Dive Brief:
- Financial analytics and indexing firm MSCI announced Wednesday it is acquiring physical climate risk modeling company First Street in a bid to help companies meet rising regulatory and reporting requirements.
- The acquisition is expected to close in Q3 of this year with MSCI expected to pay $120 million at closing, according to the June 24 press release. The deal also allows for potential future payments in the first two years after closing if certain revenue thresholds are met.
- MSCI — which is a spin-off of Morgan Stanley — said that following the integration of First Street’s data and tools into its climate and geospatial solutions, the company will be able to run physical climate risk assessments for over 2 billion structures.
Dive Insight:
The acquisition comes as companies are increasingly looking to understand the financial consequences that come with severe weather events, though corporate climate resilience continues to face lags. After public companies made weather-related disclosures in securities filings, “over half of companies miss revenue growth expectations within a year, and stocks underperform by an average of 2.7 percent within 30 days,” First Street found in an analysis this year.
The integration of First Street’s data will help better inform clients “about their changing risk exposures and translate that directly into financial decision-making,” MSCI Head of Climate and Sustainability Richard Mattison said in the release.
“The financial consequences of where assets are located have come into sharp focus due to the recent geopolitical turmoil, supply chain disruption and the growing impact of climate hazards,” Mattison said. “In response, investors, lenders and insurers are increasingly looking for more in-depth and actionable analysis of the physical risk held in the footprint of a company’s operations and investments.”
Following the deal’s closing, First Street will sit within MSCI’s sustainability and climate business, and its financial results will be reported as part of that segment of the company, according to the release.
First Street launched in 2016 to “connect climate and financial risk,” Founder and CEO Matthew Eby said in a LinkedIn post following the announcement. Eby said the company started by “democratizing climate risk data” before expanding that to financial markets, and will now “power that impact with the scale and reach of MSCI.”
The acquisition and enhanced scale “means climate risk moves into the workflows of the world's leading investors, lenders, and insurers, embedded directly into how capital is priced and allocated,” Eby added. “When the market reacts to the cost of climate faster, capital moves faster, and the world adapts faster.”
Over the past 20 years, companies are 6.5 times more likely to issue profit warnings following extreme weather events, according to a report First Street published in March. Sixty-five percent of public companies now mention physical climate risk into their annual filings, the report found.
However, that recognition has not translated into organizational readiness on climate resilience, and companies currently lack the financial rigor to calculate climate resilience, according to a recent paper from the Center for Climate and Energy Solutions and Systemiq.
