Published on 13 September 2019

SUSTAINABLE FINANCE

Sustainable finance: MSCI acquires Carbon Delta, the rising star in climate risk assessment

The Environmental, Social and Governance (ESG) rating market is restructuring once again! The recent acquisition announcement by MSCI of the Swiss environmental fintech platform Carbon Delta confirms two major trends: the growing Americanization of the sector and the use of ESG data modeling by artificial intelligence specialists.

Carbon delta team 2
Olivier Marchand, Elke Schaper and David Lunsford, the three co-founders of Carbon Delta
@carbon delta

All things considered, Carbon Delta is probably the unicorn of the ESG rating market. Launched in 2015, the Swiss startup is led by trio Olivier Marchand, Elke Schaper and David Lunsford. Carbon Delta combines cutting-edge data analysis and climate risk analysis models for financial markets. The team includes around 20 people and promotes an indicator called Climate Value-at-Risk® (CVaR) that assesses the climate trajectory of 22,000 companies worldwide.

Climate analysis, a key point for rating agencies.

Carbon Delta began making waves in the spring, after raising 1.7 million Swiss francs for its development in 2018. In May 2019, the Financial Times revealed that only 15% of the 500 largest listed companies in the world have an economic model compatible with the Paris Agreement. To achieve this result, Carbon Delta compared the volume of CO2 emissions for companies with the number of patents held for low carbon production methods. Their data scientists then correlated these data with the degree of global warming driving the current strategy of the companies evaluated.

Three months later, on September 9, 2019, MSCI announced that its Swiss entity would buy "the world leader in climate scenario analysis.”  Remy Briand, Head of ESG at MSCI, stated: “We believe climate change will become one of the most important investment factors over the long term. Institutional investors should be able to analyze the exposure of their portfolios to climate risk while also being able to report on their climate strategy. With Carbon Delta, we will be able to offer our clients with state-of-the-art climate risk analysis capabilities that can help shape investment management practices."

American hegemony

The Swiss start-up has, thus, been acquired by an American company, confirming the United States’ progressive hegemony on a sector in a full state of consolidation. Moody's, ISS and MSCI have bought European ESG data specialists who will help them build "materiality" analysis models, allowing these rating agencies to assess the costs of major environmental and social risks for companies and the potential benefits of a sustainable product strategy. For the moment, it is climate data that are are the most successful.

Robert J. Jackson, who was invited to Paris for the first event dedicated to international regulation on sustainable finance, confirmed that ESG data was the key to the market. The Democratic Commissioner of American market regulator, the SEC, stated in front of a panel of European-based sustainable finance specialists: "I am confident that ESG data will soon be a major economic and financial issue”. According to him, these data "constitute demonstration elements that will only be made stronger when used by shareholders who deposit resolutions to obtain companies with better ESG strategies on the climate, for example."

The next step in the restructuring of the ESG landscape concerns scenario standardization, especially climatic scenarios, which are provided to investors so that they turn away from the most risky companies and invest in others. Americans are starting to take a serious lead in this area. It would be a shame for Europe to lose the leadership it has acquired over the last fifteen years, because of lack of expertise, all while putting in place an action plan on sustainable finance!

Anne-Catherine Husson-Traore,  @AC_HT, CEO of Novethic


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