Asset level data has huge potential to highlight credit analysis and help mitigate environmental risk.
The good news is that much of it already exists, according to a report published today by S&P Global Ratings, “How Asset Level Data Can Improve The Assessment Of Environmental Risk In Credit Analysis.”
The report is a Guest Opinion authored by Ben Caldecott and Lucas Kruitwagen of the Sustainable Finance Programme at the University of Oxford. (The thoughts expressed in the article are those of the writers and do not necessarily reflect the views of S&P Global Ratings.)
In the absence of perfect reporting, it is necessary to build asset level datasets to provide universal coverage and open up more sophisticated bottom-up approaches to measuring environmental risk. The report coincides with the imminent recommendations of the FSB Task Force on Climate Related Financial Disclosures (TCFD) of which S&P Global Ratings is a member.
The good news is that much of the data required to undertake this already exists.
“It’s just in disparate locations and needs to be brought together and can be augmented with remote sensing and big data datasets. This is an awkward task, but not a particularly expensive one,” Mr. Caldecott said.
“It also lends itself to being a coordinated public goods endeavour. Analysts would benefit from asset level data to better inform their opinions of credit risk, and would do well to encourage such efforts.”
According to the authors, environmental risks are fundamental drivers of company and financial risk exposure for debt issuers. Asset level data build on disclosure regimes by providing physical and nonphysical asset level information tied to company ownership.
The potential of asset level data to inform new analysis of environmental risk exposure is significant, including for the assessment of credit risk. This high-resolution data have the potential to improve the identification and analysis of environmental risk for analysts, investors, and other stakeholders.
“Asset level data are needed to enable universal, detailed analysis of environmental risk exposure for issuers, guiding the efficient deployment of capital in the transition to a more sustainable economy,” said Mr Caldecott.