Redefining Climate Risk

Comment Letter from Four Twenty Seven to Task Force on Climate-Related Financial Disclosures. (Download full letter here)

May 23, 2016

Dear Chairman Bloomberg,

Four Twenty Seven, Inc., a climate resilience research and advisory firm, is pleased to submit this letter of comment for your consideration and to help inform the work of the Task Force on Climate-Related Risk Disclosures (TCFD) during Phase II.

We commend you for the important work undertaken by the TCFD and your deliberate efforts to engage practitioners and stakeholders in providing input along the way. Providing guidance around climate risk disclosures is a critical step not only to help ensure financial markets will not be blindsided by predictable risks, but also to ensure that investors send the appropriate price signals to the decision-makers for the underlying assets – from corporate boards to public officials and real estate owners — thus providing an incentive to better prepare for and adapt to the physical impacts of climate change.

Our comments stem from years of working closely with Fortune 500 corporations to help them understand climate change impacts, quantify risk and monetize costs. We anticipate this type of analysis will need to become widespread for corporations to comply with the forthcoming guidance from the TCFD, and wanted to share our lessons learned from our past work.

Our comments, detailed below following the questionnaire structure, center around two key takeaways:

  1. The need to redefine climate risk to better account for direct and indirect risks related to the physical impacts of climate change. Regulatory, technology or transition risks are by no means confined to greenhouse gases, and focusing a disclosure framework only on extreme weather events and direct physical impacts would be deeply misguided. It is critical that corporations understand, address and disclosure their exposure to risks and opportunities related to transition risk due to:
  • Regulatory changes driven by climate change (e.g. changes in underground water regulation, permitting, zoning, etc.);
  • Costs and revenues associated with finding and deploying adaptive technologies to improve corporate resilience, mitigate risk exposure and promote more efficient resources use;
  • Costs associated with capital expenditure, retrofitting or moving facilities, infrastructure and other critical assets out of harm’s way.
  • Costs and revenues associated with increasing the company’s adaptive capacity, ranging from increased legal and insurance costs to investments in human capital, supply chain risk management, engagement with local governments to support climate adaptation efforts, and other public-private partnerships.
  • Macro-economic and financial risk for property owners, market risks for certain products, etc.

 

  1. The need to incorporate climate data into decision-making processes and provide vulnerability assessments at the asset-level for both corporations and investors.
  • Corporations need to utilize fully the wealth of climate data and projections that are available, and leverage sophisticated techniques and models to incorporate uncertainty into their decision processes.
  • Climate risk analysis must be performed at the asset-level, even if the final disclosures do not include all the asset-level data, and should rely on common standards, assumptions and scenarios to enable comparison across assets and across markets.
  • Risk assessments should be subject to third-party verification to ensure they are complete and cover all the material risks.

Download Four Twenty Seven’s Comment Letter (FourTwentySeven_PhaseI_CommentLetter) for our detailed analysis on climate risk reporting.