Skip to main content

Low Carbon Transition Ratings

Unrivaled analysis for financial stakeholders

As the low carbon transition accelerates, financial institutions must adopt advanced tools and analysis to stay competitive and meet disclosure requirements.

Investors are shifting focus from merely reducing emissions to investing in companies well-positioned for the transition. This requires deep research and clear analysis across key indicators, assessing not just commitments, but concrete actions.

The right tools can help ensure portfolios are prepared for the complexities of the evolving market.

Morningstar Sustainalytics’ Low Carbon Transition Ratings 
OUR SOLUTION
Insightful Research and Clear Analysis Across a Broad Set of Indicators
LCTR-solution-img

Morningstar Sustainalytics’ flagship Low Carbon Transition Ratings (LCTR) provide the solution – empowering investors and financial institutions to allocate capital to companies taking genuine action to reach their low carbon goals.

Benefits
Our Unique Approach to Climate Transition Research
icon-arrowIntersection

Highly Versatile Dataset

The LCTR is an end-to-end solution combining granular issuer-level data, high-level directional metrics like Implied Temperature Rise (ITR), and sector level insights for portfolio analysis and reporting.

icon-arrowIntersection

Company Action is a Priority 

While most research on the market focuses on companies’ low carbon ambitions, the LCTR assesses a company’s alignment with external standards, its future vulnerability from a shift to a low carbon economy, and the actions it is taking to manage transition risk.

icon-arrowIntersection

Comprehensive Company Assessment 

By looking beyond stated targets, the LCTR provides a multi-dimensional assessment of a company’s implemented policies, governance systems and investment plans across its entire value chain. 

icon-arrowIntersection

Experienced and Dedicated Team

The LCTR’s unparalleled insights build on Morningstar Sustainalytics’ 30-year history of assessing management risks. Each analysis is developed by a team of 120 professionals and specialists, offering over 200 data points for every company in our universe of over 10,000 issuers across various low carbon scenarios. 

icon-arrowIntersection

Deep Insight into Transition Plan Credibility

This gives LCTR users maximum transparency into the credibility of a company’s transition plans and management preparedness, making it easy to integrate granular insights into all stages of the investment process and map companies or funds to globally accepted frameworks like IIGCC’s NZIF 2.0. 

USE CASES
LCTR in Action: Essential Insights for asset owners, managers and banks

External Reporting and Commitments

Convert LCTR analysis into regulatory reports using Morningstar Direct and use LCTR data to facilitate compliance with global alliances like the Net Zero Asset Manager Initiative and the IIGCC.

Transition Plan Assessment

Assess a company’s true exposure by going beyond the company’s stated commitments to examine management policies, investment exposure and abilities to adapt to changing regulations, which allows LCTR users to see behind the rhetoric.

Research Integration and Risk Assessment

Utilize LCTR insights to analyze a company’s alignment with various low carbon scenarios like 1.5 degrees Celsius, identifying both underperformers and leaders in low carbon readiness showcased in the Morningstar Low Carbon Transition Leaders Indexes.

Screening and Benchmarking

Use LCTR analyses to establish forward-looking low carbon benchmarks for your portfolios, screen the investable universe based on exposure to or management of transition risks and reconcile the array of 3rd party standards and requirements into a single, clear set of metrics and scores.

Portfolio Company and Borrower Communications

Use customizable templates to transform LCTR data into analyses that precisely illustrate where and how deficiencies in issuer transition plans can be addressed, to communicate effectively with companies, borrowers and other stakeholders.

Thematic Investing

Harness LCTR data to develop investment products that advance the low carbon transition, integrating multi-sector peer insights and regional policy analysis to enhance their effectiveness and profitability.


REPORT INSIGHTS
Comprehensive Insights for Low Carbon Transition
The LCTR’s top-level rating is expressed as the likely increase in global temperature – the Implied Temperature Rise (ITR) – by 2050 if the world economy had the same percentage of misaligned emissions as the company in question. The ITR is adjusted for the company’s future performance and an extensive analysis of its management actions.
Compares the company’s performance-based ITR to its peers in global public equity and bond markets, as well as industry and sub-industry specific peers. Summarizes the top peers by market capitalization, including their overall rating, exposure, and management scores.
Summarizes overall alignment to the low carbon budget for each emission scope in an issuer’s value chain, indicating their contribution to the rating. Provides a separate analysis for exposure and management components to identify areas for additional action or investment.
Using more than 85 general and subindustry-specific management indicators, this score evaluates the company capacity to manage its exposure to fossil fuel investments, likely changes in government policy, and the transition’s impact on its workforce and their communities, as well as its managers’ and board’s ability to guide the company through the transition.
Reflects potential losses by 2050 from misalignment with low carbon targets. This financial metric assists investors in engaging with portfolio companies, preparing for regulations, and optimizing investments for transition scenarios.
Provides an overall score and detailed analysis of a company’s carbon-related disclosures, using the key TCFD* thematic areas of governance, strategy, risk management, and metrics and targets.
text
*To learn more about using the Low Carbon Transition Ratings for your ISSB/TCFD reporting, see Morningstar Direct Reporting and Analytics: Climate Risk Analytics | Morningstar
METHODOLOGY
Exposure + Management = Rating

Morningstar Sustainalytics’ LCTR provides a comprehensive measure of low carbon transition exposure and management preparedness. We do this by analyzing a company’s expected alignment to a low carbon pathway and its management actions to reduce emissions.

Here’s how we assign a Performance ITR and Alignment Score: 

We begin by determining the company’s sector- and region-specific emissions limit based on the IPR RPS, necessary for aligning with a net-zero pathway by 2050. Carbon budgets are also available for other decarbonization pathways.
We then establish a business-as-usual scenario derived from corporate reporting and estimation modeling across all three scopes, including upstream and downstream scope 3 emissions.
Next, we model how the company’s policies, strategy, governance, and financial position will enhance Transition Management and lower its impact below the baseline, resulting in the Expected Emissions estimate through 2050.
Now we can see the company’s Expected Emissions Gap – its anticipated misalignment with what is needed to achieve low carbon targets by 2050.
Finally, we calculate the global temperature increase in 2050 if the global economy exceeds its low carbon budget by the margin of the company’s Expected Emissions Gap, resulting in the final Performance ITR and Alignment Score.
text
ACCESS
How to Access the LCTR
Computer with donut chart

Global Access Clients

Access our ratings using Morningstar Sustainalytics' screening and reporting tools.

Computer with network icon

Data Services Access 

Integrate LCTR into your preferred internal system through our FTP or API services.

Computer with Morningstar website

Monitoring Systems

Ratings are available via Morningstar Direct, MPS, and Data Feeds.

Computer with two browser windows

Third Party Systems

Ratings are currently in Snowflake and will soon expand to FactSet, Aladdin, and Bloomberg.

NATURE DATA
Integrate Biodiversity Risks and Opportunities with Nature Data

Dive deeper into the climate-nature nexus, by addressing both topics in a synergetic way. Support Cclimate research integration by supplementing the Low Carbon Transition Ratings with nature-related signals to tilt/screen your portfolio or move towards joint TNFD/TCFD reporting. Other benefits include:

  • Assessing palm oil-related deforestation risks and gaining insight into company deforestation management systems
  • Focusing on critical sectors that can have an impact on both nature and climate (e.g., agriculture)
  • Identifying involvement in sustainable activities at the core of the climate-nature nexus (afforestation, wetlands adaptation)
  • Additional insights on how the company is managing water, a resource that will be affected by climate change