Morningstar Sustainalytics has announced a strategic collaboration with physical climate risk specialists XDI (Cross Dependency Initiative) and AI business data platform Veridion to advance its physical climate risk solutions for asset managers and asset owners.
The initiative aims to address a critical capability gap in sustainable investing: translating raw physical hazard exposure into financially relevant metrics. While existing market tools can successfully identify whether a factory or office is exposed to floods, wildfires, or extreme heat stress, converting that exposure into actionable data for portfolio construction has remained a significant industry challenge.
To ensure the new framework integrates into real-world investment workflows, a group of institutional asset managers and asset owners will serve as design partners, providing continuous feedback on use cases and data requirements. The product will expand upon Morningstar Sustainalytics’ existing climate suite, including its Low Carbon Transition Ratings and Physical Climate Risk Metrics.
The collaboration fuses three distinct technical capabilities:
- XDI will deliver asset-level hazard impact analysis via its engineering-based Climate Risk Engines. The system combines sub-asset data, hazard modelling, and forward-looking scenarios to calculate operational disruption, aligned with TCFD and ISSB reporting frameworks.
- Veridion will supply the foundational geolocation and business intelligence layer. Its AI-enabled platform maps complex corporate entities to their physical assets and operations globally, providing a live company graph of who owns what, and where.
- Morningstar Sustainalytics will integrate these inputs into its proprietary investment research framework through a new Asset Materiality Assessment. This methodology distinguishes which climate-exposed assets are genuinely critical to a company’s core operations, revenue generation, and earnings capacity, preventing non-essential assets from distorting portfolio-level risk signals.
David Pagliaro, President of Morningstar Sustainalytics, noted that whilst asset-level hazard data has become increasingly available, investors have lacked a consistent framework to determine actual financial relevance. By connecting exposure, asset materiality, and business interruption, the approach aims to help institutions isolate where physical risks will most acutely impact long-term value.
Dr Karl Mallon, Founder and Head of Science and Technology at XDI, added that while their risk engines have always relied on detailed asset design and construction data, acquiring that intelligence at scale was historically unfeasible. The partnership with Veridion and Morningstar Sustainalytics bridges this data gap, transforming sophisticated scientific metrics into decision-ready investor intelligence.
Florin Tufan, Chief Executive of Veridion, emphasised that the venture grounds climate data in operational reality, allowing investors to base risk management decisions on accurate, real-time corporate footprints.
