EBRD to Host Physical Climate Risk Conference on 31 May

The European Bank for Reconstruction and Development (EBRD) and the Global Centre of Excellence on Climate Adaptation (GCECA) have announced details of their conference, “Advancing TCFD guidance on physical climate risk & opportunities.”  A culmination of their initiative focused on building climate resilience in the financial sector, the conference will share findings on physical risk and resilience metrics from three expert working groups. Read the press release below, originally published on EBRD’s website:

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Findings of industry working groups will be published ahead of the event “Advancing TCFD guidance on physical climate risk and opportunities”

  • Conference on 31 May to discuss physical climate risk and opportunity disclosure in climate-related financial disclosure reporting. Industry-led working groups to publish findings.
  • Event will advance thinking on how to develop physical climate risk metrics in line with Task Force on Climate-related Financial Disclosures (TCFD) guidance.
  • Conference co-organised by European Bank for Reconstruction and Development (EBRD) and the Global Centre of Excellence on Climate Adaptation (GCECA).

The EBRD and GCECA are hosting an event “Advancing TCFD guidance on physical climate risk and opportunities”, which will be held on 31 May 2018 at the EBRD’s headquarters in London.

Findings about physical climate risk and opportunity disclosure by industry-led working groups, which have been meeting at the EBRD’s headquarters since 2017, will be released at the conference.

This event will build on the recommendations of the TCFD, headed by Mark Carney and Michael Bloomberg. These recommendations highlight a growing concern over the effects of climate change on the economy and financial markets, and the need for investors to be able to assess climate-related risks.

At the conference, senior representatives from the financial, business and regulatory communities will discuss the development of metrics for disclosing physical climate risk and opportunities, and the integration of these disclosures into decision-making.

The confirmed high-level speakers at the conference will include:

  • Suma Chakrabarti, President, the EBRD
  • Roald Lapperre, Netherlands Deputy Minister for Infrastructure & Water
  • Frank Elderson, Executive Director, DNB (Netherlands Central Bank).

The panelists will represent a rich variety of market leaders such as Aon, Citi, Maersk, Moody’s and Standard Chartered, as well as the Bank of England, the French Treasury and the European Commission.

Findings from the expert working groups will also be published. The working groups include representatives from Allianz, APG, Aon, Bank of England, Barclays, BlackRock, Bloomberg, BNP Paribas, Citi, DNB, DWS, Lightsmith Group, Lloyds, Meridiam Infrastructure, Moody’s, OECD, S&P Global, Shell, Siemens, Standard Chartered, USS and Zurich Asset Management. An expert team led by Acclimatise and Four Twenty Seven is providing the Secretariat function to the working groups.

TCFD recommendations, released for the G20 summit in June 2017, call for the inclusion of metrics on physical climate risk and opportunities into financial disclosures by corporations and financial institutions. This is echoed in the recommendations of the European Union’s High Level Expert Group on sustainable finance, released in January 2018, and the Action Plan from the European Commission released in March 2018.

Last month the EBRD become a TCFD supporter, the first multilateral development bank to do so. The EBRD’s 2017 Sustainability Report, to be released later this month, will provide an initial outline of how TCFD recommendations relate to the Bank’s operations. The conference on 31 May will be an important milestone in the Bank’s support for the TCFD process.

Since 2006 the EBRD has invested over €22 billion in projects under its Green Economy Transition approach. Energy efficiency and environmental sustainability have been a priority for the Bank since its creation in 1991.

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Contact CEO Emilie Mazzacurati for more information and read about Four Twenty Seven’s solutions to help financial institutions, businesses and governments improve their climate resilience.

Newsletter: Fintech Meets Climate Data

 

 

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss a discussion with our new Chief Development Officer, our report on using climate data and cool new innovations in climate science!

In Focus: Fintech Meets Climate Data

Meet Chief Development Officer, Frank Freitas

We chatted with our new Chief Development Officer, Frank Freitas, about his motivations to join Four Twenty Seven after almost 30 years in finance and fintech, and his vision for new products and markets in climate analytics. Having spent his career developing award-winning solutions for global institutional investors, Frank is a seasoned veteran of product management and strategic planning.

He founded and sold Pluribus Labs, a research and analytics firm focused on the translation of unstructured data into investable signals. Before that, he served as Chief Operating Officer and Head of Product Strategy at Instinet, a leading technology-levered agency broker. He started his career in Product Management, designing and leading the delivery of quantitative risk solutions at Barra (now MSCI). “The acceleration of climate’s influence on corporate performance is upon us, and investors are rapidly awakening to the risks that climate change brings to financial markets,” Frank says. “Four Twenty Seven’s sophisticated climate data analytics are at the forefront of identifying most exposed corporations and assets globally, and we will continue to build on our expertise to provide best-in-class analytics of climate risk for our clients globally.”

 

Inside Market Data covers Frank’s transition to Four Twenty Seven and highlights the company’s goals for this year, including a focus on incorporating new types of data to add nuance to our risk analyses.

Read the Interview

Using Climate Data for Investment Decisions

Using Climate Data: A Four Twenty Seven Report


In this new Four Twenty Seven report, we demystify climate data with a clear breakdown of what it is, where it comes from and the nuances to consider when choosing which data products to use. 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, for unfamiliar users, climate data is hard to integrate into enterprise risk management, financial risk modelling processes and risk analysis.This climate data primer serves as an introduction for financial, corporate and government stakeholders striving to understand their exposure to physical climate change.

Read the Report

Innovations in Climate Science

Solar-Powered “Saildrones”

Two solar-powered sail boats are returning to California this month after debuting their ocean monitoring capacity on a trip through the Pacific. These drones are part of a collaboration between NOAA and Alameda-based startup, Saildrone, and they may be able to replace the costly bouy system that scientists currently use to obtain ocean circulation data. The boats collect temperature, wind and solar radiation data, while also measuring ocean circulation currents and gas exchange. These data are more precise than data collected by satellites or buoys and have the potential to provide powerful insights into studies of climate’s impact on ocean circulation.

Autonomous Ice Robots

A squad of “Seaglider” robots have been programmed with navigational algorithms for their year-long journey under Pine Island Glacier in Western Antarctica. Some may sink or get lost in ice caves, but the rest will collect data on salinity, temperature and oxygen content to inform scientific understanding of the rate of ice loss with climate change and implications for sea-level rise, floating to the surface to transmit their data.

Science Funding in the Federal Budget

The omnibus bill passed by Congress and signed by the President last month, did not include the funding cuts to critical climate research that many feared. NOAA received $5.9 billion, which is $234 million above its FY 2017 amount. NOAA has many resources for adaptation professionals and others striving to better understand how the natural world affects their lives and businesses, ranging from its satellite system and weather data to its integrated science programs and US Climate Resilience toolkit. This alphabetized list highlights over 20 such resources.

CRA Webinar: What You Need to Know About TCFD and 2018 Reporting Cycles

Thu, May 10, 2018 1:00 PM – 2:00 PM EDT 
Climate change has become a growing concern for corporations, investors, and financial regulators alike. Corporations need to understand how the impacts of a changing climate may affect company operations or their broader value chain and assess how such impacts should be included in corporate disclosures and sustainability reports.

Emilie Mazzacurati will present an overview of how corporations can identify material risks, provide an update on rising regulatory requirements and changes to voluntary reporting frameworks to align with TCFD recommendations, and highlight opportunities to build resilience and adapt to new market conditions.

This programming is provided exclusively for Corporate Responsibility Association members and invited guests. To RSVP email Jen Boynton at jboynton@3blmedia.com.

Inside the Office at Four Twenty Seven

Four Twenty Seven Website Features New Insights Page

 

Our blog page has been revamped with featured articles at the top and an interactive filter feature that allows users to sort by author, client, media type and theme or to search for keywords.

Our most read publications this month include:

Upcoming Events

Join the Four Twenty Seven team in the field at these upcoming events:

  • April 30 – May 1: 2018 Local Solutions Eastern Climate Preparedness Conference, Manchester, NH: Advisory Services Manager, Katy Maher, will discuss strategies to build local resilience with this convening of government stakeholders.
  • May 1: TCFD US Scenario Analysis Conference, New York, NY: Founder and CEO Emilie Mazzacurati and Chief Development Officer, Frank Freitas, will join this discussion about using scenario analysis in climate-related risk disclosure and resources to help corporations do so.
  • May 10: What You Need to Know About Climate Related Financial Disclosures (TCFD), CRA Webinar: Emilie Mazzacurati is the presenter on this webinar about corporate climate risk disclosure. CRA members only.
  • May 17: GRESB’s Sustainable Real Assets Conference, Washington, DC: Emilie Mazzacurati will keynote GRESB’s annual conference on infrastructure resilience and Chief Development Officer, Frank Freitas will join the convening.
  • May 23: Four Twenty Seven Webinar, 11am-12pm PST: Save the date for a webinar on city level physical climate risks and opportunities to access climate adaptation and resilience financing. Registration details forthcoming.
  • May 31: Advancing TCFD Guidance on Physical Climate Risk and Opportunities, London, UK: Four Twenty Seven is a strategic partner for this event hosted by EBRD and GCECA to discuss emerging guidance on metrics for physical climate risk disclosures and scenario analysis and Emilie Mazzacurati will moderate a panel presenting findings on physical risk metrics.
  • June 5-6: Responsible Investors Europe, London, UK: Hear Emilie Mazzacurati speak on a panel on corporate engagement and also meet with Frank Freitas and Senior Risk Analyst, Léonie Chatain, to discuss ratings and engagement on physical climate risk in equities.
  • June 12-14: VERGE Hawaii, Honolulu, HI: Advisory Services Manager, Kendall Starkman, will join this convening of corporate, government and NGO stakeholders committed to building resilient cities and economies.
  • June 18-21: Adaptation Futures 2018, Cape Town, South Africa: Director of Advisory Services, Yoon Kim, will facilitate a session exploring integrating climate risks into infrastructure investment decisions.
  • June 26: GRESB’s Sustainable Real Assets Conference, Sydney, Australia: Meet with  Frank Freitas at GRESB’s annual conference on resilient infrastructure investments.
  • August 28-29: 3rd California Adaptation Forum, Sacramento, CA: Save the date for this opportunity to join over 600 climate leaders in workshops, sessions and networking around adaptation action in California.
  • September 12-14PRI in Person, San Francisco, CA: Join the Four Twenty Seven team at this annual convening of responsible investment industry leaders.
  • September 12-14: Global Climate Action Summit, San Francisco, CA: Join the Four Twenty Seven team at this convening of global climate adaptation experts meant to propel action around the Paris Agreement.

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Using Climate Data – 427 Technical Brief

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.

Key  Takeaways

  • Climate models are simulations of the Earth’s future conditions. Climate projections are based on a compilation of many models and are publicly available.
  • Regional climate models and statistical downscaling improve the resolution of data produced by global climate models and are thus valuable options when projections are only needed for one location or several in the same region.
  • Climate models can be used to project future trends in temperature and precipitation, but can not project discrete storms or local flooding from sea level rise, which require additional data and analysis.
  • Different time horizons of climate projections have different strengths and limitations so it is important to select the data product best suited to a specific project’s goal.
  • There are several drivers of uncertainty in climate models and strategies to hedge this uncertainty can help users correctly interpret and use climate projections.

Download the Report.

Can Investors Anticipate the Impacts of Climate Change on Equities?

427 ANALYSIS – The physical impacts of climate change drive millions of dollars of losses for corporations every year, as experienced by Honda and Toyota during the 2011 floods in Thailand. Investors equipped with data on corporate production facilities and climate projections can manage their risk exposure more effectively and reduce downside risk.

Risk is one of the most widely understood and discussed components of the investment management process today. Informed tradeoffs of risk and return are fundamental to modern investment practices across asset classes and investment styles.  And yet, an important dimension of risk – physical risk from companies’ exposure to climate volatility – has yet to find its way into the mainstream investment process.

Monsoons Damage Automobile Manufacturers

Climate change’s influence on economies, sectors and companies is an increasingly important factor in identifying and balancing the tradeoffs between risk and return.  For example, the heavy monsoon season that led to severe flooding across Thailand in late June 2011 through December, inundated 30,000 square kilometersand caused widespread economic damage. Automobile manufacturers such as Toyota and Honda were particularly affected by suspended operations and supply chain disruptions, which led to reduced production internationally and affected global sales and profitability long after the rains stopped.

Figure 1. Honda and Toyota facilities’ exposure to extreme rainfall. Orange dots represent facilities with higher risk.

As shown in Figure 1, both companies possess a diversified set of production facilities in the area affected by the flooding, including stamping facilities and sub-component manufacturers, which do not only service downstream processes in Thailand but in other production centers as well. These same facilities all score high for extreme rainfall in our global corporate facility database, signaling high vulnerability to flood risk for Honda and Toyota – a risk that will only worsen in the future.

Figure 2. Japanese Automobile & Components Manufacturers’ exposure to sea level rise by facility. Red indicates high sea level risk, while green represents lower risk.

Sea Level Rise in Japan

Investors must also anticipate forward-looking risks – what will climate change bring, and which companies are most affected? Understanding and preparing for volatility in returns requires an in-depth awareness of a company’s facilities and the climate risks which those facilities face.  Given their global footprint, many businesses are exposed to diverse hazards such as extreme heat, water stress, cyclones and sea level rise, in addition to extreme precipitation. Thus, the factors we include to model a company’s physical risk to climate change include the sector characteristics, operational needs and the regional conditions where facilities are located. While flood damage and manufacturing delays in Thailand damaged Honda and Toyota, Figure 2. shows these companies are also exposed to sea level rise at hundreds of facilities in their home market of Japan.

Assessing Companies’ Exposure to Climate Risk

Our data interweaves climate analytics with financial markets data to provide a robust view of companies’ risks and identify those that are less likely to experience financial losses due to increasingly frequent extreme weather events. Facility-level assessment of these risks is an intensely data-driven exercise that requires the combination of terabytes of data from climate models with information on complex company structures. We translate this analysis into a clear result to inform financial strategy. Armed with this understanding, investors and corporations alike can achieve a new and more valuable balance of risk and return.

Figure 3. Global exposure to water stress of all facilities in Four Twenty Seven’s database.

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Four Twenty Seven’s ever-growing database now includes close to one million corporate sites and covers over 1800 publicly-traded companies. We offer equity risk scoring and real asset screening services to help investors and corporations leverage this data.

 

  1. Emma L. Gale and Mark A. Saunders, “The 2011 Thailand Flood: Climate Causes and Return Periods,” Weather 68, no. 9 (2013): 233–37.

Newsletter: Advancing TCFD Guidance on Physical Climate Risk & Opportunities

 

 

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss our update on upcoming EU regulations, our analysis on lessons learned from Art. 173 in France, and our conference calendar for the spring!

In Focus: Advancing TCFD Guidance on Physical Climate RIsk and Opportunities

An initiative from the European Bank for Reconstruction and Development and the Global Center for Excellence in Climate Adaptation

The European Bank for Reconstruction and Development (EBRD) and the Global Centre of Excellence on Climate Adaptation (GCECA) are hosting an event: “Advancing TCFD guidance on physical climate risk and opportunities,” which will be held on 31 May at the EBRD’s headquarters in London. This event will be a forum for senior representatives from the financial and business community to discuss and identify the way forward for the development of metrics for disclosing physical climate risk and opportunities, as well as pointers for integrating physical climate risk considerations in scenario-based decision making by businesses and financial institutions.

In preparation for this event, the EBRD has been hosting working groups focused on advancing and fleshing out the recommendations from the Task Force on Climate-related Financial Disclosure’s (TCFD) final recommendations released for the G20 summit last June. The TCFD recommended the inclusion of metrics on physical climate risk and opportunities in financial disclosures and called for further research and concrete guidance on what the appropriate metrics would be.

The conference will feature the findings from expert working groups that include representatives from Allianz, APG, AON, Bank of England, Barclays, BlackRock, Bloomberg, BNP Paribas, Citi, DNB, Deutsche Asset Management, Lightsmith Group, Lloyds, Meridiam Infrastructure, Moody’s, OECD, S&P Global, Shell, Siemens, Standard Chartered, USS and Zurich AM

Four Twenty Seven provides the technical secretariat for this initiative in partnership with Acclimatise. Learn more about the conference: “Advancing TCFD Guidance on Physical Climate Risk & Opportunities.” 

EU Moves Towards Regulation for Climate Risk Disclosure

EC Releases its Action Plan: Financing Sustainable Growth

Earlier this month the EU laid out a clear plan to move towards mandatory climate risk disclosure as part of a new set of regulations to finance sustainable growth and support the transition to a low-carbon economy. The European Commission’s Action Plan lays out a two year timeline for implementation, with a goal to create a taxonomy for climate adaptation finance by the end of 2019. These regulations from the EU will drive change into financial markets globally and set standards on reporting, disclosures and infrastructure resilience that will likely set the bar for the rest of the world.

The EC based the Action Plan on the High-Level Expert Group on Sustainable Finance’s (HLEG) final recommendations for actions to drive the transition to a sustainable financial system. The HLEG was created by the EC in December 2016 to determine how the regulatory landscape should transform to support efforts towards the goals of the Paris agreement and  promote the financing of a sustainable, resource-efficient economy. As the group’s report was eagerly awaited as a blueprint for market transformation in Europe, the EC’s Action Plan is expected to propel that transformation forward while prompting international conversation.

Read the Analysis

Lessons Learned from Article 173 Reporting

How are French investors reporting physical risk?
A Four Twenty Seven analysis

The first year of reporting under Art. 173 in France saw limited uptake of disclosures of physical risk and opportunities. We reviewed disclosures from 50 asset owners in France and found that only a quarter of respondents included substantial analysis and metrics on their exposure to physical impacts of climate change. We find insurance companies AXA and Generali provided the most detailed analysis for property portfolios, while FRR and ERAFP were the only pension funds to provide an initial assessment of physical risk exposure in their equity and fixed income portfolios.

Read the Analysis

More good reads on climate risk disclosures:

Extreme Weather Hurts Corporations

Weather Affects Company Performance

Whether it’s extreme heat diminishing worker productivity, winter storms damaging roads and power lines or one of countless other impacts, extreme weather causes harm to businesses’ facilities, their workers and supply chains, and leads to financial impacts. The World Resources Institute’s recent report, “Water Shortages Cost Indian Energy Companies Billions,” highlights findings that India’s thermal power is so reliant on water for cooling that the largest thermal utilities had to close at least once between 2013-2016 and lost about $1.4 billion in revenue. In the article “5 Things Companies Can Do to Grow in a Water-Stressed World,” Water Deeply describes ways that companies are mitigating their risk by proactively addressing water resource limitations.

Climate-related Risk for Telecommunications

Companies in different sectors will be affected differently by three types of climate risk. Novethic’s article “L’impact des risques climatiques sur les entreprises, le cas d’Orange,” provides direct examples of how physical climate risk, transition risk and reputation/legal risk directly threaten companies. In a discussion of Orange, a telecommunications provider, the article highlights the complex factors that companies must consider in addition to their impact on CO2 emissions. Such considerations include a company’s potential to promote innovations for resilience in society through programs ranging from apps that organize carpooling to smart metering.

Inside the Office at Four Twenty Seven

Meet Guest Researcher, Nora Pankratz

Four Twenty Seven is excited to welcome Nora Pankratz as a guest researcher. Nora is a Ph.D. candidate in Finance at the European Center for Corporate Engagement at Maastricht University in the Netherlands. Her research focuses on the impact of extreme temperatures on the financial performance of public firms. For the next several months Nora will be based in Berkeley, working with data collected by Four Twenty Seven to develop a research project on the translation of climate risks into financial risks.

Upcoming Events

Join the Four Twenty Seven team in the field at these upcoming events:

  • March 19-21: ClimateCon, Asheville, NC: Katy Maher, is at this convening of science and businesses professionals focused on building climate resilience.
  • March 26-27: Financial Risks International Forum, Paris, France: Léonie Chatain, will attend this annual conference on emerging risks in the financial and insurance sectors.
  • April 2:  ICARP TAC Quarterly Meeting, San Francisco, CA: Natalie Ambrosio will participate in the Adaptation Vision Framework workshop hosted by the Governor’s Office of Planning and Research.
  • April 3-6: Sustainatopia, San Francisco, CA: COO Colin Shaw, will speak on a panel on ESG investing and a panel on climate risk at this annual convening of sustainability and financial experts.
  • April 9Financing Climate Change Adaptation, New York, NY: Founder and CEO Emilie Mazzacurati will participate in a private investor workshop on financing adaptation in US cities, organized by C40, NY City and GARI.
  • April 10-11:  Responsible Investors Asia, Tokyo, Japan: Meet with the Four Twenty Seven team to discuss physical climate risk in equities and infrastructure portfolios.
  • May 17: Sustainable Real Assets Conference, Washington, DC: Founder and CEO Emilie Mazzacurati will keynote GRESB’s annual conference on infrastructure resilience.
  • May 31: Advancing TCFD Guidance on Physical Climate Risk and Opportunities, London, UK: Four Twenty Seven is a strategic partner for this event hosted by EBRD and GCECA to discuss emerging guidance on metrics for physical climate risk disclosures and scenario analysis.
  • June 5-6: Responsible Investors Europe, London, UK: Meet with the Four Twenty Seven team to discuss ratings and engagement on physical climate risk in equities.
  • June 18-21: Adaptation Futures 2018, Cape Town, South Africa: Director of Advisory Services, Yoon Kim, will facilitate a session exploring integrating climate risks into infrastructure investment decisions.
  • August 28-293rd California Adaptation Forum, Sacramento, CA: Save the date for this opportunity to join over 600 climate leaders in workshops, sessions and networking around adaptation action in California.

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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for Fortune 500 companies, investors, and government institutions.Our mailing address is:
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Art. 173: Lessons Learned from Climate Risk Disclosures in France

March 21, 2018 – 427 ANALYSIS. The first year of reporting under Art. 173 in France saw limited uptake of disclosures of physical risk and opportunities. Our review of disclosures from 50 asset owners in France shows only a quarter of respondents included substantial analysis and metrics on their exposure to physical impacts of climate change. We find insurance companies AXA and Generali provided the most detailed analysis for property portfolio, while FRR and ERAFP were the only pension funds to provide an initial assessment of physical risk exposure in their equity and fixed income portfolios.

Art. 173: the world’s first legal requirement to disclose climate risk

Article 173  of the French Law on Energy Transition and Green Growth passed August 2015 requires major institutional investors and asset management companies to explain how they take Environmental, Social and Governance (ESG) criteria into account in their risk management and investment policies. These institutions are also asked to report on the impacts of both physical risks and ‘transition’ risks caused by climate change on their activities and assets.

The law applies to French companies, meaning that French subsidiaries of large financial groups are potentially subject to requirements that do not apply to their parent companies. Its implementing decree invites these organizations to establish scenarios and models to take into account climate risks impacts on the value of their portfolios.

Article 173 covers publicly traded companies, banks and credit providers, asset managers and institutional investors (insurers, pension or mutual funds and sovereign wealth funds). In addition, asset managers managing funds above 500 M€ and institutional investors with balance sheets above 500 M€ are subject to extended climate change-related reporting obligations, including both physical impacts of climate change and transition risks (impact of the transition to a low-carbon economy).

The inclusion of physical impacts of climate change in financial risk analysis is in line with the industry-led Task Force on Climate-related Financial Disclosures (TCFD) recommendations report, released in July 2017.

What did financial institutions report?

We conducted a desktop analysis of the 2017 reports (applying to 2016 portfolios) to understand how financial institutions responded to the requirements laid out by Art. 173 in the first compliance year. We reviewed 50 asset owners in France, including public pension funds, sovereign wealth fund and insurance companies, with an aggregate €5.5 trillion euro ($6.8tn) under management. Our analysis included all the public entities covered by the Article 173, as well as private insurers with asset under management above €2bn. Insurance companies play a particularly important role as asset owners in France, where individual savings are massively invested in life insurance savings products. French pension funds, on the other hand, are relatively small due to France’s pay-as-you-go retirement system.

We were able to find Art. 173 reports for 36 out of 50 organizations. It is possible that, in spite of our best efforts, we failed to locate reports. However, Art. 173 has a ‘comply or explain’ provision which also makes it acceptable not to publish a report if one can justify climate change is not a material risk.

Among the Art. 173 reports, we found 29 from insurance companies and seven from public entities. Among them, 20 organizations (40%) discussed only their carbon footprint and/or their exposure to energy transition risk, without including physical risk disclosures.

A small group of organizations (8%) mentioned physical risk as a topic they were exploring but not yet able to report on. Most of them emphasized the lack of tools and models as a major impediment to reporting physical risk.

All in all, we found 12 financial institutions (24%) of the institutions under review made an explicit attempt to disclose their exposure to physical climate risk.

We broke down this latter group in three categories. Eight companies (16%) provided an analysis of the physical risks threatening either their operations or property portfolios (for insurance), ranging in scope from a few buildings to €15bn worth of assets in the case of AXA. Most of the reports contain limited details on methodology and findings.

Two companies (4%) performed what we call a “top-down” analysis, working with investment advisor Mercer to perform a multi-asset class, sector-level analysis of climate risk using Mercer’s proprietary climate risk model, which blends transition and physical risk. Finally, two high profile investors, pension fund ERAFP and sovereign wealth fund FRR, included an initial assessment of climate risk in their equity and fixed income portfolios, at the asset level.

 

 

Table 1 presents a detailed breakdown of how those organizations take physical climate risks into account:

 Case Studies: How do Investors Report on Physical Risk?

AXA

The best student in this 2016 reporting vintage is AXA France. AXA received the “International Award on Investor Climate-Related Disclosures” from the French Ministry for the Environment, for analyzing 15 billion euro of assets (real estate and infrastructures). The analysis takes into account most frequent European natural disasters and the geographical location of each individual asset as well as the destruction rate of their building materials. They found out that, over 30 years, the accumulated loss would aggregate to 24 million euro. The insurance company also reported that if a centennial storm was to occur, the portfolio would be impacted by a 15.2 million euro loss. While AXA provides some of the most detailed analysis,  it also noted that “this new kind of analysis needs to be improved in order to take into account more natural disasters and other portfolios”.

The following graphs demonstrate the physical risk exposure to windstorms for the analyzed infrastructures. On the left, the graph displays the annual average destruction rate, which is linked to the average loss generated by windstorms every year (0.8M€ on average). The map on the right shows the destruction rates due to a 100-year event, with an estimated loss of 15.2M€.

Source (Award on Investor Climate-related Disclosures, AXA Group, October 2016: https://cdn.axa.com/www-axa-com%2Fcb46e9f7-8b1d-4418-a8a7-a68fba088db8_axa_investor_climate_report.pdf)

Generali

Generali France also provided a complete and detailed evaluation of the potential impact of physical risks on their property assets. They analyzed 112 assets, mainly in the Paris Area, accounting for 60% of their owned assets. Generali took into account two kinds of physical risks, flood and drought, to rate their assets from “high” to “very low” risk. Regarding drought, 3 assets enter the medium-risk category. As only 12 assets have been analyzed (Paris and the overseas departments being excluded), this risk is important as it accounts for 25% of their analysis. On the other hand, 10 out of 112 buildings owned by Generali France are exposed to a high risk of flood. They are mainly located in the Paris Area and would be heavily affected by a Seine flood.

To sum up, both AXA and Generali reports are valuable examples of emerging best practices as they show the willingness of those organizations to take physical risks into account in their reporting practice. However, their analyses would benefit from being extended to a broader portfolio and to other natural events.

FRR

In November 2017 the French pension fund, “Fonds de Réserve pour les Retraites” (FRR), released a report addressing Article 173 requirements. Four Twenty Seven performed the analysis, and applied its proprietary methodology to measure the types and levels of climate risk embedded in FRR holdings. Portfolio exposure was evaluated according to their respective industry and sector. The analysis produced a sector risk score based on three indicators:

  • the sector’s supply chains’ geography ;
  • its dependency on climate-sensitive natural resources inputs ;
  • its sensitivity to weather variability.

This hotspot analysis gave FRR tools to get an initial understanding of its portfolios’ exposure. It highlighted strongly exposed sectors such as Materials and Consumer Staples, due to their dependency on natural resources, and Pharmaceuticals and Electronics hardware, due to their complex and global supply chains. Conversely, the results brought out the low exposure of service-based industries such as Media and Telecommunication.

Conclusion

Reporting on physical climate risk is a challenging task for financial institutions – many organizations lack the tools, models and data to perform a comprehensive assessment of their portfolios, whether they’re composed of real assets or equities. As TCFD reporting becomes standard for financial institutions and corporations, pressure will increase to report on physical risk. We expect fast changes in disclosures in this regard, starting as early as the 2018 reporting season.

This analysis was written with support from Thomas Poloniato.

Four Twenty Seven’s ever-growing database now includes close to one million corporate sites and covers over 1800 publicly-traded companies. We offer equity risk scoring and real asset screening services to help investors and corporations leverage this data.

Lenders’ Guide for Considering Climate Risk in Infrastructure Investments

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.

Climate Change and Infrastructure

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.

Climate Risks and Opportunities: Sub-Sector Snapshots

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.

Download the Lenders’ Guide. 

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.

Newsletter: Climate Risk in Financial Portfolios, COP23 and Workforce Adaptation

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss our white paper on physical climate risk in equity portfolios, French President Macron’s op-ed on climate finance, and our policy recommendations on protecting workers from climate health impacts. Also, be sure to check out our new website!

In Focus: Physical Risk in Financial Portfolios

Figure 4. Extreme Precipitation Risk for Facilities from France’s Benchmark Index CAC40

Four Twenty Seven and Deutsche Asset Management jointly released today at COP23 a white paper featuring a new approach to climate risk management in equity portfolios. The white paper, Measuring Physical Climate Risk in Equity Portfolios, showcases Four Twenty Seven’s Equity Risk Scoring methodology, which identifies hotspots in investment portfolios by assessing the geographic exposure of publicly-traded companies to climate change. Our methodology tackles physical risk head on by identifying the locations of corporate sites around the world and then the vulnerability of these corporate production and retail sites to climate change, such as sea level rise, droughts, flooding and tropical storms, which pose an immediate threat to investment portfolios.

Deutsche Asset Management is leveraging Four Twenty Seven’s Equity Risk Scores to satisfy institutional investors’ growing desire for more climate resilient portfolios and design new investment strategies. “This report is a major step forward to addressing a serious and growing risk that investors face. To keep advancing our efforts, we believe the investment industry needs to champion the disclosure of once-in-a-lifetime climate risks by companies so we can assess these risks even more accurately going forward,” said Nicolas Moreau, Head of Deutsche Asset Management.

Read the white paper

France on the Forefront of Climate Finance

French President Emmanuel Macron emphasizes his support for the Taskforce on Climate Related Financial Disclosure’s (TCFD) recommendations in an op-ed published on Global Markets. Macron also highlighted the importance of climate finance mechanisms, such as green bonds, and the need for private participation in financing climate action.

 

France has been heralded as a global leader on climate risk disclosure with the passage of the Energy Transition Law, including Article 173, which includes a requirement for financial institutions to disclose their exposure to physical climate risk. Four Twenty Seven is working with French public pension funds and screening equity portfolios to support reporting efforts in compliance with Art. 173.

Adaptation: Safeguarding Worker Health & Safety

Four Twenty Seven co-authored an article titled “Safeguarding Worker Health and Safety from a Changing Climate: Delaware’s Climate-Ready Workforce Pilot Project,” with the Delaware Department of Natural Resources and Environmental Control. Through interviews, surveys, and policy analysis assessing the climate resilience of existing worker health and safety policies, the authors examine the preparedness of five state agencies for climate impacts. The article highlights particular risks faced by vulnerable workers and offers policy recommendations for enhancing resilience to ensure the safety and well-being of agency staff.

Visit our website for a detailed presentation on the Delaware Climate-Ready Workforce Pilot Project, the summary report, and more information about our adaptation planning and policy consulting.

International Climate Policy in the Spotlight

Four Twenty Seven’s Director of Analytics, Nik Steinberg’s panels at COP23

Measuring Progress on Climate Adaptation and Resilience: From Concepts to Practical Applications
Nov. 7, 3:00 – 4:30pm, Meeting Room 7 (150)Director of Analytics, Nik Steinberg will join a panel of experts discussing adaptation measurement, focusing on indicators and metrics to inform and assess resilience efforts. This side event will be hosted by the International Development Research Centre (IDRC), Asian Institute of Technology (AIT), McGill University and the University of Notre Dame.

Resilience as a Business: How the Private Sector Can Turn Climate Risk into Business and Investment  Nov. 10, 5:30 – 8:00pm, Hilton Bonn

Bringing together corporate stakeholders and private investors, this event will explore the private sector’s pivotal role in mainstreaming adaptation and driving the resilience agenda.

Speakers include: Representative from Ministry of Economy, Trade, and Industry of Japan; Mari Yoshitaka from Mitsubishi UFJ Morgan Stanley Securities Co. Ltd.; Jay Koh from Lightsmith Group and GARI;  Nik Steinberg from Four Twenty Seven; and Amal-Lee Amin from Inter-American Development Bank. For more information contact proadapt@fomin.org.

Tool: Monitoring Progress on the Paris Agreement


This interactive new platform developed by the The World Resources Institute combines climate policy data with interactive graphics to help analysts and policy makers stay up to date on nationally determined contributions (NDCs), greenhouse gas emissions by sector and more. Climate Watch allows users to sort data based on various indicators, examine connections between NDCs and Sustainable Development Goals, and dive into data on specific nations.

Inside the Office: What’s New at Four Twenty Seven

We Have a New Website!

With streamlined navigation and updated visuals, our new website brings our story alive and allows for a more engaging user experience.
Visit the Solutions page to explore our advisory services and subscription products, including Equity Risk Scores, Portfolio Analytics and Real Asset Screening.
Check out the Insights section for our perspectives on climate resilience, climate risk reporting, adaptation finance, climate science and recent events.

Meet Pete Dickson, Director of Business Development

Four Twenty Seven is proud to announce the addition of Pete Dickson to our team. As the Director of Business Development, Pete is responsible for driving growth for our subscription products, with a focus on financial institutions.
Pete brings more than 20 years of experience in institutional sales, trading, and business development. He’s worked with both the buy-side and sell-side to develop and execute business plans and build revenue, products, and services. Pete has worked with some of the largest financial services and asset management firms in the US and abroad.

Upcoming Events

Join the Four Twenty Seven team in the field at these upcoming events:

  • November 7-17  COP23, Bonn, Germany: Join Director of Analytics Nik Steinberg at side events at the UNFCCC’s 23rd Conference of Parties (See above for details).
  • November 12-15  Airports Going Green, Dallas, TX: Director of Advisory Services Yoon Hui Kim will present on corporate climate resilience planning for airports and transportation infrastructure.
  • November 16-17 Berkeley Sustainable Business and Investment Forum, Berkeley, CA: COO Colin Shaw will attend this event sponsored by the Berkeley-Haas Center for Responsible Business and the Berkeley Law School
  • November 30 Roundtable: Investing with Impact, San Francisco, CA: CEO Emilie Mazzacurati will speak at a roundtable organized by Deutsche Asset Management about the use of ESG data in portfolio investing (by invitation).
  • December 6-7  RI Americas 2017, New York, NY: CEO Emilie Mazzacurati will present on Physical Climate Risk in Equity Portfolios (Wednesday Dec 6 at 2pm) and meet with Colin Shaw, Pete Dickson and Katy Maher at the Four Twenty Seven booth.
  • December 11  Climate Finance Day, Paris, France: CEO Emilie Mazzacurati will join this high profile event sponsored by the French Ministry for the Economy and Finance.
  • December 11-15  AGU Fall Meeting, New Orleans, LA: Climate Data Analyst Colin Gannon will join the Earth and Space Science community to present a poster on climate modeling.

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Newsletter: How to disclose climate risk and opportunities?

 

 


Four Twenty Seven Climate Solutions

TCFD Releases Final Recommendations

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released their final recommendations in late July. The changes to the recommendations reflect the extensive feedback the Tasforce received from the stakeholder engagement process in the past six months. Key changes include:

  • Simplifying the recommended disclosure related to Strategy and scenarios to focus on the resiliency of an organization’s strategy to climate risk and opportunities
  • Establishing a threshold for organizations that should consider conducting more robust scenario analysis to assess the resilience of their strategies.
  • Clarifying that the recommended disclosures related to the strategy and metrics and targets recommendations depend on an assessment of materiality, whereas disclosures on governance and risk management are relevant for all organizations.
  • Updated conceptual map of climate-related risks and opportunities and associated financial impacts.


The recommendations were presented at the G20 summit in Hamburg, Germany last week, with hopes that the world leaders would formally endorse the guidelines. Climate change was high on the agenda for the summit, where all but the United States voiced a strong re-commitment to the goals of the Paris Agreement, and the G20 included by reference the TCFD recommendations in the Climate and Energy Action Plan for Growth.

CEOs Endorse TCFD recommendations

The TCFD final recommendations were endorsed by over 100 CEO’s from a wide range of companies, including large financial institutions like Barclays and Morgan Stanley as well as energy and manufacturing companies like Suez, DuPont, and Unilever. Reactions from a broad range of financial analysts was also positive, noting the need for improvements and wider adoption of climate risk disclosure practices.

A number of initiatives are already under way to think through and plan the implementation of the TCFD recommendations, such as the UNEP FI’s effort with major banks from around the world who have pledged to work towards adopting these recommendations, and put forth actions they see as needed for broader adoption of climate risk reporting.

Further readings:

  • The Economist Intelligence Unit’s  “The Road to Action” report finds that investors, asset managers, and banks are in urgent need of a way to identify and measure how the industry is responding to climate-related risks. It notes that their interviewees widely regard these recommendations as having the clearest mandate to providing possible solutions.
  • Aon’s white paper Financial Regulators Awaken: Prepare to Disclose Climate Risk notes that risk management and analytics is what differentiates the TCFD’s recommendations from many existing standards. “Risk management, including insurance and risk analytics, is given a key role in helping businesses understand and quantify climate risks. The recommendations provide a framework that can enhance risk management, empower corporate strategy, and improve resilience in a fast-changing world.”
  • The 2-Degree Investing Initiative takes a deep dive into corporate disclosures in its forthcoming report “Limited Visibility”, part of their Tragedy of the Horizon program. The report presents the current state of corporate disclosure on long-term risks and long-term forward looking data using analysis of MSCI World companies’ financial disclosures.

Climate Change in the Boardroom: Towards Climate-Competent Boards


What is a climate-competent board, and why does having one matter? Four Twenty Seven CEO Emilie Mazzacurati was invited to speak on exactly that during the Investing in the Age of Climate Change symposium at the University of Oregon. The symposium tackled issues around climate risk, their connection to investment decisions, and the need to understand how these risks can affect an organization’s business in the long-term. Emilie delved into the climate-competent board and presented on the opportunities they provide, and steps to implement climate-competency on a board. Watch the presentation, delivered via webcam.

How Much Will Climate Change Cost in the United States?

A new research article in Science magazine reveals that in the decades ahead, climate change will affect parts of the United States differently. The study found that areas in the Midwest and Southeast will likely suffer more economic harm from climate change with some areas possibly benefiting from the wild winters. The researchers hope to continue working on this study to further provide more specifics in individual areas to help local policymakers prepare for the incoming risks.

Join the Team!

Four Twenty Seven is hiring! We are looking for Business Development Managers (Europe and US), as well as talented analysts with a background in economics, econometrics, and data analysis. See the position descriptions.

Upcoming Events

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TCFD Releases Final Recommendations

Conceptual map of climate-related risks, opportunities, and financial impacts, from the final TCFD recommendations report

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released their final recommendations in late June. The changes to the recommendations reflect the extensive feedback the Taskforce received from the stakeholder engagement process in the past six months. Some key changes include:

  • Simplifying the recommended disclosure related to Strategy and scenarios to focus on the resiliency of an organization’s strategy to climate risk and opportunities
  • Establishing a threshold for organizations that should consider conducting more robust scenario analysis to assess the resilience of their strategies.
  • Clarifying that the recommended disclosures related to the strategy and metrics and targets recommendations depend on an assessment of materiality, whereas disclosures on governance and risk management are relevant for all organizations.
  • Updated conceptual map of climate-related risks and opportunities and associated financial impacts.

TCFD Recommendations at G20

The recommendations were presented at the G20 summit in Hamburg, Germany, with hopes that the world leaders would formally endorse the guidelines. Climate change was high on the agenda for the summit, where all but the United States voiced a strong recommitment to the goals of the Paris Agreement, and the G20 included by reference, the TCFD recommendations in their Climate and Energy Action Plan for Growth.

CEOs Endorse the Recommendations

The TCFD final recommendations were endorsed by over 100 CEO’s from a wide range of companies, including large financial institutions like Barclays and Morgan Stanley as well as energy and manufacturing companies like Suez, DuPont, and Unilever. Reactions from a broad range of financial analysts were also positive, noting the need for improvements and wider adoption of climate risk disclosure practices.

A number of initiatives are already under way to think through and plan the implementation of the TCFD recommendations, such as the UNEP FI’s effort with major banks from around the world who have pledged to work towards adopting these recommendations, and put forth actions they see as needed for broader adoption of climate risk reporting.

Further Readings

  • The Economist Intelligence Unit’s  “The Road to Action” report finds that investors, asset managers, and banks are in urgent need of a way to identify and measure how the industry is responding to climate-related risks. It notes that their interviewees widely regard the TCFD’s recommendations as having the clearest mandate to providing possible solutions.
  • Aon’s white paper Financial Regulators Awaken: Prepare to Disclose Climate Risk notes that risk management and analytics is what differentiates the TCFD’s recommendations from many existing standards. “Risk management, including insurance and risk analytics, is given a key role in helping businesses understand and quantify climate risks. The recommendations provide a framework that can enhance risk management, empower corporate strategy, and improve resilience in a fast-changing world.”
  • The 2-Degree Investing Initiative takes a deep dive into corporate disclosures in its forthcoming report “Limited Visibility”, part of their Tragedy of the Horizon program. The report presents the current state of corporate disclosure on long-term risks and long-term forward looking data using analysis of MSCI World companies’ financial disclosures.

Four Twenty Seven helps investors, Fortune 500 companies, and government institutions understand how to quantify and monetize climate change impacts on operations and asset portfolios. Our clients rely on Four Twenty Seven’s tools and models to factor into financial and operational planning processes. Learn more about how we are helping our clients assess and adapt to climate risks.