Data, ratings and analytics giant MSCI is betting its latest acquisition will enable investors to close the gap between perceived climate risks to their physical assets and disclosures about the impacts that severe weather is actually having on them.
First Street’s global data feeds use environmental, geospatial and satellite technology to detail the vulnerabilities of more than two billion structures around the world, helping companies accurately chart their assets’ risk profiles and enabling investors to make better-informed decisions about capital allocations to them.
The acquisition, which was signed in a US$120 million transaction in June, comes at a time of record northern-summer temperatures and as scientists predict the latest El Niño weather phenomenon will be more severe than before, threatening even more damaging heat, winds and flooding. While the financial industry has reduced many of its sustainability commitments, Matthew Eby, First Street founder now Head of Physical Risk at MSCI, said that companies are, nevertheless, preparing for the worst.“It’s indisputable what’s happening – whatever you want to call it, it is climate change and that is what investors actually realise,” Eby told Data Management Insight. “It is bottom-line math that people are looking at. Physical climate risk is credit risk, it’s investment risk and it’s material across financial decision making.”
Hazards and Assessments
First Street’s proprietary datasets were created by climatologists, meteorologists and hydrologists to establish climate-related risk profiles for every location across the globe and provide information on multiple hazards. They are laid over geospatial data that provides information on structures worldwide, enabling assessments of physical assets’ exposure and resilience to emerging risks.
The data can provide a snapshot of current risks and be used in scenario analysis and stress tests, explained Eby.
“We can ask questions such as ‘how likely is wildfire to reach a home? How likely is a three-second wind gust of 200 kilometres an hour to hit a bridge? How likely is a foot of flood water to reach the office tower?’,” he said. “Once we have all that data, then we start compiling it to then ask ‘what is the risk for a company? What is the risk for a town? What is risk for a sovereign or a muni’?”
Digital Twins
Where detailed public data on a structure isn’t available, First Street’s technology can make an informed assessment using digital twins built on known data for similar structures.
“When we see something that we know is a wastewater treatment facility in one country, and a structure in another part of the world has the same characteristics, then we are able to know that is a wastewater treatment facility too,” he said. “Because we have the square footage and other key information from the likes of satellite imagery, we can infer what it would be made out of and what the first principles of engineering approach would be to construct something like that.”
Inferred data is flagged so that investors and owners can validate the information and update the structure’s characteristics within the platform.
The company’s datasets exist in conjunction with MSCI’s other sustainability data feeds, including social risk models, and are contained in one artificial intelligence-driven workflow.
The granular datasets can be aggregated across geographies, which Eby said the data is critical to inform risk assessments across asset classes, from property owners and insurers, to asset managers, asset owners and bond holders.
Blind Spot
MSCI quantified the gap between climate risk perception and reporting in a recent research paper, which concluded that while many firms acknowledge their vulnerabilities, few are explaining the effects they are having.
In a study of annual reports from 25,346 global companies between 2023 and 2025, 81% of publications mentioned physical climate risks but only 27% identified how they had impacted their operations and assets.
This is creating a “blind spot for investors relying on company disclosures alone”, the report stated, adding that First Street’s Entity Risk tool could help fill that gap.
One of the more illuminating findings underlines how approaches to sustainability are morphing among corporate leaders from investment opportunities to extant and rising risk factors. In the study period, 6% of companies, equivalent to one in every 17, annually disclosed a physical climate-related shock, up from less than 1%, or one in every 105 companies, in the early 2000s.
Eby said the reporting gap is a risk to companies’ and investors’ balance sheets as demonstrated by other findings in the report that show when a climate risk materialises, impacted companies can lose 5% of their market value.
“These are big events and they’re happening constantly,” Eby said. “They’re massively material.”
First Street’s data is available to MSCI customers via APIs and MCPs and will be integrated with MSCI’s other data sets and incorporated into the parent company’s products suites within MSCI ONE to provide a holistic view of risk across asset portfolios.
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