BlackRock has created Aladdin Climate to meet the urgent need among financial institutions and investors to quantify climate risk in their portfolios as the physical toll of climate change mounts and the global transition to net zero emissions accelerates. It’s the first software application to offer investors measures of both the physical risk of climate change and the transition risk to a low-carbon economy on portfolios with climate-adjusted security valuations and risk metrics.
Investors can now analyze climate risk and opportunities at the security level and measure the impact of policy changes, technology, and energy supply on specific investments. Aladdin Climate is initially available as an add-on for existing Aladdin clients globally with asset class coverage rolled out gradually over the course of 2021.
“There is no single issue that clients ask us more about than the impact of climate risk on their portfolio,” said Rob Goldstein, BlackRock’s chief operating officer, in a statement. “Yet, while lots of people are talking about climate risk today, what investors need to make informed decisions is data tied to specific securities in their portfolio. Aladdin Climate is a dramatic step forward to begin filling the information gap necessary to build truly sustainable portfolios.”
Evolution of ESG data
Investors have long highlighted the need for improved ESG data to increase sustainable investing strategies. Now, the dramatic growth in relevant corporate disclosures and unstructured data has created unprecedented opportunities to enhance climate analytics. Today, more than 85% of S&P 500 companies disclose ESG data, compared to 20% ten years ago and Sustainability Accounting Standards Board’s (SASB) disclosures have increased 288% since January.
More and more organizations seek to report on climate risk, whether for mandatory stress tests or voluntary disclosures such as the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, but have lacked tools that quantify climate risk. Aladdin Climate will help clients stress test investments to estimate how they might perform in different climate scenarios like those outlined in the Paris Agreement.
“We are building on BlackRock’s strength in financial modeling and risk management to set a standard for climate risk analytics,” said Mary-Catherine Lader, head of Aladdin Sustainability at BlackRock, in a statement. “Aladdin Climate analyzes climate risk alongside traditional risk metrics for a holistic view of risk across the investment process, all integrated in existing Aladdin workflows. Investors can now analyze tough questions about rising sea levels’ potential impact on their portfolios, or how a rapid shift to low-carbon policies could affect specific companies.”
Partnerships with Sustainalytics and Refinitiv
BlackRock has also expanded access to ESG data through new partnerships with data providers Sustainalytics and Refinitiv. Aladdin now offers over 1,200 key performance indicators to help portfolio and risk managers identify sustainability-related risks in their exposures and make informed asset allocation decisions. By providing all Aladdin clients a set of ESG scores across a broad universe of companies, BlackRock is making it easier for investors to incorporate ESG metrics in their investment process.