April 25, 2018 – 427 TECHNICAL BRIEF. Financial institutions, corporations, and governments increasingly strive to identify and respond to risks driven by physical climate impacts. Understanding the risks posed by climate change for facilities or infrastructure assets starts with conducting a risk assessment, which requires an understanding of the physical impacts of climate change. However, climate data in its raw form is difficult to integrate into enterprise risk management, financial risk modelling processes, and capital planning. This primer provides a brief introduction to climate models and data from a business or government perspective.
The first of several reports explaining the data and climate hazards analyzed in Four Twenty Seven’s equity risk scores and portfolio analytics, Using Climate Data unpacks the process through which raw climate data is transformed into usable metrics, such as future temperature projections, to help financial, corporate and government users productively incorporate climate-based analytics into their workflows. Beginning by explaining what a global climate model is, the report explains climate data’s format, computational choices to hedge uncertainty and resources for aggregated climate projections tailored to specific audiences.
March 2, 2018 – 427 ANALYSIS. As Winter Storm Riley threatens to flood the Boston area, we find pharmaceuticals and airlines industries are most exposed to flood risk. Boston is a hub for both research and industry and the long-lasting financial consequences could be dramatic for some of the corporations with facilities in low-lying areas.
Only two months after Winter Storm Grayson flooded Boston with its highest water level on record (4.88ft), Winter Storm Riley is now inundating the city and is predicted to bring water levels about 4.5ft above average high tide levels. The timing of Riley exacerbates this flood risk, as the storm surge is on top of already higher than average tides associated with the full moon.
The greater Boston area is a hub for both research and industry and as this flooding is expected to worsen into the evening, the long-lasting financial consequences could be dramatic. Four Twenty Seven’s database of corporate facilities shows several industries and companies most exposed to coastal flooding. Our coastal flooding risk indicator measures exposure for low-lying facilities considering a combination of future sea level rise and storm surge from storms of varying intensity. A facility with high risk is likely to flood even during low intensity storms (e.g. 1 in 10 year events) and is also likely to experience a relatively large increase in storm surge.
Pharmaceutical companies are highly vulnerable to flooding in Boston, with medical research facilities and pharmaceutical preparation sites belonging to Eli Lilly and Pfizer showing the most risk. This industry exposure is particularly alarming given the thousands of lab animals (often kept in basements) and years’ worth of research that were lost by cancer and neuroscience research labs that were flooded during Hurricane Sandy. The recovery of these facilities required months and extensive funds, affecting this industry long after the storm.
Airlines and other related airport services companies are also likely to be badly impacted by today’s storm. Storm damage of runways takes time and funds to repair, while impacting travelers and airlines in wide-reaching causal chains. While the location of Boston Logan International Airport makes it particularly vulnerable, the scheduling offices of airlines such as Delta and United are also largely exposed. Thus, in addition to costly delays and cancellations due to the local conditions, these airlines may experience more widespread scheduling difficulties if these buildings are inundated.
While understanding the long-term economic impacts of Winter Storm Riley will take many months, these findings highlight potential implications for the pharmaceutical and airline industries, their investors, and those who rely on their services.
Four Twenty Seven’s ever-growing database now includes close to one million corporate sites and covers over 1800 publicly-traded companies. We offer subscription products and advisory services to access this unique dataset. Options include data feeds, an interactive analytics platform and company scorecards, as well as custom portfolio analysis and benchmarking.
Climate change poses multifaceted physical risks for infrastructure investors, affecting revenue, maintenance costs, asset value and liability. According to the New Climate Economy report, global demand for new infrastructure investment could be over US$90 trillion between 2015 and 2017. It is becoming increasingly clear that climate change must be considered in all infrastructure investment and construction.
Four Twenty Seven, in collaboration with our partners Acclimatise and Climate Finance Advisers, published a “Lenders’ Guide for Considering Climate Risk in Infrastructure Investments” to explain the ways in which physical climate risks might affect key financial aspects of prospective infrastructure investments.
The guide begins with a discussion of climate risk, acknowledging that climate change can also open opportunities such as improving resource efficiency, building resilience and developing new products. It provides a framework for questioning how revenues, costs, and assets can be linked to potential project vulnerability arising from climate hazards.
Revenues: Climate change can cause operational disruptions that lead to a decrease in business activities and thus decreased revenue. For example, higher temperatures alter airplanes’ aerodynamic performance and lead to a need for longer runways. In the face of consistently higher temperatures, airlines may seek airports with longer runways, shifting revenue from those that cannot provide the necessary facilities.
Costs/Expenditures: Extreme weather events can cause service disruptions, but can also damage infrastructure, requiring additional unplanned repair costs. For example, storms often lead to downed power lines which disrupts services but also necessitates that companies spend time and money to return the power lines to operating conditions.
Assets: Physical climate impacts can decrease value of tangible assets by damaging infrastructure and potentially shortening its lifetime. Intangible assets can be negatively impacted by damages to brand image and reputation through repeated service disruptions.
Liabilities: Climate change is likely to pose increasing liability risk as disclosure and preparation requirements become more widespread. As infrastructure is damaged and regulations evolve, companies may face increased insurance premiums and costs associated with retrofitting infrastructure and ensuring compliance.
Capital and Financing: As expenditures increase in the face of extreme weather events, debt is also likely to increase. Likewise, as operations and revenues are impacted and asset values decrease, capital raising may become more difficult.
The guide also draws attention to the potential opportunities emerging from resilience-oriented investments in infrastructure. There are both physical and financial strategies that can be leveraged to manage climate-related risks, such as replacing copper cables with more resilient fiber-optic ones and creating larger debt service and maintenance reserves.
The guide includes ten illustrative “snapshots” describing climate change considerations in the example sub-industries of Gas and Oil Transport and Storage; Power Transmission and Distribution; Wind-Based Power Distribution; Telecommunications; Data Centers; Commercial Real Estate; Healthcare; and Sport and Entertainment. Each snapshot includes a description of the sub-sector, an estimation of its global potential market, examples of observed impacts on specific assets, and potential financial impacts from six climate-related hazards: temperature, sea-level rise, precipitation & flood, storms, drought and water stress.
Commercial real-estate, for example, refers to properties used only for business purposes and includes office spaces, restaurants, hotels, stores, gas stations and others. By 2030 this market is expected to exceed US $1 trillion per annum compared to $450 billion per annum in 2012. Climate impacts for this sub-sector include hazard-specific risks and also include the general risk factor of climate-driven migration which drives shifts in supply and demand in the real estate market.
As heat waves increase in frequency, people will likely seek refuge in cool public buildings, leading to increasing property values for those places such as shopping malls that provide air-conditioned spaces for community members. Increasing frequency and intensity of storms may damage commercial infrastructure, leading to recovery costs and increased insurance costs. Real estate managers may have to make additional investments in water treatment facilities to ensure the viability of their assets in regions faced with decreased water availability. An example of the financial impacts of climate change on this sub-sector can be seen in Houston after Hurricane Harvey. After the hurricane hit Texas in August 2017, approximately 27% of Houston commercial real estate was impacted by flooding and these 12,000 properties were worth about US$55 billion.
For more guidance on investing for resilience, read the Planning and Investing for a Resilient California guidance document and the GARI Investor Guide to Physical Climate Risk and Resilience.
Director of Advisory Services Yoon Kim moderated a panel at the 2017 National Conference and Global Forum for Science, Policy, and the Environment. The session, titled “Climate Data and Public Health: Mobilizing Adaptation Action”, explored the role of interactive data tools in the adaptation continuum – from diagnosis to planning to solutions – through concrete case studies. Presenters brought local public health and private sector hospital perspectives from across the United States. You can listen to a full recording of the panel here, and follow along with the presentation slides.
As part of California’s Fourth Climate Change Assessment, Four Twenty Seven is working with project partners to develop a tool that will inform long-term planning efforts to communicate the urgency of and mitigate the public health impacts of increasing extreme heat events across the state.
The number of extreme heat days in California are projected to increase from currently around ten a year to 25-50 by 2050, and upwards of 100 by the end of the century. Extreme heat has major impacts on human health, especially on the most vulnerable populations.
The California Heat & Health Project is funded by the California Energy Commission as part of the California Fourth Climate Change Assessment to develop an interactive, user-friendly tool that will provide public health and planning stakeholders with detailed projections on extreme heat events and the potential health impacts for local communities.
To better inform this tool, we conducted a robust literature review and user needs assessment to understand how the California Heat and Health Project can best inform and improve current efforts in all California regions. Our report outlines our key findings from this research including results from an online survey and interviews with public health, planning and emergency preparedness stakeholders throughout California.
Our research shows the limitations of emergency response to prevent the health impacts of heat waves. The greatest strides can be made through interventions planned well ahead of time, such as changes in the urban design and social programs. Therefore, we conclude that a new online decision support tool is best geared towards informing mid and long-term interventions to reduce the public health impacts of extreme heat.
The online decision support tool is currently in development, and will be available in the fall of 2017 through Cal-Adapt, the state’s adaptation portal.
Founded in 2012, Four Twenty Seven is an award-winning climate risk and resilience research and advisory firm that brings climate intelligence to economic and financial decision-makers. Four Twenty Seven helps investors, Fortune 500 companies and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain. Customers rely on Four Twenty Seven’s tools and models to factor into financial and operational planning processes. Four Twenty Seven’s team is comprised of highly qualified professionals with backgrounds in climate science, economics and finance, natural resources management, policy analysis, public health, and international development.
In this audio recording from the 2016 NACCHO Preparedness Summit in Dallas, Texas Emilie discusses how our Resilient Hospital Dashboard can be used to help hospital administrators and public health officials make informed decisions about how to adapt to the impacts of climate change on human health and hospital operations.
Follow along with Emilie’s talk in the slides below