An iceberg gounded near an old fishing stage

With investors increasingly seeking to incorporate environmental factors into their investment decisions, two research firms unveiled new tools designed to enable investors to assess companies’ carbon risks — and the impact these risks have on fund portfolios.

Amsterdam-based Sustainalytics launched its new of carbon risk ratings, which aim to provide a single measure of companies’ exposure to material carbon risks.

Chicago-based Morningstar Inc., a strategic collaborator with Sustainalytics, announced it will assign carbon risk scores to approximately 30,000 funds globally based on Sustainalytics’ new ratings. The scores are designed to help investors evaluate a portfolio’s exposure to carbon risk.

“Climate change will pose great challenges to investors seeking to balance their desire for high returns with a commitment to achieving a positive environmental impact. Given this, investors will need a means of more precisely analyzing their portfolio exposures to ensure they meet the realities of a carbon-constrained future,” says Haywood Kelly, Morningstar’s global head of research, in a statement. The new metrics will enable investors to monitor, manage, and reduce their carbon risks, he adds.

Morningstar also introduced a new low carbon designation, which is based in part on a fund’s Carbon Risk Score; and, will help investors easily identify funds that are effectively managing these risks.

Sustainalytics says that its new approach to measuring material carbon risks, which will cover more than 4,000 publicly traded companies, is designed to capture investment risk that cannot be calculated through the traditional approach of carbon footprinting.

“Given mounting regulatory and industry pressures around climate change, investors informed us they need deeper insights that go beyond carbon footprinting and that reflect a focus on risk and financial materiality,” says Michael Jantzi, CEO of Sustainalytics, in a statement. “Sustainalytics’ Carbon Risk Ratings symbolize our commitment to build and deliver innovative, high-quality products and services that support investors’ decision-making processes.”