Norway's $975 billion wealth fund, the world's largest, wants to know how much of a company's carbon dioxide emission costs can be passed on to customers.
The fund holds 1.4 per cent of all globally listed shares, representing 9,000 companies, so a lot is at stake for the fund as it considers how to allocate investments amid rising climate-related costs.
Norges Bank Investment Management is turning to data analytics, building a software tool that can help guide the process.
Called Angle, the software can now take non-financial data, such as carbon dioxide emissions, combine it with trading data and earnings data of a given company, and see how it will affect its earnings in the years ahead.
The next step, which has not been disclosed before, is to develop the platform to see how much of the carbon cost can be passed on to customers and how much companies must pay themselves.
"For us, it is reasonably obvious that the focus on climate change risk will not go away and that is there as a risk for the companies (we invest in), whether directly or indirectly," fund CEO Yngve Slyngstad said in an interview.
"Therefore, there is an issue about the pricing of different companies," he told Reuters, adding that the latest development of the software was not yet completed. "There is more work to be done on it," he said.
The work began when the fund was mandated by the Norwegian Parliament to divest from companies that derive 30 per cent or more of its business or activities from thermal coal in 2015.
"We needed the data (to analyse) utilities' energy mix, but it has developed to see if it can be used to other sectors," said Slyngstad.
Other institutional investors are also pushing companies to disclose the data they need to assess the climate-change risk to their investments.
"The Norwegian sovereign wealth fund is one of the leading institutional investors when it comes to the analysis of climate risk," Stephanie Pfeifer, chief executive of the institutional investor's group on climate change, a group of 163 pension funds and asset managers representing over 21 trillion euros ($23.8 trillion) in assets.
"They have put resources in the research that others have not necessarily done. They have had the capacity to do so," she told Reuters.
Still, while disclosing climate-related data is becoming more mainstream, few companies disclose the financial impact on their businesses, a survey by a G20 task force showed in September.
For Slyngstad, the key is to get hold of data. Once you get hold of good data, he said, you can go from "words to action".
"The only surprise (with this work) is how hard it is to get the data," said Slyngstad. "I think it will take years to get good data from the majority of companies we are invested in."
(With inputs from agencies.)