A
Acute risks: see Physical risks
Adaptation: Adaptation describes the process of adjusting natural or human systems in response to the actual and expected impacts of climate change, including extreme weather events, sea-level rise, and changes in ecosystems. Adaptation measures aim to reduce harm, improve resilience, and capitalise on beneficial opportunities, such as building sea walls to protect against floods and rising sea levels. We adjust the PCER and ECRR ratings based on companies’ resilience measures (see ClimaTech).
Asset pricing model: The model offers an approach to estimate the fair value of unlisted infrastructure and private equity investments using observable market data and systematic risk factors. The methodology adheres to the guiding principles of the International Financial Reporting Standards (IFRS). 13 – a framework for fair value measurements. The model allows us to calculate the expected Net Asset Value (NAV) in each climate scenario, thereby identifying the material risk factors associated with current and future climate change.
C
Carbon costs: We define carbon costs for an asset as the product of its Scope 1 and 2 emissions (carbon emissions) and a country’s carbon tax, based on the country in which the asset operates.
Carbon emissions (CO2 equivalent): Emissions from all types of greenhouse gases (GHG; carbon dioxide, methane, nitrous oxide, and water vapour) that are generated by asset operations, expressed in terms of their equivalent amount of CO2 to generate the same global warming effect. Following the GHG Protocol standards, carbon emissions are divided into three scopes:
Scope 1 (S1) emissions: Direct carbon emissions, including emissions from facilities and vehicles owned by a company.
Scope 2 (S2) emissions: Indirect carbon emissions from purchased electricity, steam, heating or cooling, ventilation, and lighting.
Scope 3 (S3) emissions: Indirect carbon emissions from other sources, including upstream and downstream activities (e.g., purchased goods and services, transportation and distribution, employees’ commute, generated waste, etc.).
Carbon footprint: The total amount of carbon emissions generated by asset operations. It is the sum of Scope 1, Scope 2, and Scope 3 emissions.
Carbon intensity: Provides insights into a company’s or sector’s carbon footprint. It is typically measured as the ratio of Scope 1 and 2 carbon emissions to an operation-related financial metric (e.g., production, revenues). In the context of the à PCER and à ECRR, we calculate carbon intensities per revenue in USD.
Carbon tax: The direct tax levied on an asset’s carbon emissions required to produce goods and services.
Cash Flow Available for Debt Service (CFADS): A key financial metric used primarily in project finance and infrastructure investments to assess a project’s ability to meet its debt obligations. CFADS represents the actual cash flow generated by a project that is available to service debt, including interest and principal repayments. CFADS excludes financing-related cash flows such as interest income, debt drawdowns, and repayments, making it a reliable indicator of a project’s underlying operating performance.
Chronic risks: see Physical risks
ClimaTech: ClimaTech is a comprehensive initiative designed to assess and evaluate the effectiveness of infrastructure decarbonisation and resilience strategies in response to the increasing risks posed by climate change. The ClimaTech project distinguishes between decarbonisation and resilience strategies:
Decarbonisation strategies: These strategies aim to lower carbon footprints by employing technologies and practices that minimise the use of fossil fuels and enhance energy efficiency (e.g., integrating renewable energy sources or adopting low-carbon construction materials) to mitigate climate change.
Resilience strategies: These strategies ensure that infrastructure can withstand climate-related disruptions and continue functioning effectively in the face of extreme weather events (e.g., building flood defences, improving structural integrity, using fire-resistant building materials). Resilience is the main strategy to adapt to climate change.
We use the ClimaTech database to adjust the PCER and ECRR: If companies share their strategies, the database provides information on the extent to which our model-estimated carbon emissions and expected damages can be reduced, and hence, the ratings adjusted.
Climate Change (anthropogenic): A change of climate which is attributed directly or indirectly to human activity (including the burning of fossil fuels, deforestation, and industrial processes) that alters the composition of the global atmosphere. Anthropogenic climate change is distinct from natural climate variability and can be observed over large time periods.
Climate exposure: Exposure refers to the presence of assets that could be adversely affected by transition and physical risks from climate change. We measure and rate assets’ climate exposure in the PCER.
Climate risks: Compared to climate exposure, climate risks describe the negative consequences resulting from an asset’s exposure and vulnerability to climate change. We measure and rate assets’ climate risks in the ECRR, for which we include assets’ financial materiality based on their Net Asset Value.
Climate scenarios: Climate scenarios are projections of future climate change-influenced macroeconomic conditions, based on various assumptions about greenhouse gas emissions, socioeconomic developments, and technological advancements. There have been various initiatives with different foci, for example, the Shared Socioeconomics Pathways (SSPs), Representative Concentration Pathways (RCPs), Networking for greening the Financial System (NGFS) and Oxford Economics. Overall, we consider three main climate scenario categories:
Orderly Transition: In these scenarios, immediate and coordinated climate policies are implemented, enabling the containment of physical risks while avoiding heavy transition risks. These scenarios aim to reach net-zero emissions and drive growth through beneficial innovations.
Disorderly Transition: In these scenarios, carbon taxes are applied late, governments act with less ambition, investments fall short, and climate actions are not sufficient to reach net-zero. To compensate for the delay and political uncertainties while maintaining the goal of mitigating global warming, carbon taxes are introduced as a shock, entailing high transition risks.
No Transition: In these scenarios, climate policies remain unchanged from their current state. Transition risks are low but come at the cost of high physical risks.
Climate scenario probabilities: The EDHEC Climate Institute has developed a methodology to calculate the probability of each climate scenario happening. We calculate the climate exposure of infrastructure companies based on the projections in the scenario with the highest probability. This is reflected in the PCER. In the ECRR, we measure companies’ climate risks, for which we use weighted averages of all climate scenario projections, based on their likelihood of occurrence. For more details on our methodology, refer to the technical documentation.
Corporate Sustainability Reporting Directive (CSRD): An EU directive that significantly expands and strengthens sustainability reporting requirements for companies. It replaces the Non-Financial Reporting Directive (NFRD) and mandates detailed disclosures on environmental, social, and governance (ESG) issues, based on the European Sustainability Reporting Standards (ESRS). The CSRD aims to enhance transparency and comparability of sustainability information, enabling investors and other stakeholders to assess a company’s performance and related risks. It applies to large companies and listed Small and Medium Enterprises (SMEs), with phased implementation starting with the 2024 financial year.
D
Damage factor: The output of a damage function, typically defined as a ratio of repair to replacement costs. Additionally, the damage factor can be interpreted as the extent of the damage to an asset. This is presented in the percentage of the asset damaged.
Damage function: A function that translates the magnitude of hazard events to quantifiable damage by factoring in an asset’s exposure and vulnerability to such hazard events.
Data Quality Score (DQS): The DQS system is part of the methodology developed by the Partnership for Carbon Accounting Financials (PCAF) to assess the reliability and accuracy of carbon emissions data linked to financial assets. This scoring system is a central feature of PCAF’s approach to financed emissions accounting. The scores range from 1 to 5, with 1 indicating the highest quality of (reported) emissions data, while 5 represents estimated emissions based on generalised data or proxies. For more details on how Scientific Climate Ratings include DQSs, refer to the technical documentation.
Discounted Cash Flow: A finance method used to value a security, project, company, or asset that incorporates the time value of money. The result is the Net Asset Value (NAV).
E
Effective Climate Risk Rating (ECRR): A rating developed by the EDHEC Climate Institute and Scientific Climate Ratings that reflects infrastructure companies’ sensitivity to present and future climate risks. This “effective” measure of future climate risks is provided for two time horizons – 2035 and 2050 – and incorporates transition risks as well as physical risks. Compared to the Potential Climate Exposure Rating (PCER), it reflects the financial materiality of physical and transition risks on companies’ cash flows and value and hence, represents a more effective “risk” rating rather than an “exposure” rating. For more details on the ECRR, refer to the technical documentation.
Emission Factor (EF): A modelling factor that expresses the amount of carbon emissions generated by an activity of a given technology, hence measured in reference to an operational variable. For example, the EF for a car represents the car’s emissions for a given amount of distance travelled, and the EF for a power plant specifies the plant’s emissions for a given amount of MWh of electricity produced.
European Sustainability Reporting Standards (ESRS): A comprehensive set of mandatory standards developed by the European Financial Reporting Advisory Group (EFRAG) under the Corporate Sustainability Reporting Directive (CSRD) to harmonise corporate sustainability disclosures across the EU. The ESRS covers topics such as climate change, biodiversity, social matters, and governance, ensuring consistency, comparability, and reliability of sustainability information.
EU Taxonomy for Sustainable Activities: A classification system established by the EU to define what qualifies as an environmentally sustainable economic activity. It aims to prevent greenwashing and helps investors, companies, and policymakers identify and compare green investments based on six environmental objectives, including climate change mitigation and adaptation.
Expected damage: A metric we developed for all physical hazards covered in our PCER and ECRR ratings. While we calculate expected damage from floods, storms, and wildfires as the total asset loss (in percent), we calculate expected damage from heat (see thermal stress) as revenue loss (in percent). We use these baseline metrics for our physical damage exposure and risk metrics, which we then translate into respective scores and ratings.
Extreme Value Analysis (EVA): A statistical approach to model and estimate the probability of hazard events and calculate return periods. It focuses on the tail ends of probability distributions to assess the likelihood and magnitude of events that lie outside typical observations.
Exposure (to physical risks): The presence of infrastructure assets in places and settings that could be adversely affected by hazard events. Different from an asset’s vulnerability to physical risks.
F
Flood: A type of hazard event defined by the overflowing of the normal confines of a stream or other water body or the accumulation of water over areas that are normally not submerged. Different types of floods include fluvial, pluvial, and coastal floods. We include the exposure to and risks from floods in our PCER and ECRR ratings. For more details on our approach to measuring flood risks, refer to the technical documentation.
G
Geolocation: The process of identifying the geographic location of an object and associating it with geographic coordinates (e.g. in latitude and longitude).
Geospatial data: Data that relates to the geographic position and characteristics of features or phenomena on the Earth’s surface.
Geospatial transformation: This process refers to the cleaning, processing, and structuring of geospatial data for subsequent analysis.
H
Hazard event: A physical climate event or trend that may cause loss of life, injury, or other health impacts, as well as damage and loss to property, infrastructure, livelihoods, service provision, ecosystems, and environmental resources. Floods and storms are among the most impactful types of hazard events.
Hazard map: A map that illuminates areas that are affected by or exposed to a particular hazard. They are typically made for natural hazards and contain hazard values.
Hazard value: These values contain measurements of hazard-events (e.g., the depth of a flood).
Heat: see Thermal stress
I
Infrastructure universe: The Unlisted Infrastructure Universe is a database of tracked assets that represent the fair value- and risk-adjusted performance of the unlisted infrastructure asset class. It includes more than 9,000 unique infrastructure companies across the 27 most active national markets for infrastructure investors to define an investible universe of private infrastructure companies. These companies have a minimum of USD 1 million in total asset book value, are privately owned, and can be categorised using the Infrastructure Company Classification Standard (TICCS).
International Financial Reporting Standards (IFRS): A globally recognised set of accounting standards designed to bring consistency, transparency, and comparability to financial reporting across countries. IFRS governs how companies prepare and disclose their financial statements. In 2021, IFRS launched the International Sustainability Standards Board (ISSB) to create a comprehensive global baseline for sustainability disclosures. These include IFRS S1 (general sustainability-related financial disclosures) and IFRS S2 (climate-related disclosures aligned with TCFD recommendations).
M
Magnitude (of hazard events): A hazard magnitude scale measures the strength of a hazard event considering the natural forcing phenomena and the severity of the event. For our physical risk methodology, we adopt the description of magnitude based on the probability of occurrence of hazard events, also known as return periods.
Market preferences risk: We developed two market preference metrics for the PCER and the ECRR ratings. These metrics serve as proxies for companies’ exposure to adverse risks from market preferences, shifts in consumer behaviours and values, and demands that lead to further policy regulations.
Mitigation: Mitigation refers to efforts and actions that limit the impacts of climate change. Mitigation measures aim to reduce or prevent the emission of greenhouse gases (carbon emissions), or to enhance carbon sinks that help to absorb and store carbon. We adjust PCER and ECRR ratings based on companies’ decarbonisation measures (see à ClimaTech), such as switching from coal to renewable energy sources.
N
NACE: The Nomenclature statistique des Activités économiques dans la Communauté Européenne (English: statistical classification of economic activities in the European Community) is an industry-standard classification system used in the European Union. Oxford Economics uses the NACE classification in its sales projections.
Networking for Greening the Financial System (NGFS): A global network of central banks and financial supervisors committed to enhancing the role of the financial system in managing climate and environmental risks. Founded in 2017, NGFS shares research, guidance, and tools, such as climate scenarios, to promote sustainable finance and risk management. The NGFS scenarios combine socioeconomic projections, energy system models, and climate outcomes, and are aligned with frameworks like the Shared Socioeconomic Pathways (SSPs) and Representative Concentration Pathways (RCPs).
O
Operational stress: see Thermal stress
Oxford Economics: A global economic forecasting and analysis company that provides data-driven insights and models, specialising in climate scenario planning, macroeconomic modelling, and sectoral and regional forecasts. Compared to other climate scenario providers, Oxford Economics’ Climate Catastrophe scenario represents the potential risks of inaction against climate change more accurately.
P
Partnership for Carbon Accounting Financials (PCAF): A global initiative that provides a standardised methodology for financial institutions to measure and disclose the greenhouse gas emissions associated with their loans and investments. A key feature is PCAF’s focus on transparency and their Data Quality Score method, enabling institutions to disclose emissions with clarity about methodology and uncertainty. PCAF is widely adopted by banks, asset managers, and insurers and supports alignment with net-zero targets and climate-related disclosure frameworks (e.g., TCFD, IFRS).
Physical Damage at Risk (PDaR): PDaR refers to the asset-level damage factor calculated during the modelling process. PDaR can be understood as the percentage of an asset’s area that is exposed and vulnerable to a hazard event.
Physical risks: Risks related to the physical and material impacts of climate change. Physical risks can be either acute or chronic, which can both disrupt supply chains, reduce asset values, and increase operational and maintenance costs for businesses and communities. In the context of the PCER and ECRR, we measure physical risks as the expected damage caused by floods, storms, wildfires, and heat stress (see thermal stress).
Acute risks: A type of physical risk referring to immediate, short-term, à hazard events, such as the increased severity of extreme weather events (e.g., cyclones, floods, or wildfires) that can cause sudden and significant damage to infrastructure assets and operations.
Chronic risks: A type of physical risk referring to long-term shifts in climate patterns, such as rising sea levels, increasing temperatures, and prolonged droughts, which can gradually affect asset values, operational costs, and overall economic stability.
Physical Value at Risk (PVaR): PVaR can be understood as the total value of an asset exposed and vulnerable to a hazard event. This is derived by multiplying the financial information of the asset, specifically the total asset value, with the Physical Damage at Risk (PDaR). The quantified PVaR would be the dollar amount that needs to be repaired or replaced when a hazard event of a respective magnitude occurs.
Policy and technology risk: We developed two policy and technology metrics for the PCER and the ECRR ratings. These metrics serve as proxies for companies’ exposure to adverse risks from policy changes and new technologies. Both metrics consider assets’ carbon costs based on their S1+2 carbon emissions (or S1+2 carbon intensity) and country-specific carbon tax.
Potential Climate Exposure Rating (PCER): A rating developed by the EDHEC Climate Institute and Scientific Climate Ratings that reflects infrastructure companies’ sensitivity to present and future climate exposure. This “potential” measure of future climate exposure is provided for two time horizons – 2035 and 2050 – and incorporates transition risks as well as physical risks. Compared to the Effective Climate Risk Rating (ECRR), it focuses on future physical damages and carbon costs, without a direct relation to companies’ cash flows and value. Accordingly, it represents an “exposure” rating rather than a “risk” rating. For more details on the PCER, refer to the technical documentation.
R
Reclassification: The process of taking input cell values and replacing them with new output cell values. We use this process to transform the initial hazard maps, which provide information on the hazard value (e.g., flood depth for each raster band on the map), into hazard maps with damage factors to receive the level of damage in percent for each region and asset class.
Representative Concentration Pathways (RCPs): At the request of the IPCC, the scientific community developed the RCPs, one of the first scenarios to explore the impacts of (future) greenhouse gas concentrations in the atmosphere on the climate. These climate scenarios primarily focus on the expected radiative forcing values (i.e., the imbalance between the amount of energy that enters the Earth’s atmosphere from the sun and the amount of energy reflected into space) until 2100. However, the RCPs are nonspecific regarding the underlying socioeconomic conditions.
Reputation: see market preferences
Return period: The return period is a statistical estimate of how often a specific à hazard event of a given magnitude is likely to occur. This probability is expressed as an estimate of the average time interval between occurrences, typically expressed in years. For example, if a 100-year flood has a return period of 100 years, there is a 1 percent chance of such a flood occurring in any given year. To obtain return periods, we use Extreme Value Analysis (EVA), which models the behaviour of extreme events to estimate the likelihood of occurrence.
S
Scenario probabilities: see Climate scenario probabilities
Scope 1, 2, and 3 emissions: see Carbon emissions
S3-to-S1+2 ratio: This ratio is part of our approach to building S3 carbon emission models. To estimate S3 emissions, we use our S1+2 emission estimations in combination with sector-specific S3-to-S1+2 ratios. We build these ratios based on the assumption that emissions generally scale with levels of activity.
Shared Socioeconomic Pathways (SSPs): Global climate scenarios used in climate modelling and impact assessment to explore how different trajectories of societal development affect greenhouse gas emissions and climate risks. SSPs describe alternative futures based on challenges to mitigation and adaptation, and are often combined with Representative Concentration Pathways (RCPs).
Shapefile: A widely used geospatial file format for storing and sharing vector-based geospatial data in Geographic Information Systems (GIS). Shapefiles contain information about geometric shapes (such as points, lines, or polygons) along with associated attribute data (e.g., names, population, land use).
Storm: A type of hazard event referring to strong winds resulting from a low-pressure atmospheric system. Storms are among the most significant natural hazards, resulting in substantial global damage and major economic losses. Different types of storms include tropical cyclones and extratropical storms. Tropical cyclones are driven by warm ocean waters and generate extreme winds, storm surges, and heavy rainfall, while extratropical storms are more prevalent in mid-latitudes and can cause severe disruptions due to high winds, flooding, and snow. We include the exposure to and risks from storms in our PCER and ECRR ratings. For more details on our approach to measuring storm risks, refer to the technical documentation.
T
Task Force on Climate-Related Financial Disclosure (TCFD): An international initiative developed in 2015 by the Financial Stability Board to develop a framework for climate-related financial disclosures and improve transparency on climate-related financial risks. The TCFD recommends voluntary, but widely adopted, disclosures on governance, strategy, risk management, and metrics related to climate impacts on business. The TCFD fulfilled its remit and disbanded in 2023. The IFRS Foundation is now monitoring the progress of companies’ climate-related disclosures.
The Infrastructure Company Classification Standard (TICCS): A classification standard of infrastructure companies that provides investors with a frame of reference to approach the infrastructure asset class. It offers an alternative to investment categories inherited from the private equity and real estate universe, which are less informative when classifying infrastructure.
Thermal stress: Refers to the adverse impacts on living organisms and systems resulting from excessive temperature conditions, such as extreme cold or heat stress.
Extreme heat stress: A type of hazard event defined by heat wave periods that bring consistently abnormal high temperatures. Heat stress risk and its impact can be understood in three categories: direct physical damage (e.g., deformation of road surfaces), disruptions affecting supply chains, transportation networks, or energy systems, and operational issues. We focus our heat stress assessment on operational issues, where heat impacts chronic health risks and worker productivity. For more details on our approach to measuring heat risks, refer to the technical documentation.
Total assets: The sum of the valuation of all assets owned by a company.
Transition risks: Transition risks refer to the financial risks arising from the shift towards a low-carbon economy. These include changes in policies and regulations that impact à carbon costs, technological advancements, and consumer preferences and market dynamics that can impact assets’ and companies’ values and reputations. In the context of the PCER and ECRR, we measure transition risk as a combination of policy and technology risks and market preferences risks.
Transition scenarios: see Climate scenarios
V
Vulnerability (to physical risks): The propensity or predisposition of an asset to be adversely affected by a hazard event. Different from an asset’s exposure to physical risks.
W
Wet Bulb Globe Temperature (WBGT): The WBGT is a composite temperature metric that combines air temperature, humidity level, wind speed, and solar radiation to assess direct thermal stress for each day from 1990 to 2060. An increased WBGT corresponds directly to decreased productivity, and hence, it is a useful measure for workplace safety.
Wildfire: Also known as forest fires or bushfires, these uncontrolled and fast-spreading fires are a type of hazard event that occurs in vegetation, such as forests, grasslands, or shrublands. Wildfires are influenced by the “fire triangle”: fuel (i.e., dry vegetation), weather (heat, wind, low humidity), and ignition source. Wildfires are increasingly seen as both a hazard and a climate-related risk, with frequency and severity rising in many regions due to hotter, drier conditions and changing land-use patterns. We include the exposure to and risks from wildfires in our PCER and ECRR ratings. For more details on our approach to measuring wildfire risks, refer to the technical documentation.
Z
Zonal statistics: An operation that calculates statistics on cell values of a raster within the zones defined by another dataset. This methodological step is crucial for accurately calculating the physical damage to assets within their boundaries.
