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Major update to Fixed Income, Property and Infrastructure risk methodologies
From today, all asset classes that have an “duration” have had an adjustment to their risk analysis algorithms. Potential Carbon Liability is now calculated for these asset classes based on a cumulative forward-looking analysis.
This would attribute a low PCL to a bond with a maturity date very close to today, which makes sense.
Equally, a coal power plant that is very close to it’s end-of-life would have a low PCL profile, vs a coal power plant that is newly commissioned, and has an effective life of 25+ years.
Lastly, property reaching its end-of-life would have a lower PCL than an equivalent property that has just been built.
These changes create a logical risk profile in relation to these asset classes. Previously, Emmi used a backward-looking risk analysis that attributed risk to the past emissions of the asset, rather than thinking about it’s cumulative future emissions as being representative of the risk.
Benefits:
More logical reflection of risk