Newsletter: Climate Risk Increases Sovereign Risk

Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we share new research on climate risk and sovereign risk, discuss the climate implications of the U.S. election and highlight new data on EU Taxonomy alignment and TCFD disclosures.

In Focus: Climate Change and Sovereign Risk

Report: Cost of Sovereign Capital is Affected by Climate Risk

New joint research provides a comprehensive analysis of the ways in which climate risks affect sovereign risk. Published by the Centre for Sustainable Finance at SOAS University of London, the Asian Development Bank Institute, the World Wide Fund for Nature Singapore and Four Twenty Seven, the report, “Climate Change and Sovereign Risk,” outlines six transmission channels through which climate change affects sovereign risk and, in turn, the cost of borrowing. Using econometric analysis on a sample of 40 developed and emerging economies shows that higher climate risk vulnerability leads to significant rises in the cost of sovereign borrowing. 

The report also provides a closer look at Southeast Asia, a region with significant exposure to physical climate risks such as storms, floods, sea level rise, heat waves and water stress, as well as transition risks. The implications of climate change for macrofinancial stability and sovereign risk are likely to be material for most, if not all, countries in Southeast Asia.

Lastly, the report highlights the need for governments to climate-proof their economies and public finances. It outlines five policy recommendations, emphasizing the importance for financial authorities to integrate climate risk into their risk management processes and for governments to prioritize comprehensive climate vulnerability assessments and work with the financial sector to promote investment in climate adaptation.
Read the Report
Watch the Launch Event
US Presidential Election: Climate Implications

November's Election is Pivotal for Climate Change

Donald Trump and Joe Biden present significantly different approaches to climate change and environmental justice. Moody's Investors Service's report "Next administration will confront five policy challenges with wide-ranging credit impact," explores policy challenges the next administration will face, including environmental issues. The analysis writes that "Biden's economic plans include measures to address climate change. Trump's proposals do not prioritize addressing climate change or lowering carbon dependence."

Trump plans to continue his efforts to reduce regulation on fossil fuel emissions and pollution, supporting growth of the fossil fuel industry and completing the US withdrawal from the Paris Agreement. Meanwhile in addition to rejoining the Paris Agreement and planning for net-zero emissions by 2050, Biden would implement pollution regulation with a particular focus on environmental justice. Biden has also expressed his support for mandating that public companies disclose their climate risks and emissions. This National Geographic piece outlines Biden and Trump's respective records on climate change and environmental issues, as well as their future plans.
Handbook on Climate Risk Assessment

NGFS: Case Studies of Environmental Risk Analysis Methodologies

The Network for Greening the Financial System (NGFS) released a collection of case studies outlining methodologies for climate and environmental risk analysis for banks, asset managers and insurers. The compilation of approaches, written by academic researchers, financial practitioners and data providers highlights the latest developments in addressing data gaps, identifying how climate risk translates to financial risk, and leveraging climate data to build a resilient financial system.
Four Twenty Seven and Moody's Analytics contributed Chapter 2: "An Approach to Measuring Physical Climate Risk in Bank Loan Portfolios," and Moody's Investors Service wrote Chapter 27: "Moody's Approach to Incorporating ESG Risks into Credit Analysis."
New Data on Companies' Taxonomy Alignment & TCFD Disclosure

Vigeo Eiris Launches Taxonomy Alignment Screening & Request for Comment

Last week Moody's affiliate Vigeo Eiris (V.E) released the beta version of its Taxonomy Alignment Screening tool and a Request for Comment (RFC) to inform the final product, which will launch early next year. Comparable, comprehensive data on companies' alignment with the taxonomy will provide critical information for investors striving to align their portfolios with the taxonomy. 

The EU Taxonomy Regulation outlines criteria for activities contributing to six environmental objectives: climate mitigation; climate adaptation; protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity. It was formally adopted earlier this year, with criteria for climate change mitigation and adaptation; criteria for the other objectives are forthcoming.

To date, V.E has screened 1,587 European issuers based on their alignment with the taxonomy's three-part criteria: substantial contribution to one of the six environmental objectives, Do No Significant Harm and compliance with minimum social safeguards. Results show that many companies perform at least one of the 72 Taxonomy activities but few meet the technical criteria for the activities. This beta dataset is freely available upon request and the Request for Comment is open until November 1st, 2020.

How do Climate Risk Disclosures Align with TCFD Recommendations?

Consistent climate risk disclosure is essential to improving market transparency and building a more resilient financial system. As devastating extreme events, regulatory developments and investor pressure have led to an increase in climate risk disclosure, the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations have become a global reference. V.E's new TCFD Climate Strategy Assessment dataset provides a granular view of how 2,855 companies report in line with TCFD recommendations.

This new V.E and Four Twenty Seven report, Measuring TCFD Disclosures, explores the key findings from this assessment, highlighting companies’ disclosures in governance, strategy and risk management and providing a case study on how companies' risk disclosures compare to their exposure. We find that while 30% of companies have identified at least one climate-related risk that may affect their business, only 3% have disclosed enhanced due diligence for projects and transactions. 

Read the Report
Climate Risk in Real Estate

Report: Emerging Practices for Market Assessment

In their latest report, the Urban Land Institute (ULI) and Heitman explore how real estate investors are integrating an understanding of market-level climate risk into their decision-making. The report highlights the progress made in assessing climate risk at the asset-level, citing Four Twenty Seven's climate risk analysis. It also discusses the increasing importance of understanding both market-level risk as well as regional resilience measures and how much risk these efforts may mitigate.
Meanwhile, new research on coastal real estate markets finds that a decrease in sales often foreshadows a decrease in prices, which is already taking place in Miami-Dade County, Florida and throughout the state. Many experts think that an increased awareness of the risks of sea level rise is contributing to this trend.

New Resilience Category in ULI Awards for Excellence

The ULI Awards for Excellence honor development projects that demonstrate the highest standards throughout their process, including but not limited to the architecture and design phases. This year one of the five categories is Resilient Development, with application questions including the topics of physical and community resilience. Submissions are open and the early application deadline for ULI Americas is December 18, 2020.
Webinar: Climate Change for Banks

Join Us at 8am PST / 11am ET / 2pm BST next Tuesday Oct. 27th

Join the Moody's Sustainable Finance webinar series for next week's webinar, Responsible Approaches to Climate Change for Banks. Hear from climate risk experts and bank practitioners on ways in which climate change affects banks and how they can respond. The webinar will explore the effects of climate change on banks’ activities and the role banks can play in supporting resilience. We will discuss the ways in which climate change poses material financial risks to banks, as well as opportunities. Practitioners will share case studies of how they leverage climate data for decision-making.

Speakers:
  • Yoon Kim, Managing Director, Global Client Services, Four Twenty Seven (Moderator)
  • Sara Faglia, Senior ESG Analyst - Financial Sector, Vigeo Eiris
  • Michael Denton, Director - Enterprise Risk Solutions, Moody's Analytics
  • Craig Davies, Head of Climate Resilience Investments, European Bank for Reconstruction and Development
  • Imène Ben Rejeb-Mzah, Group CSR Head of Methodologies and Data, BNP Paribas
Register for Free
Inside the Office at Four Twenty Seven

Senior Climate Data Analyst, Research - Siraphob (Gain) Boonvanich

Four Twenty Seven welcomes Gain as a Senior Climate Data Analyst, Research. Gain optimizes cloud infrastructure and climate data processing to support the development of Four Twenty Seven's climate risk analytics. Previously, Gain worked at Weathernews Inc. where he helped transform cloud infrastructure and developed various weather research applications, including radar and satellite image processing, machine learning models and demand prediction. 

Join the team! 

Find open positions on our Careers page and visit Vigeo Eiris' and Moody's Careers pages for more opportunities in climate change and ESG.
Upcoming Events

Join the team online at these upcoming events and check our Events page for updates, including links to events not yet available:

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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

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Report: Climate Change and Sovereign Risk

This joint report provides a comprehensive analysis of the ways in which climate risks affect sovereign risk, demonstrating new empirical evidence of how climate risk and resilience influence the costs of capital. It also explores the implications for Southeast Asia in particular, where countries are highly exposed to climate change risks and their economic consequences. Lastly, the report outlines five policy recommendations based on these findings. The report was a collaboration between the Centre for Sustainable Finance at SOAS University of London, the Asian Development Bank Institute, the World Wide Fund for Nature Singapore and Four Twenty Seven.

Download the full report.

Download the Executive Summary.

Watch the launch event.

“Climate Change and Sovereign Risk” outlines six transmission channels through which climate change affects sovereign risk and in turn the cost of capital, providing examples of each and explaining how they’re connected. It uses empirical analysis to demonstrate the significant impacts of climate risk exposure on the cost of capital. Using a sample of 40 developed and emerging economies, econometric analysis shows that higher climate risk vulnerability leads to significant rises in the cost of sovereign borrowing. Premia on sovereign bond yields amount to around 275 basis points for economies highly exposed to climate risk. This risk premium is estimated at 113 basis points for emerging market economies overall, and 155 basis points for Southeast Asian economies.

To further explore these channels, the report provides a closer look at Southeast Asia, a region with significant exposure to climate hazards such as storms, floods, sea level rise, heat waves and water stress. Physical risks are expected to considerably affect economic activity, international commerce, employment and public finances across Southeast Asian countries. Transition risks will be prominent as exports and economies become affected by international climate policies, technological change and shifting consumption patterns. The implications of climate change for macrofinancial stability and sovereign risk are likely to be material for most if not all countries in Southeast Asia.

The report highlights the need for governments to climate-proof their economies and public finances or potentially face an ever-worsening spiral of climate vulnerability and unsustainable debt burdens. It outlines five policy recommendations, emphasizing the importance for financial authorities to integrate climate risk into their risk management processes and for governments to prioritize comprehensive climate vulnerability assessments and work with the financial sector to promote investment in climate adaptation.

The report was originally posted by SOAS University of London.

Newsletter: Climate Resilience in the Age of COVID

Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we discuss the overlapping challenges of COVID-19 and climate hazards, share consultations on climate risk for financial stakeholders and highlight developments in climate risk at Moody's.

The Compounding Challenges of Climate Hazards and COVID-19

Climate Preparedness Takes on New Meaning - Four Twenty Seven Analysis 

Last week in the Southern U.S., residents and policy-makers weighed the risks of high winds and flooding alongside the risks of spreading COVID-19, as many evacuated to storm shelters, and 750,000 people lost power across ten states from Texas to West Virginia. Meanwhile that same week 50,000 people in Connecticut lost power because of a storm, with restoration efforts complicated by COVID-19. The devastating human health and economic impacts of the COVID-19 pandemic are exacerbated by climate hazards, which threaten communities around the world. Four Twenty Seven's new analysis explores exposure to floods, heat stress, hurricanes and wildfires in U.S. municipalities alongside the impacts of COVID-19 on the same regions.

Our analysis explores exposure to extreme rainfall in the Midwest and the particular vulnerability of essential services such as manufacturers of personal protective equipment and farmers, to disruptions due to floods. It discusses the human health implications of extreme heat and its particular threat to business continuity from power disruptions when business operations are dispersed across employees' homes. States like Louisiana and Florida are addressing COVID-19 while preparing for a busy hurricane season. Likewise, typical wildfire preparations have been delayed and canceled due to the pandemic, leaving states like California, Washington and Colorado particularly vulnerable to this year's wildfires.
Read the Analysis

Further reading on climate change and COVID-19:

Public Consultations on Climate Change in the Financial Sector
While the world is sheltering from COVID-19, regulators are moving forward with their goals to address climate change. There are currently several open consultations to gather industry feedback on new standards and reporting requirements. 
 

EU Draft Minimum Standards for Climate Benchmarks

The European Commission is seeking feedback on draft standards for its "EU Climate Transition" and "EU Paris-aligned" benchmarks. The goals of the benchmarks are to increase transparency, help direct capital toward climate-friendly investments and prevent green-washing. Provide feedback by May 6.
 

FCA Proposal for Updated Climate Risk Disclosure

The UK Financial Conduct Authority is seeking feedback on its proposals to mandate climate risk disclosure for all commercial companies with premium listings. This requirement would build upon the Task Force on Climate-related Financial Disclosures recommendations and use a comply or explain approach. Respond by June 5.
 

Update to the EU Non-financial Reporting Directive

The European Commission is soliciting feedback on its non-financial reporting directive as part of its efforts to improve oversight of non-financial reporting in alignment with its Green Deal and a global call for a new approach to regulating non-financial disclosure. Provide feedback by June 11.
 

Consultation on Renewed EU Sustainable Finance Strategy

The European Commission is soliciting public feedback on its updated sustainable finance strategy, building upon its 2018 Action Plan for Sustainable Finance. This strategy aims to integrate climate change and other environmental considerations into the financial system, supporting the European Green Deal. The deadline to respond was extended to July 15.
ESG and Climate at Moody's

Moody's Launches New ESG & Climate Risk Website

Moody's new ESG and Climate Risk Hub collates resources on climate risk and ESG from Moody's and its affiliates, including Four Twenty Seven. The platform includes solutions and insights to help investors, lenders and other stakeholders integrate climate risk into decision-making.

ESG Factors Frequently Cited as Material Credit Considerations

Out of almost 8,000 Moody's private sector ratings actions in 2019, about a third referenced material ESG considerations. Moody's Investor Service's new report shares findings on how ESG considerations are factored into ratings actions.
Climate Risk News

New High Temperature Records Set

Last month was the hottest month on record for the world's oceans and the oceans' five hottest years have been within the last ten years. Warm oceans are connected to many climate hazards, ranging from hurricanes to wildfires. If the Atlantic remains warm during hurricane season, it's expected to contribute to stronger storms this year. Meanwhile, warm seas can pull rain from inland, contributing to drought associated with wildfire conditions. This occurred last year in Australia when the Indian Ocean was particularly warm off of Africa's coast.

Meanwhile, this year's first quarter had the second warmest air temperatures on record globally. NOAA projects there is a high chance that 2020 will become the warmest year on record.

Climate Resources for the Financial Sector

These ongoing scientific findings on the dire rate of climate change, including new temperature records and updated sea level rise projections, have significant financial implications. The Global Association of Risk Professionals (GARP) launched a new Global
Sustainability and Climate Risk Resource Center to help communicate these risks. This platform introduces climate change for financial stakeholders and provides resources to help risk managers understand climate risks.
Inside the Office at Four Twenty Seven

Senior Climate Data Analyst - John Naviaux

Four Twenty Seven welcomes John as Senior Climate Data Analyst. John performs stochastic modeling of climate and weather data to advance Four Twenty Seven’s climate risk analytics. Previously, John worked on topics ranging from transportation economics in Los Angeles to particle physics at the Large Hadron Collider in Geneva, Switzerland. John monitored arctic mercury pollution in Norway as part of a Fulbright Fellowship, and received his Ph.D. at Caltech for his research on the ocean’s response to climate change.

Four Twenty Seven is Here to Serve our Clients

As COVID-19 has led to widespread disruption in businesses and personal lives, Four Twenty Seven remains committed to ensuring the safety of our staff and clients while also continuing to provide the same data, analysis and client support that we are known for. Our business remains open globally, with teams in the U.S., Paris, London and Tokyo working remotely. Please do not hesitate to reach out to us via email or on our cell phones. 
Upcoming Events

An Update on Postponements and Cancellations:

  • Apr 28 – Afire Rising Leaders Summit, New York, NY: Chief Revenue Officer, Lisa Stanton, will speak - CANCELED
  • May 12 at 10am EDT – IIF ESG Webinar Series: Quantifying the Impact of Climate Change: Founder & CEO, Emilie Mazzacurati will speak.
  • May 18 – Sciences Po Award Dinner, New York, NY: Founder and CEO, Emilie Mazzacurati, will speak. - POSTPONED
  • Jun 8 - 12 – University of Notre Dame CARE Conference, Heron Island, AU: Director of Communications, Natalie Ambrosio, will speak. - CANCELED
  • Jun 9 - 10 – Responsible Investor London 2020, London, UK: Members of the Four Twenty Seven team will attend and host a booth. - PENDING
  • Sept 2-3 – Risk Americas Convention, New York, NY: Members of the Four Twenty Seven team will host a booth and present on climate risk.
  • Sept 9 The Future of ESG Data 2020, London, UK: Senior Analyst, Léonie Chatain, will speak.
  • Sept 15 - 16 – Responsible Investor Tokyo 2020, Tokyo, Japan: Members of the Four Twenty Seven team will present on risk disclosure and host a booth. 
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Copyright © 2020 Four Twenty Seven, All rights reserved.
Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

Our mailing address is:
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Demystifying Climate Scenario Analysis for Financial Stakeholders

December 4, 2019 – 427 REPORT. Scenario analysis is an essential yet challenging component of understanding and preparing for the impacts of climate change on assets, markets and economies. When focusing on the short term, the warming and related impacts we have already committed to calls for scenarios that are decoupled from economic and policy activities and instead focus on the impacts that are already locked in. This report explores which impacts are already locked in, identifies how Representative Concentration Pathway (RCP) scenarios fit into the conversation, and describes an approach to setting up scenario analysis for near-term physical climate risks.

Download the report.

As the effects of climate change increasingly threaten financial stability, investors and regulators are seeking to understand what impacts lie ahead, and calling for an increase in physical climate risk assessment and disclosure in line with the Task Force on Climate-related Financial Disclosures (TCFD). To assess the scale of financial risk posed by physical climate change it is important to quantify risks under different climate scenarios. How will changes in extreme weather patterns, longer droughts and rising seas differ under various scenarios? Answering these questions through scenario analysis helps uncover the range of risks, allowing investors to identify assets and markets that are more likely to become stranded over time and to begin developing forward-looking resilience strategies. However, science-driven, decision-useful scenario analysis poses many challenges for businesses and financial stakeholders today, due to complex feedback loops, varying timescales, and multiple interacting factors that ultimately determine how global climate change manifests.

 

Figure 2. Distribution of daily extreme temperature changes in 2030-2040, expressed as a percent change, relative to a baseline of 1975-2005 under RCP 8.5. This map shows statistically downscaled global climate models averaged together, for this time frame and scenario. NASA Earth Exchange Global Daily Downscaled Projections statistically downscales climate model outputs to a ~25 kilometer resolution (see full details here) White areas are excluded because they lack potential for significant economic activity.

This new report, Demystifying Climate Scenario Analysis for Financial Stakeholders, explores which physical impacts are already locked in, identifies how Representative Concentration Pathway (RCP) scenarios apply, and describes an approach to setting up scenario analysis for near-term physical climate risks. Scenario analysis is often approached from the perspective of transition risk, where policy developments and greenhouse gas (GHG) emission targets are the key drivers of risk pathways over the near-term, in the next 10 to 30 years. Physical risk, however, requires a different approach.  Impacts over the coming decades are largely locked in, making the emissions scenarios less relevant. Unlike transition risk, GHG emission pathways play a minimal role in the behavior of the near-term climate and GHG emission pathways only begin to meaningfully influence global temperatures near mid-century. The uncertainty in physical climate risks in the near-term is driven by uncertainty in physical processes, rather than in policy decisions.

For organizations looking to construct physical climate risk scenarios for risk management and strategy purposes, it is critical to understand the scientific phenomena driving our plausible climate futures. This report outlines an approach called percentile-based analysis, which allows users to explore the range of potential outcomes based on climate model outputs within a single RCP. This offers a flexible, data-driven approach, suitable for portfolio-level screenings, reporting, and in some cases, direct engagement with asset managers.

Key Takeaways:

  • Quantifying climate risks under different scenarios is a key element in understanding how physical climate risks pose financial risks.
  • Scenario analysis is often approached from the perspective of transition risk, where policy developments and greenhouse gas emission targets are the key drivers of risk pathways in the next 10 to 30 years. However, physical climate impacts over the coming decades are largely locked in, so physical risk requires a different approach.
  • Even if we stopped emitting carbon dioxide tomorrow, many physical climate impacts, such as increasing temperatures, more severe droughts, and rising sea levels, would already be locked in because of the time carbon dioxide stays in the atmosphere and the time it takes the atmosphere to respond.
  • The uncertainty in how physical climate risks may manifest in the next few decades is driven by model uncertainty, which should therefore be the focus of scenario analysis for physical climate risks in the near-term.
  • Percentile-based analysis offers a flexible, data-driven approach, suitable for portfolio-level screenings, reporting, and in some cases, direct engagement with asset managers.

Download the report.

Download the press release.

 

Newsletter: How will climate affect Europe’s real estate & U.S. retail?

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature analysis on climate risk in European real estate, Moody's research on credit quality and heat stress and the first climate resilience bond.

In Focus: Real Estate Climate Risk in Europe

Four Twenty Seven Analysis - Real Estate Climate Risks: How Will Europe be Impacted?

From this summer's record-breaking heat waves to storm-surge induced flooding, Europe is increasingly experiencing the impacts of climate change. Extreme events and chronic stresses have substantial impacts on real estate, by damaging individual buildings, decreasing their value and potentially leading to unusable assets. These asset-level impacts also have wider market implications.

Our latest analysis assesses the exposure of retail sites and offices across Europe to floods, sea level rise and heat stress. We find that 19% of assessed retail spaces and 16% of offices in Europe are exposed to floods and/or sea level rise, with floods presenting the highest risk for both types of asset. The analysis identifies the cities with the largest percent of facilities exposed to floods and sea level rise, and discusses the implications this exposure has for business continuity and real estate markets across the continent. 
Read the Analysis
Credit Quality in U.S. Governments Exposed to Heat Stress

Moody's Investors Service Analysis - Growing Exposure to Heat Stress Mitigated by Economic and Fiscal Strengths

Moody's new analysis overlays Four Twenty Seven's data on exposure to heat stress in U.S. governments with information on outstanding debt and credit quality, finding that 21% of outstanding debt they rate is exposed to high or very high heat stress. This exposure is concentrated in the central U.S. and Florida. The Southeast has the most debt exposed to heat stress, but this debt tends to be from larger, well-resources governments with diverse economies, which improves governments' resilience to extreme events. Bloomberg covers the report, emphasizing the potential implications of heat stress for Midwest bond issuers. Register for free to read the analysis:
Read the Report
New Principles Support Integration of Resilience into Bond Markets

CBI Releases Climate Resilience Principles 

Last Week the Climate Bond Initiative released Climate Resilience Principles, integrating forward-looking climate risk assessment and resilience considerations into bond markets. The guidance document is meant to inform investors', governments' and banks' reviews of how projects and assets contribute to a climate-resilient economy. The principles will be integrated into the Climate Bonds Certification of green bonds, signaling a valuable step toward the consistent use of resilience standards for debt projects. Four Twenty Seven is proud to have contributed to the Adaptation and Resilience Expert Group that developed the principles. 

EBRD Issues First Climate Resilience Bond

The European Bank for Reconstruction and Development (EBRD) issued the first bond to solely finance climate resilience projects. This is the first bond to fulfill the requirements of the new Climate Resilience Principles. Craig Davies, head of climate resilience investments at the EBRD, told Environmental Finance "The climate resiliency principles that the CBI has developed are a really important landmark because they very clearly set out eligibility criteria, and some very simple but clear and robust methodologies for defining a climate-resilient investment." The EBRD's four year bond raised $700 million to finance "climate-resilient infrastructure, business and commercial operations, or agricultural and ecological systems."

The EBRD also released a consultation draft of a Framework for Climate Resilience Metrics in Financing Operations this week. The report, published jointly with other multilateral development banks and the International Development Finance Club, outlines a vocabulary to facilitate consistent discussion and measurement of resilience investment.
Global Commission on Adaptation Launches Year of Action
The Global Commission on Adaptation presented its flagship report, Adapt Now: A Global Call for Leadership on Climate Resilience this week at the United Nations Climate Summit. This report emphasizes the return on investment of climate adaptation, noting that "investing $1.8 trillion globally in five areas from 2020 to 2030 could generate $7.1 trillion in total net benefits." It focuses on early warning systems, climate-resilient infrastructure, improving dryland agriculture, mangrove protection and increasing the resilience of water resources. This kicks off the Commission's Year of Action, during which it will advance recommendations, accelerate adaptation, promote more sustainable economic development and collate findings to present at the Climate Adaptation Summit in October 2020.
The Commission's report was informed by a paper called Driving Finance Today for the Climate Resilient Society Tomorrow by the UNEP Finance Initiative and Climate Finance Advisors. It outlines financial barriers to the acceleration of adaptation investment and recommends six actions to unlock adaptation finance. These actions include accelerating climate-relevant policies, implementing climate risk management, developing adaptation metrics, building financial sector capacity, highlighting investment opportunities and leveraging public institutions to accelerate adaptation investment. 
Retailers Prepare for Physical Climate Risk
Women's apparel store, A'gaci, filed for bankruptcy in January 2018 after most of its stores were hit by hurricanes in Texas, Florida and Puerto Rico. Hurricanes can affect retail operations by causing building damage, merchandise loss and supply chain disruptions, and Hurricane Irma caused an estimated $2.8 billion loss for the sector. Retail Dive explores the implications of climate change for the retail sector at large, using Four Twenty Seven's data on retail site exposure. With over 17,000 retail facilities exposed to floods in the U.S., some businesses are beginning to prepare, reorganizing their distribution patterns and supply chains. Some retail stores, such as Home Depot, can also see increases in demand after extreme events, and will particularly stand to benefit if their facilities are resilient to climate hazards and can accommodate the associated surge in business. 

New research by a Federal Reserve Board Economist, finds that weather variability impacts retail sales. On average, sales tend to increase with temperature and decrease with rain and snowfall. Overall there is not a clear shift in shopping habits from outdoor stores to indoor venues during extreme weather, but these patterns do show regional variation, suggesting that the impacts of extreme weather events vary by region. The impact of extreme events on sales will have an impact on retail employees and local economies depending on these companies. Businesses can leverage this research, alongside data on climate risk exposure, to plan for these shifts in consumer behavior. 
Inside the Office at Four Twenty Seven

Meet Operations Coordinator, Naoko Neishi 

Four Twenty Seve welcomes Naoko, who supports senior management and works with the Operations Manager to achieve operational excellence. Naoko has over 16 years of experience as a sales assistant and office manager in the United States and Japan, working in the financial and engineering industries.

Upcoming Events

Find Four Twenty Seven at Climate Week NYC:

Join the Four Twenty Seven team at these events:

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Copyright © 2019 Four Twenty Seven, All rights reserved.
Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

Our mailing address is:
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Newsletter: Keeping Up with Regulatory Developments on Climate Risk

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature factsheets on regulatory action for financial climate risk, news from Four Twenty Seven and an update on the latest extreme heat.

In Focus: Financial Regulators Take on Climate Risk

Factsheets: Financial Climate Risk Regulation - What You Need To Know

Our new series, Financial Climate Risk Regulation, provides a summary of key recent and upcoming regulatory actions related to climate risk. From the European Union's directive on disclosure and the Bank of England's insurance stress tests, to France's surveys of its insurance and banking markets and the consultations of the European Supervisory Authorities around integrating sustainability into oversight requirements, regulators are moving quickly on climate risk with global implications for financial actors.

Staying up-to-date on these developments will provide early indications of regulatory action to come and give insight into potential rippling market impacts. Four Twenty Seven's factsheets on regulatory developments in the European Union, France and the United Kingdom, summarize each nation's stance on the financial risk of climate change, outline key actions and highlight upcoming dates to remember.
Read the Factsheets

NGFS Releases Technical Supplement on Climate Risk Assessments

Last week, the Network for Greening the Financial System published an overview of current approaches to assessing climate change's macroeconomic impacts and summarized key topics for further research. The supplement outlines ways for central banks and supervisors to assess climate-related risks through macroeconomic modeling, scenario analysis, stress testing, risk indicators and financial stability assessments.
"This is a Big Deal" - Media Coverage of Four Twenty Seven's Acquisition by Moody's
“This means the old paradigm of discussing climate change as part of so-called ESG (Environmental, Social and Governance) risks is inappropriate. The risks are increasingly physical and specific – the heat waves, the tsunamis, phenomena like the effect on Germany’s economy of two consecutive years’ low water in the Rhine. Models need to be adapted to them, new hedging opportunities created and ratings adjusted. It’s not a matter of fashion or reputation management but of basics like sales, cash flow and profit. Moody’s acquisition is a sign that the financial industry is beginning to take this on board," Leonid Bershidsky writes in a Bloomberg op-ed.

"Moody’s Corporation has purchased a controlling stake in a firm that measures the physical risks of climate change, the latest indication that global warming can threaten the creditworthiness of governments and companies around the world." The New York Times' Christopher Flavelle writes. 

Read more stories below and in our In the News page:
Heat Records Broken...Again

Extremely Hot Days are Expected to Continue

Last week, Belgium, Germany and the Netherlands all experienced their highest temperature ever recorded. Paris also hit a record high of 109°F (43°C), after France had its highest ever temperature 45.9°C (114.6°F) during a June heatwave made at least five times more likely due to climate change. Meanwhile, Anchorage, Alaska's 90°F temperatures surpassed previous records by five degrees. The city had at least 34 consecutive days of above average temperatures, with ice melt negatively impacting fishing and hunting and wildfires threatening human health. The eastern and midwest U.S. endured their first heat wave of the season this month, as thunderstorms and record heat disrupted power and took lives.

“There is likely the DNA of climate change in the record-breaking heat that Europe and other parts of the world are experiencing. And it is unfortunately going to continue to worsen,” Marshall Shepherd, professor of meteorology at University of Georgia told the AP. Earlier this month, the Union of Concerned Scientists released data projecting the number of days that will surpass extreme heat indices by mid-century and late century for every U.S. County. Under a 2.4°C (4.3°F) scenario, Los Angeles County may experience an average of 55 days annually with a heat index above 90°F, Dallas County would average 133 days and Broward County, FL 179 days. 

Extreme Heat Has Extreme Impacts on Economies and Human Health

The total cost of lost output due to extreme temperatures is projected to be $2.4 trillion annually according to the International Labor Organization's recent report. Agriculture and construction are expected to lose 60% and 19% of global working hours by 2030, with southern Asia and western Africa expected to experience the greatest losses.

Increasing average temperatures are already affecting industries around the world, as the alpine tourism sector takes a hard look at its climate risks and opportunitiesFrance declares a water shortage and water restrictions affect agriculture and industry across Europe.
Inside the Office at Four Twenty Seven

Meet Chief Revenue Officer, Lisa Stanton


Four Twenty Seven welcomes Lisa Stanton as our Chief Revenue Officer. Lisa oversees sales, client support, marketing and professional services globally. She brings over 25 years of experience in sales and client services for data analytics and investment products in the financial sector. 
Previously, Lisa spent twelve years with Barra, Inc. leading their client service, sales, consulting and partner relationships globally.  She has also led investment strategy and client relationship teams for Blackrock, AXA Rosenberg and, most recently, Grantham, Mayo, Van Otterloo, Inc., working with many of the world's leading institutional investors.

Four Twenty Seven Wins Wealth & Finance Award

Wealth & Finance Magazine recognized Four Twenty Seven with a Best in Climate-Related Economic Risk Reporting award. For six years the Alternative Investment Awards have acknowledged firms and individuals that positively shape the industry’s growth. “Historically considered an undervalued industry, the alternative investment has grown over the past few years. Behind this prominent growth and success, are the leading lights whose innovation, dedication and inventive ways has delivered some award-worthy results,” Wealth & Finance writes.

The award highlights Four Twenty Seven’s climate risk scores for listed instruments and on-demand scoring of real assets, that assess financial firm’s exposure to physical climate risk and inform risk reporting.

Upcoming Events

Join the Four Twenty Seven team at these events:

  • Aug 5 Climate Risk and Sovereign Risk in Southeast Asia, Singapore: Editor, Natalie Ambrosio, will present on sovereign climate risk. Invite-only.
  • Sept 10 - 12 – PRI in Person 2019, Paris, France: Stop by the Four Twenty Seven booth to meet with Chief Development Officer, Frank Freitas, Chief Revenue Officer, Lisa Stanton, Director Europe, Nathalie Borgeaud and other members of the team. 
  • Sept 16 – Insurance & Climate Risk Americas 2019, New York, NY: Lisa Stanton will attend.
  • Sept 23 - 29 – Climate Week NYC, New York, NY: Lisa Stanton and Senior Analyst, Lindsay Ross, will attend.
  • Nov 7-8 – Building Resilience 2019, Cleveland, OH: Director of Advisory Services, Yoon Kim, will speak on a panel about public-private partnerships.
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Factsheet — Financial Climate Risk Regulation in the European Union

July 29, 2019 – 427 FACTSHEET. Regulation on climate risk in Europe is likely to have a rippling effect across markets globally. There has been key legislation in the past few months, with more action on the agenda. Staying up-to-date on these developments will provide early indications of regulatory action to come. This factsheet on regulatory developments in the EU provides key background to the EU’s sustainable finance agenda, outlines key actions and highlights upcoming dates to remember.

Since establishing the High-Level Expert Group on Sustainable Finance (HLEG) in 2016, the European Union (EU) has positioned itself as a leader in sustainable finance. It has made rapid progress on integrating climate change into its financial sector, simultaneously addressing it from several angles, including risk disclosure, green bond labels, a taxonomy for adaptation and mitigation, and risk management oversight directives. As global financial actors operate, and are regulated, in Europe, EU regulations are likely to propel a development in best practices for addressing climate risk that reaches beyond the EU. Likewise, regulators and financial actors across the world are watching carefully as EU regulation may influence their own action. This factsheet, Financial Climate Risk Regulation in the European Union, summarizes the EU’s stance on the financial risk of climate change, notes key regulatory players and highlights recent and upcoming regulatory action applicable to financial markets.

Key Takeaways

  • The EC completed several milestones from its Action Plan in June 2019, including publishing updated nonbinding guidelines for incorporating climate risk into the non-financial reporting directive and releasing the Technical Expert Group report on a taxonomy for activities that contribute to climate adaptation and mitigation.
  • In April 2019, the European Parliament and Council agreed on text for regulation on disclosures relating to sustainability risks and investments, explicitly stating that climate change demands urgent action.
  • The European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority have provided technical advice on proposed changes to oversight requirements, suggesting that sustainability be explicitly integrated into risk management, operations, investment strategies and governance.
  • The European Banking Authority will spend two years assessing environmental, social and governance risks and their management in the banking sector. The assessment will be used to develop a draft amendment requiring “large institutions” to disclose their risk and the disclosures will be required three years after the regulation is implemented.

Read the Factsheet.

Read Four Twenty Seven’s other Factsheets on Financial Climate Risk Regulation.

Factsheet — Financial Climate Risk Regulation in France

July 29, 2019 – 427 FACTSHEET. In 2015 France laid the groundwork for legislating climate risk disclosure with Article 173 of its Energy Transition Law, mandating that publicly traded companies and asset managers report on their physical and transition risks from climate change. Building on its track record as an early mover, France’s financial regulators are now actively involved in national and international endeavors to frame climate risk as a financial risk and determine the most effective response.  Staying up-to-date on these developments will provide early indications of regulatory action to come. This factsheet on regulatory developments in France provides background on France’s sustainable finance agenda, outlines key actions and highlights upcoming dates to remember.

France’s Art. 173 helped build support for the Taskforce on Climate-related Financial Disclosures recommendations, prompted firms to begin disclosing climate-related risks early and set an example for other nations considering regulation on climate risk disclosure. Since this landmark legislation, French financial regulators have become engaged on addressing financial risks from climate change and the Banque de France was a co-founder and provides the Secretariat for the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), which is focused on propelling the transition to a low-carbon and sustainable economy. By providing the Secretariat for the NGSF, the Banque de France identifies itself as a key player in international efforts to address climate risk. This factsheet, Financial Climate Risk Regulation in France, summarizes France’s stance on the financial risk of climate change, notes key regulatory players and highlights recent and upcoming regulatory action applicable to financial markets.

Key Takeaways

  • Banque de France was the first central bank to release an assessment of its climate risks in line with the TCFD and Art. 173, aiming to set an example of best practice for the French financial sector.
  • ACPR’s fall 2018 survey of the French insurance sector found that disclosures in Art. 173 reports varied between firms and lacked reporting on long-term climate strategies and yearly progress. ACPR made suggestions for insurers to improve their climate risk management based on this review.
  • In summer 2018, ACPR surveyed its banking sector on banks’ climate risk management, identifying “advanced institutions,” larger banks with ample resources that have integrated climate into risk management, and “wait-and-see” institutions, which are largely domestic, retail-oriented banks still focused on a corporate responsibility approach to climate change.
  • France’s stock market regulator, AMF, released a report asserting that climate change has been identified as a financial risk, it is still not sufficiently assessed by the market, and the regulator’s role is to inform and raise awareness on the topic.

Read the Factsheet.

Read Four Twenty Seven’s other Factsheets on Financial Climate Risk Regulation.

 

Factsheet — Financial Climate Risk Regulation in the United Kingdom

July 29, 2019 – 427 FACTSHEET. The Bank of England’s views on climate risk provide an indication of how the broader financial sector will likely approach the issue. The Bank propels this conversation by framing issues and convening stakeholders around the challenges and uncertainties of climate risk. With the integration of climate change into its insurance stress tests, the Prudential Regulatory Authority (PRA) has shown that the Bank’s declarations are starting to influence regulatory requirements. Staying up-to-date on these developments will provide early indications of regulatory action to come. This factsheet on regulatory developments in the United Kingdom (UK) provides background on the Bank of England’s approach to climate risk, outlines key actions and highlights upcoming dates to remember.

The Bank of England has been on the forefront of acknowledging climate change as a material financial risk since before it was commonly discussed in the financial sector. Its Governor Mark Carney coined the term the “tragedy of the horizon” in 2015 referring to the economic risks of climate change. Since then, the Bank has become known for emphasizing climate change as an urgent threat to financial stability and financial regulation in the UK is beginning to reflect this stance. Paying close attention to developing perspectives at the Bank will help prepare financial actors for future regulatory changes to come. This factsheet, Financial Climate Risk Regulation in the United Kingdom, summarizes the UK’s stance on the financial risk of climate change, notes key declarations and highlights recent and upcoming action applicable to financial markets.

Key Takeaways

  • The PRA included scenarios for physical and transition climate risks in its “Scenario Specification, Guidelines and Instructions” for life insurance and general insurance stress tests released in June 2019.
  • In April 2019, Carney announced that banks and insurers will be “expected to embed fully the consideration of climate risks into governance frameworks, including at board level.” This was followed by a supervisory statement outlining these expectations and asking firms to have preliminary plans by Oct. 15 2019.
  • In May 2019, the PRA’s working group of insurance industry experts released a framework for assessing the impacts of physical climate change in the insurance sector and is seeking feedback by Nov. 22 2019.
  • The PRA and Financial Conduct Authority (FCA) developed a Climate Financial Risk Forum, including banks, insurers, asset managers and other financial stakeholders, that will promote capacity building and knowledge sharing for responding to financial climate risks.

Read the Factsheet.

Read Four Twenty Seven’s other Factsheets on Financial Climate Risk Regulation.

Climate Risk Disclosure: France Paves the Way

Climate risk disclosure is essential to building market transparency and a resilient financial system. France led the way in mandating climate risk disclosure in 2015 and continues to play a key role in catalyzing the financial sector’s understanding and disclosure of climate risk. As part of its seven part series highlighting approaches to green finance in “pioneering countries,” Germanwatch published a piece by Four Twenty Seven on France’s role in promoting climate risk disclosure. Read the article below, or find the German version here.

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Climate Risk Disclosure: France Paves the Way

Already in 2015, France adopted a law on climate risk disclosure paving the way for protecting economic systems from the consequences of climate change. But others need to follow.

Financial institutions and governments around the world are acknowledging the importance of climate change on the sustainable finance agenda. The World Economic Forum identified climate change-related risks as the top three most likely global risks for 2019, followed by data fraud and cyber attacks, and as four out of the top five most impactful risks, after weapons of mass destruction. This underscores the importance of building economies resilient to climate change impacts.

In 2015, just before the 21st Conference of the Parties (COP21) and the Paris Agreement, France became the first country to pass a law requiring publicly listed companies, institutional investors and asset managers to report their climate-related risks, including both transition risks (associated with the transition to a low carbon economy) and physical risks (associated with extreme weather events or chronic stresses affecting businesses and economic assets).

While today’s conversations about the Paris Agreement and sustainable finance require a transition to a low carbon economy, governments have realized that they also require discussion of the economic risks of physical climate impacts that will occur whether or not Paris climate targets are met. Reaching the adaptation goals of the Paris Agreement requires catalyzing investment in climate resilience. Increasing transparency on companies’ and investors’ exposure to physical climate risk is an essential first step towards identifying opportunities to invest in adaptation and build resilience.

The Approach: Comply or Explain

The French Energy Transition Law and its Art. 173 laid the regulatory groundwork for integrating climate risk transparency into the national sustainable finance approach. The regulation uses a comply or explain approach, providing flexibility for how firms disclose their risks and allowing firms to opt-out from reporting, with an explanation.  This fosters discussions among investors, insurers and businesses to find the most informative and feasible risk analysis and reporting methodology across sectors.

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released its  final recommendations for climate-related disclosures in June 2017. These voluntary recommendations provided additional direction on how to disclose climate risks, but still do not provide concrete metrics. French organizations, such as Finance for Tomorrow and I4CE, the Institute for Climate Economics, help to catalyze continued research on this topic and keep climate on the sustainable finance agenda.

International initiatives also help facilitate ongoing thought leadership: for example the report Advancing TCFD Guidance on Physical Climate Risks and Opportunities prepared by the European Bank for Reconstruction and Development and the Global Center for Excellence on Climate Adaptation, based on working groups of financial sector experts. While data providers, such as Four Twenty Seven, help to fill data gaps by providing asset-level data on climate risk exposure, there will continue to be ongoing conversations about how best to incorporate this information into actionable disclosures.

Other countries follow the example of France

Art. 173 has helped to center the Paris marketplace in the landscape of green finance. Action on climate risk disclosure continues to increase both within France and internationally. Influential financial actors are beginning to report their own risk exposure, encouraging the market to follow suit. The French Central Bank (Banque de France) for example, released a comprehensive analyses of physical and transition risk in its portfolios in compliance with Art. 173 and TCFD, aiming to set an example for emerging best practices for disclosure. The Dutch Central Bank assessed the exposure of its financial sector to water stress and other environmental risks. Countries such as Spain and Sweden have voiced their support of the TCFD and their consideration of legislation similar to Art. 173, and in July 2018 the Italian insurance supervisor IVASS released a comprehensive reporting requirement for Environmental Social Governance (ESG) risks, including climate change.

Map of flood risk exposure in facilities owned by utility companies in Banque de France’s pension fund portfolio. Source: Four Twenty Seven, as published in Rapport d’investissement responsible de la Banque de France 2018.

In early 2018, the European Commission published an Action Plan: Financing Sustainable Growth, outlining ten actions with timelines by the end of 2019. This led to the development of a Technical Expert Group, which has four workstreams underway: developing a sustainable finance taxonomy, integrating climate change into non-financial reporting requirements, creating a green bond standard and creating carbon indices standards.

 Art. 173 mandates an assessment of reporting progress made during the first two years of its application. This review may lead to more explicit guidance on reporting methodologies, potentially expanding the directive to apply to more actors. This, alongside increasing regulatory and investor pressure, will propel the continued improvement of physical climate risk disclosure. As uptake of climate risk and opportunity disclosure increases and is integrated into financial decision-making, France, along with other nations, will make important progress on building more sustainable economies.

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To find out more about developments in climate risk disclosure read our newsletters “France’s Central Bank Publishes First TCFD Report” and “TCFD Reporting on the Rise.”