Low Carbon Transition Ratings

Morningstar Sustainalytics’ Low Carbon Transition Ratings provide investors with a top-level implied temperature rise and value-at-risk, assessing companies’ current alignment to a net-zero pathway. The ratings are supported by robust research and a transparent dataset, including annual expected emissions trajectories for different climate change scenarios.

Leveraging our Low Carbon Transition Ratings, investors can respond to regulatory initiatives, implement net-zero strategies, fulfill client net-zero mandates, conduct scenario analysis, and obtain transparency into company actions by integrating climate research into their investment decision-making processes.

Overview of Sustainalytics’ Low Carbon Transition Ratings
Our comprehensive framework measures the degree to which a company’s projected GHG emissions differ from various decarbonization policy scenarios between now and the year 2050. The ratings leverage a two-dimensional framework that measures an issuer’s exposure from their expected emissions, while also accounting for management actions. They assess the company’s progress toward their stated net-zero commitments by evaluating the quality and ambition of their GHG reduction targets, as well as any demonstrated short-term investment plans, policies and programs such as Climate Transition Resilience Program, Product Decarbonization Strategy and a GHG Emissions Reduction Policy – Supply Chain. The ratings also provide a Climate Transition Value-at-Risk signal that demonstrates the potential loss in value that a company may experience from a transition to a low carbon economy, calculated for different decarbonization pathways.

Comprehensive Measure of Low Carbon Transition Alignment

Analyze low carbon transition exposure and management preparedness across a business’ value chain for each scope of emissions. Our assessment delivers more than just an Implied Temperature Rise rating, going beyond by 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 Various Net-Zero Climate 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. This currently includes orderly scenarios like the UN PRI IPR Required Policy Scenario (RPS)*, and IEA Net Zero 2050 Scenario (NZE), a disorderly scenario with the IPR Forecast Policy Scenario (FPS), and a hot-house scenario with IEA Stated Policies Scenario (STEPS).

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

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 – investors gain transparency into the credibility of company’s transition plans and management preparedness and 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.