates the extent to which a company is reporting on specific criteria recommended by the TCFD, as well as the quality of the governance, strategy, risk management and metrics & targets the company has disclosed

ESG Risk ratings report showcasing Peer Analysis

4. Management Indicators

For each thematic area of the TCFD, the relevant management indicators recommended by the TCFD are summarized and assessed for their inclusion in the company's current disclosure. The weighting for each indicator and final weighted score for the thematic area is provided to show its contribution to the overall management score.