Webinar Recording: Climate Change, Real Estate and the Bottom Line

This webinar on Climate Change, Real Estate and the Bottom Line  features a discussion on the interactions between climate change and real estate investment, development and operations. It’s part of the webinar series The Path to Tomorrow, hosted by Goodwin and the MIT Center for Real Estate.

Speakers

  • Emilie Mazzacurati, Global Head of Moody’s Climate Solutions and Founder and CEO of Four Twenty Seven
  • Carl Hedde, Head of Insurance Practice, One Concern and Principal, CGH Consulting, LLC
  • Rose Marie E. Glazer, Senior Vice President, Corporate Strategy and Deputy General Counsel, AIG
  • Steve Weikal, Head of Industry Relations, MIT Center for Real Estate
  • Minta Kay, Partner and Chair, Real Estate Industry Group; Co-Chair, PropTech Group, Goodwin

Moody’s ESG Solutions Group Appoints Global Head of Climate Solutions

Moody’s appoints Four Twenty Seven Founder & CEO, Emilie Mazzacurati, as Global Head of Moody’s Climate Solutions, with Moody’s ESG Solutions Group. Read the press release from Moody’s:

LONDON- (BUSINESS WIRE) – Moody’s announced today that it has appointed Emilie Mazzacurati as Global Head of Moody’s Climate Solutions. In this newly-established role, Ms. Mazzacurati will oversee the climate solutions suite within Moody’s ESG Solutions Group, a new business unit formed earlier this year to serve the growing global demand for ESG and climate analytics. Ms. Mazzacurati will report to Andrea Blackman, Global Head of Moody’s ESG Solutions. 

As global awareness and recognition of the financial risks posed by climate change increase, Moody’s is committed to meeting market needs for forward-looking, science-driven climate analytics that help advance a resilient financial system, responsible capitalism, and the greening of the economy,” said Ms. Blackman. “Emilie’s extensive climate expertise will be vital to our continued development of climate solutions and to ensuring that Moody’s is a leading voice in this important area.” 

As part of its climate solutions suite, Moody’s ESG Solutions provides risk measurement and evaluation tools to understand, quantify and manage climate risks for physical and transition risk, informing due diligence and risk disclosure in line with the recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD).  

Climate risk analytics from Moody’s ESG Solutions are also integrated into Moody’s Analytics risk management tools, translating climate risk exposure into financial impact and credit risk metrics for banks, insurers, and investorsSimilarly, the group’s climate data and insights are increasingly being leveraged in Moody’s Investors Service credit analysisBy offering data and analytics across asset classes, including listed and unlisted companies, real estate, infrastructure, sovereigns and municipalities, Moody’s ESG Solutions supports the integration of climate-related risks into financial decision-making and risk management. 

Moody’s ESG Solutions climate offerings build on the award-winning physical climate risk analytics from Four Twenty Seven, leading provider of climate risk data and market intelligencefounded by Ms. Mazzacurati in 2012. Moody’s acquired a majority stake in Four Twenty Seven in 2019 and recently took full ownership. Moody’s climate solutions suite also leverages data from V.E, a Moody’s affiliate with expertise in transition risk, ESG, and corporate disclosures. 

ABOUT MOODY’S ESG SOLUTIONS 

Moody’s ESG Solutions Group is a business unit of Moody’s Corporation serving the growing global demand for ESG and climate insights. The group leverages Moody’s data and expertise across ESG, climate risk, and sustainable finance, and aligns with Moody’s Investors Service (MIS) and Moody’s Analytics (MA) to deliver a comprehensive, integrated suite of ESG and climate risk solutions including ESG scores, analytics, Sustainability Ratings and Sustainable Finance Reviewer/certifier services. 

For more information visit Moody’s ESG & Climate Risk hub at www.moodys.com/esg 

Moody’s: Climate Risk and Resilience at US Airports

Climate change will expose the airport sector to increased physical climate risks within the next two decades. In its report, US airports face growing climate risks, but business model and resiliency investments mitigate impact, Moody’s Investors Service leverages Four Twenty Seven’s physical climate risk data to explore potential damages from increased exposure of US airports to floods, heat stress, hurricanes, sea level rise and wildfires.

The report found that in 2004-2019, an average 37% of delayed flights annually resulted from climate-related extreme weather events. Airports along coastlines or rivers face particular risks as floods can damage crucial structures such as runways and terminals leading to significant costs or rendering the assets unusable. Likewise hurricanes can cause widespread damage including economic impacts on broader regions. Heat stress and wildfire smoke can both present challenges for planes taking off or landing, leading to delayed or canceled flights or adjusted cargo loads.

Airports often undertake long-term capital intensive projects and integrating resilience measures into planning these investments will be critical. Liquidity will also help absorb the effect of disruptive climate-related events.

Moody’s subscribers can read the full report here.

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To learn more about Four Twenty Seven’s climate risk data, check out our solutions for investors, banks and corporations or read our report on.

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.

Moody’s: Credit Risk of Sea Level Rise for Coastal Governments

Climate change is driving more frequent coastal flooding, which threatens infrastructure, real estate and economies. In its report, Sea Level Rise Increases Credit Risk for Coastal States and Local Governments, Moody’s Investors Service leverages Four Twenty Seven’s climate risk data to explore the credit risks of sea level rise for coastal governments.

The analysis highlights several areas with particular exposure to increasing sea level rise, which threatens property value growth and associate tax revenue, in turn increasing credit risk. Increased disruption due to coastal flooding disrupts the local economies that rely on coastal economic activities to generate revenue. Likewise, areas less exposed to flooding are prone to climate gentrification, as property values increase when these areas become more desirable and residents can be displaced. Though it can be expensive, effective, equitable adaptation measures can reduce vulnerability to sea level rise and support credit-quality. This requires tax revenue, financial capacity, and growth strategies that aim to protect vulnerable local economies and property values.

Coastal economies across the U.S. are exposed to the impacts of sea level rise. However coordinated adaptation efforts between federal, state and local governments can reduce risks. Areas such as Gulf Coast states lag in state-level adaptation policies, causing local governments to shoulder the financial burden of sea level rise, and straining their credit quality. Federal government leadership and increased funding is key in supporting adaptation measures that mitigate the impacts of sea level risks in coastal areas.

Moody’s subscribers can read the full report here.

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To learn more about Four Twenty Seven’s climate risk data, check out our solutions for investors, banks and corporations or read our analysis on the impacts of sea level rise on real estate.

 

Newsletter: Wildfires, Storms and Their Impacts on Credit Risk

Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we discuss the costs of climate hazards, share updates on Moody's ESG and highlight recent developments in climate risk regulation.

In Focus: The Current Reality of the
Climate Crisis

Devastating Human & Economic Costs of Wildfires

As cities on the West Coast take turns with the worst air quality in the world, and cope with evacuations and loss of life and property from record-breaking wildfires, there is increasing evidence about the longer-term implications of these devastating events. After several years of catastrophic fires in California, exacerbated by hot and dry conditions driven by climate change, homes in exposed areas are likely to decline in value, which in turn can increase mortgage default rate, with severe market implications.

Likewise, as the COVID-19 pandemic limits firefighting resources and makes evacuations particularly challenging, new research continues to emerge about the devastating health impacts of wildfire smoke. For example, "Researchers from the University of Tasmania identified 417 extra deaths that occurred during 19 weeks of smoky air, and reported 3,100 more hospital admissions for respiratory and cardiac ailments and 1,300 extra emergency room visits for asthma" during Australia's bushfires last year.

This is not just a current concern in the U.S., but rather wildfire potential is increasing  globally, and regions such as Brazil and Portugal are also enduring fires. Four Twenty Seven's recent analysis on global wildfire potential assesses how conditions will become more conducive to wildfires in regions around the world.
Read Wildfire Analysis

Dire Records Foreshadow Worsening Extremes

As wildfires ravage the west, Hurricane Sally began to hit southeastern Mississippi and the western Florida Panhandle on Tuesday. The slow-moving storm is expected to continue to drop rain and lead to heavy wind as it moves to shore on Wednesday. This is the 18th named storm of the Atlantic hurricane season and the earliest S-named storm on record. Several more hurricanes have already formed in the Atlantic and these back-to-back storms present significant challenges; diminishing the window for search and rescue, increasing the duration of flooding and power outages and exacerbating COVID-19 challenges. Sea level rise driven by climate change worsens storm surge risk during hurricanes and warmer oceans can fuel stronger storms.

This comes as this year's first seven months were the second hottest on record and in the Northern Hemisphere July was the hottest on record, beating the previous record set just last year. This is increasingly evident in the Arctic, where satellite imagery shows that the region's largest remaining ice shelf lost a 110 square km portion and where Bering Sea ice was at a record low during 2018 and 2019. This affects ecosystems and Indigenous communities and contributes to feedback loops of warming in the region when reflective ice is replaced by dark water. Meanwhile, in Antarctica two glaciers that are already contributing to around 5% of global sea level rise were recently found to be less stable than previously understood.

Global Ports Exposed to Floods, Sea Level Rise

Sea ports handle 80% of global goods, so disruptions have significant wide-reaching consequences. This recent Economist article leverages Four Twenty Seven's data to explore risk exposure of about 340 of the world's largest ports. The analysis found that 55% of global trade goes through ports that are highly exposed to at least one hazard, such as floods, sea level rise, storms and wildfires and that 8% of trade passes through ports highly exposed to at least three hazards. This points to a need for risk assessment and resilience investment at ports, which requires capacity-building for port managers and an increase in adaptation finance.
Four Twenty Seven at Moody's:
Integration in Research and Ratings

Moody's Launches Comprehensive ESG Solutions Group

This week Moody’s Corporation announced the formation of an Environmental, Social, and Governance (ESG) Solutions Group to serve the growing global demand for ESG insights. The group leverages Moody’s data and expertise across ESG, climate risk, and sustainable finance, and aligns with Moody's Investors Service and Moody's Analytics to deliver a comprehensive, integrated suite of ESG customer solutions.

The ESG Solutions Group includes Four Twenty Seven and Vigeo Eiris, a global pioneer in ESG assessments, data and tools, and sustainable finance. Together, Moody's and its affiliates develop tools and analytics that identify, quantify and report on the impact of ESG and climate-related risks and opportunities. ESG and climate risk considerations are already integrated into credit ratings and research offered by Moody’s Investors Service (see below), and will be integrated into a range of Moody’s Analytics risk management solutions, research, data and analytics platforms, including stress testing solutions and climate-adjusted credit risk analytics for corporates, sovereigns and real estate.

Moody's Investors Service Announces Inclusion of Four Twenty Seven's Climate Risk Data in US CMBS and CRE CLOs

Reflecting the growing materiality of climate events for real estate, Moody's Investors Service now considers climate risk data and analytics from Four Twenty Seven in its research and ratings process for US commercial mortgage-backed securities (CMBS) and commercial real estate collateralized loan obligations (CRE CLOs). Presale reports include physical climate risk tables for the properties backing the loans in CMBS and CRE CLO transactions, including their forward-looking risk to floods, heat stress, hurricanes & typhoons, sea level rise, water stress and wildfires. 

Moody’s: U.S. Nuclear Operators Exposed to Physical Climate Risks

Physical climate hazards affect the operations and costs of nuclear plants due to their water needs and reliance on critical equipment. In its report, Nuclear Operators Face Growing Climate Risk but Resiliency Investments Mitigate Impact, Moody’s Investors Service leverages Four Twenty Seven’s physical climate risk data to explore the exposure of nuclear power plants to climate hazards, including heat stress, water stress, flooding and hurricanes. The analysis found that nuclear plant operators face physical and economic risks due to extreme events driven by climate change, and operators and owners will have to consider these risks and explore increased resilience options, as they approach license expiration and renewal processes between 2030 and 2050.
Developments in Climate Risk
Regulation & Assessment

U.S. CFTC Releases Report on Climate Risk

Last week the U.S. Commodity Futures Trading Commission released a report highlighting the economic risks of climate change and emphasizing the need for the financial system to address these risks. The first such report to be issued by a U.S. government entity, it covers both physical and transition climate risks and calls for a nationwide price on carbon. However, this comes two weeks after the U.S. Securities and Exchange Commission released updated disclosure requirements that don't include climate change.

UK Releases Consultation on Mandating TCFD Disclosure

The UK's Department for Work and Pensions released a public consultation on a proposal to mandate climate risk disclosure. The policy would require pension funds of at least £5 billion to assess and disclosure their climate risks and opportunities under several scenarios by October 2021 and would also apply to funds of at least £1 billion in 2022. Respond by October 7th.
Meanwhile, yesterday, New Zealand announced that it would mandate TCFD disclosure on a comply or explain basis by 2023.

Charting a New Climate: UNEP FI TCFD Banking Pilot Phase II Report

Last week the UNEP Finance Initiative released a report outlining phase II of its pilot project working with global banks to understand their approaches to assessing physical climate risks and opportunities and the tools and data that could best support these processes. It discusses climate risk vulnerability by sector, includes an exploration between the connection between loan performance and climate risk exposure and reviews several data providers, including Four Twenty Seven and our ongoing collaborations with Moody's Analytics.
Moody's ESG Summit: Climate Scenarios

Join Us During Climate Week NYC for a Half Day on Climate Risk

Hear from industry leaders on the latest market developments in climate change and discover new approaches to leveraging climate data and financial indicators to understand how physical and transition risks translate into credit risks. The session will include keynote presentations by Nick Anderson of IASM, Jane Ambachtsheer of BNP Paribas Asset Management and Sean Kidney of the Climate Bonds Initiative. The latter session will feature experts from Moody's, Four Twenty Seven and Vigeo Eiris, discussing new approaches to modeling climate risk and its financial impacts.

This event is hosted by Moody's in partnership with the Climate Bonds Initiative during Climate Week New York City. The session is on September 24th beginning at 9:15am EST.
Register for Free

Moody's Analytics' Launches ESG Risk Assessment Courses

Moody's Analytics' upcoming courses on ESG risk assessment include introductions to climate, environmental and social risks and their connection to credit analysis and portfolio management. These virtual, instructor-led courses will include case studies and discussions on how to assess and manage ESG risks. Topics include ESG KPIs, the Sustainable Development Goals, CO2 scope, climate risk analysis, proxy voting, climate risk disclosure and upcoming regulation.

Choose from three upcoming sessions, with options for time zones in the U.S., Europe and the Asia-Pacific regions and review the full course outline.
Inside the Office at Four Twenty Seven

Director, Sales - Jackie Willis

Four Twenty Seven welcomes Jackie Willis as Director, Sales in New York. Jackie leads Four Twenty Seven’s business development and growth strategy in the eastern United States. Jackie has spent the majority of her career in analytical and portfolio management roles in corporate and municipal finance, in the securities and banking industries at institutions such as Prudential Capital Management, TIAA-CREF, TD and Wachovia (now Wells Fargo). Most recently, she served as a Solution Specialist covering the commercial and industrial (C&I) and commercial real estate (CRE) credit risk models for Moody’s Analytics.

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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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.
 

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Moody’s: U.S. Nuclear Operators Exposed to Physical Climate Risks

Increasing physical climate hazards affect the operations and costs of nuclear plants due to their water needs and reliance on critical equipment. In its report, Nuclear Operators Face Growing Climate Risk but Resiliency Investments Mitigate Impact, Moody’s Investors Service leverages Four Twenty Seven’s physical climate risk data to explore the exposure of nuclear power plants to climate hazards, including heat stress, water stress, flooding and hurricanes.

The analysis found that nuclear power plants are vulnerable to increasing frequency of extreme weather conditions such as flooding and storm surge, due to their need for water cooling which means many plants are adjacent to large bodies of water. Technology and equipment required for safe plant operation are susceptible to damage and nuclear plants along the East Coast and the Gulf of Mexico are particularly exposed to floods from sea level rise.

Clustered in the Midwest and eastern part of the U.S., market-based plants face less risk of hurricanes or sea level rise than regulated/cost-based plants. However, they face increased heat stress and water stress which can reduce plants’ cooling capacity. The credit impact for market-based plants can be more significant than the regulated plants that are more easily able to make-up costs through rate recovery programs.

Nuclear plant operators face physical and economic risks due to extreme events driven by climate change, and operators and owners will have to consider these risks and explore increased resilience options, as they approach license expiration and renewal processes between 2030 and 2050.

Moody’s subscribers can read the full report here.

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To learn more about Four Twenty Seven’s climate risk data, check out our solutions for investors, banks and corporations or read our report on Assessing Global Wildfire Potential.

Panel Recording: Electric Vehicles, Green Public Travel

This Responsible Investor Digifest panel features a discussion on the time frame for adoption of evolving electric vehicle technology, the improvements of green mass transit, how this affects carbon transition risk and the investment impacts and credit rating implications of the transport revolution.

Speakers

  • James Leaton, Vice President and Senior Credit Officer of Moody’s discusses the future of mobility and its cross-sector credit implications.
  • William Todts, Executive Director of Transport and Environment, highlights prominent issues to consider post-COVID-19 in the transport space.
  • Joy Williams, Senior Advisor of Mantle 314, shares investor and analyst perspectives on navigating resilience.
  • Moderator: Daniel Brooksbank, Head of Strategic Content, Responsible Investor

Newsletter: Will There be a Green Recovery?

Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we discuss the potential for a green recovery, highlight ways in which asset owners can leverage Four Twenty Seven's Physical Climate Risk Application and share recent and upcoming webinars.

In Focus: Will There be a Green Recovery?

Governments Include Climate Measures in Recovery Efforts

As many EU leaders commit to pursuing Europe's Green deal alongside recovery efforts, already approved measures in European countries also mandate that corporations consider climate goals during their use of relief funds. As part of its green recovery programs Germany invited over 400 listed companies to participate in a research project on how these firms are aligned with the EU Taxonomy, currently focused on climate mitigation and adaptation activities.

Meanwhile, Canada requires that large corporations commit to filing TCFD-aligned climate risk disclosures to receive specific bailouts. China's Politburo Standing Committee has endorsed new infrastructure spending of $1.4 trillion over five years for several low-carbon technologies such as electric vehicle charging, high-speed rail and others. However, the details and implementation are still unclear, with provincial governments having significant control, and many still in favor of traditional energy.

Low interest rates do make this a particularly good time for governments to invest in resilience and green infrastructure, with substantial return on investment over time. Though in the U.S. there is less indication that stimulus efforts will include significant measures to support a green recovery, with any current action coming scattered from some states. However, if Biden is elected in November the situation may change in the U.S. Biden's appointment of Alexandria Ocasio-Cortez as co-chair of his climate task force could signal an intent to favor green jobs to help the economy recover.

Moody's Webinar: COVID-19 and Climate Change

During last week's webinar Founder & CEO, Emilie Mazzacurati, joined Rahul Gosh, SVP, Credit Research & Strategy at Moody's, to discuss what organizations can learn from the pandemic to help prevent and prepare for climate change. Emilie discussed the impact on emissions, government responses and how these events can help companies understand the implications of carbon transition risk. Register for the webinar to watch the replay.
How Can Asset Owners Manage
Climate Risk?

Use Case - Climate Data for Risk Management in Real Asset Portfolios

As regulatory pressure to assess and report climate risks picks up, and physical climate hazards increasingly result in financial damage, asset owners face the daunting challenge of leveraging climate data for financial decision-making. Real estate, infrastructure, agriculture, timber and other real assets have long been an integral component of an asset owner’s portfolio due to their returns and the diversification they offer to the overall fund. However, many real assets are highly vulnerable to physical climate risks. These risks manifest in direct and indirect ways, including increased costs, reduced revenues and decreased asset value.

Evaluating an asset’s exposure to physical climate hazards is challenging, yet also an essential first step in managing climate risks. Four Twenty Seven’s Physical Climate Risk Application allows investors to assess exposure to floods, sea level rise, hurricanes & typhoons, heat stress and water stress at the asset and portfolio levels. Asset owners leverage hazard exposure scores to identify regional and sectoral trends as well as specific hotspots. Flexible viewing options and digestible data provide insight for portfolio risk assessments and due diligence processes. This new case study explores how, armed with climate risk data at decision-relevant scales, asset owners can begin to manage their risk. 
 
Read the Case Study
Regulatory Updates

Bank of England Postpones Climate Stress Tests

Earlier this month the Bank of England and the Prudential Regulatory Authority postponed its climate-related stress tests until at least mid-2021 to allow banks and insurers to focus on COVID-19 recovery efforts. The announcement emphasized the ambitious scope of the stress tests and the hope that the delay will allow firms to invest sufficient resources in the exercise when the time comes.

European Central Bank Publishes Guidance on Climate Risk Disclosure

Yesterday, the European Central Bank (ECB) published guidance asking banks to disclose their climate-related risks and integrate these risks into their risk management processes. Compliance will be expected when the guidelines are finalized at the end of the year. The ECB has solicited feedback through a public consultation open until September 25.

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.

European Commission Consultation on Climate Adaptation

As part of its Green Deal the European Commission has launched a climate adaptation strategy to encourage eco-friendly investments and build resilience. It is refining the initiative and soliciting feedback through a public consultation. Respond by June 30.
Four Twenty Seven Shortlisted in Waters Ranking 2020

Vote for Four Twenty Seven as Best Alternative Data Provider

Four Twenty Seven is honored to be short-listed in the Best Alternative Data Provider category in the 2020 Waters Rankings.
This readers' choice award recognizes the capital markets' leading technologies and providers. We'd be grateful for your vote! You can vote here before May 29. 
Webinars on Integrating Climate Risk into Financial Decision Making

IIF Webinar Recording: Quantifying the Impacts of Climate Change

This Institute of International Finance webinar (IIF) features Emilie Mazzacurati, Founder & CEO of Four Twenty Seven, and Jing Zhang, Managing Director, Global Head of Quantitative Research at Moody’s, as they provide an overview of Moody’s climate risk solutions on the financial impacts of climate change. Watch now.

AllianceBernstein Webinar: Incorporating Climate Change into Investment Research

Please join us for a discussion about how the investment value chain is incorporating climate change into decision-making. Sara Rosner and David Wheeler, of AllianceBernstein, will discuss their collaboration with Columbia University on climate change and highlight the climate theme in their sustainable portfolios. Martina Macpherson, of Moody’s, will provide an overview of the current market environment and Moody's ESG and climate efforts, and Emilie Mazzacurati will present a deep dive into climate risk analytics. This webinar is next Wednesday, May 27 at 2pm BST / 9am EST / 6am PST. Register here.
Inside the Office at Four Twenty Seven

UK Sales Director - Ben Boukhobza

Four Twenty Seven welcomes Ben as UK Sales Director. Ben leads Four Twenty Seven’s business development and growth strategy in the United Kingdom and Ireland.

Ben leverages ten years of experience across various roles within the Commercial Group at Moody’s Investors Service (MIS). Most recently Ben led the EMEA Sales Support team, having previously held roles ranging from sales and account management to operations and technology.

Join the team! Four Twenty Seven is Hiring

There are several opportunities to join Four Twenty Seven's dynamic team. See the open positions below and visit our Careers page for more information.
  • Project Manager with excellent leadership skills and proven experience coordinating activities across teams of different disciplines within research, content and technology
  • Regional Sales Director (North America) with extensive experience selling and supporting data products and services for large commercial, financial and government institutions
Upcoming Events

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

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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.
 

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How Can Asset Owners Manage Climate Risk?

Introduction: Why Climate Risk Matters for Asset Owners

In the world where quarterly corporate reporting makes it feel like financial markets are ruled by short-termism, asset owners stand out in contrast, managing their portfolios with horizons in the decades and even longer. With trillions in assets under management and the long-term well-being of their beneficiaries and other stakeholders as their goal, asset owners’ risk management practices must be robust.  This includes the consideration of factors beyond traditional financial metrics. While their long horizon allows asset owners to withstand short-term volatility, their portfolios may be exposed to higher levels of other risks, including those posed by a changing climate, which is not necessarily accounted for in asset prices.

Additionally, regulatory actions like the EU Action Plan on Sustainable Finance, growing global support of the Task Force on Climate-related Financial Disclosures (TCFD), and groups like the Network for Greening the Financial System, whose members include 42 central banks and supervisors, are pushing investors of all stripes to take physical climate risks into account, warning of dire systemic consequences if climate risks continue to go unpriced.

With climate risk moving from the fringes of finance to center stage, the challenge is to translate climate models and climate data into actionable intelligence for financial decision-making. Climate models are complex, incorporating information from many disciplines of earth science, and their outputs are unwieldy. However, when transformed into indicators at appropriate scales and timeframes, climate data provides essential forward-looking information for financial decision-makers.

Assessing Exposure to Inform Risk Management

Evaluating an asset’s exposure to physical climate hazards is challenging, yet also an essential first step in managing climate risks. Four Twenty Seven’s Physical Climate Risk Application (Application) allows investors to assess exposure to floods, sea level rise, hurricanes & typhoons, heat stress and water stress at the asset and portfolio levels. Asset owners leverage hazard exposure scores to identify regional and sectoral trends as well as specific hotspots. Flexible viewing options and digestible data provide insight for portfolio risk assessments and due diligence processes. Armed with climate risk data at decision-relevant scales, asset owners can begin to manage their risk.

Climate Data for Portfolio Management

Real estate, infrastructure, agriculture, timber and other real assets have long been an integral component of an asset owner’s portfolio due to their returns and the diversification they offer to the overall fund. However, many real assets are highly vulnerable to physical climate risks. These risks manifest in direct and indirect ways, including increased costs, reduced revenues, and decreased asset value.

Asset owners use Four Twenty Seven’s Application to evaluate forward-looking physical climate risk exposure. For example, the portfolio-specific summary table in Figure 1 provides a snapshot of exposure and serves as the starting point for the analysis of physical climate risks.  In this portfolio, hurricanes & typhoons, earthquakes, heat stress and water stress are the most prevalent hazards.

While asset owners frequently emphasize the hazards they view as most financially material—for instance floods, hurricanes, and sea level rise—heat stress and water stress can also have material financial impacts. For instance, a major heat wave across Europe in the summer of 2019 demonstrated how increasing temperatures can cause business disruptions and raise operating costs. Absent retrofits to address climate risks in European real estate, the total increase in energy bills for commercial buildings could potentially cost $300 billion (£457 billion) by 2050. Water stress, another potentially overlooked risk, can threaten the long-term operations of assets like thermal power plants that rely on large amounts of water for cooling. For example, Moody’s found that 11 major U.S. utilities representing over $31 billion in rate base have extreme risk to water stress, which has already caused some power utilities to retire capital-intensive generation facilities early.

In addition to providing an entry point for further analysis, metrics in the summary table are useful for risk reporting. As reporting requirements develop, outputs from the Physical Climate Risk Application will empower asset owners to effectively describe asset exposure, communicate how risks are being managed, and characterize their portfolios’ overall climate risk and resilience strategies.

Asset owners can also identify exposure hotspots, explore sectoral trends, and dive deeper into the exposure of individual assets. Figure 2 shows the same portfolio ranked by highest flood risk score. Floods can raise costs, cause business disruption, and decrease asset values.

Using the data in Figure 2, asset owners can consider shortening their holding periods for assets with the highest levels of exposure, ensure that they have appropriate insurance coverage, and evaluate if coverage or premium prices may rise in the future. As the climate changes, insurers’ risk tolerances may also reach their limits and they may seek to exit markets. It is thus essential for asset owners to monitor the evolving landscape. Beyond evaluating potential changes to insurance, asset owners can also use this data as an entry point for engagement with a building manager, to better understand the site’s flood history and investigate if the asset has flood defenses.

Institutional investors understand that, over the typical commercial real estate hold period of seven to ten years, the next buyer of their building is likely to be concerned by climate risk as well. The Application equips asset owners with the exposure data they need to make sure their portfolios are resilient to climate risks and continue to provide the returns they need and expect from the asset class.

Climate Data for Due Diligence

Beyond analyzing portfolios of existing holdings, the application’s real-time scoring allows asset owners to quickly incorporate physical climate analysis into their due diligence processes for new acquisitions. In addition to providing easily digestible, high-level screening results, granular climate data allows clients to continue to invest, for example, in valuable coastal markets with known exposure. Figure 3 shows exposure of nine facilities in Tokyo, where the combination of storm surge and sea level rise could cause $1 trillion (100 trillion yen) in damages in a 1-in-100 year storm. Because the sea level rise (and flood) data featured in the Application is at a scale of 90 x 90 meters, investors do not need to eliminate entire markets from their investment strategies. Rather than exiting a profitable market, asset owners can use the Four Twenty Seven Physical Climate Risk Application to selectively invest in assets with lower exposure.

Asset owners often use Four Twenty Seven data to set their own internal thresholds for further due diligence. Using the detailed site information, as shown in Figure 4, as well as the downloadable scorecard, analysts can quickly understand which hazards to investigate further.

Some investors require further due diligence for any assets that receive “High” or “Red Flag” scores. Deal teams may be tasked to investigate asset-specific features that would make it more resilient to specific climate hazards, such as freeboard above base flood elevation, onsite power generators, or water efficiency measures.

Conclusion

Real assets, whose time horizon of returns aligns well with the investment goals of asset owners, are exposed to physical hazards, which will continue to become more frequent and severe. Exploring asset-level climate hazard exposure is the first step to analyzing and ultimately managing physical climate risk. As regulation around climate risk rapidly evolves, mandates to monitor and report these risks will also expand. Equipped with a detailed understanding of their portfolio holdings’ exposure, asset owners are empowered to make better-informed investment and risk management decisions, ultimately enhancing the resilience of their portfolios to physical climate risk.

Download this case study.

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Four Twenty Seven offers on-demand physical climate risk scoring for real assets and other climate risk datasets for investors to assess their risk across asset classes. Learn more about Four Twenty Seven’s data or reach out to schedule a demo.