Newsletter: Bank of England Publishes First Stress Test for Climate Risks

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature developments in scenario analysis for physical risks, highlight the European Union's guidance on climate risk disclosure and share the latest on financial climate risk and the need for resilience.

In Focus: Scenario Analysis for Physical Risk

Bank of England Publishes First Climate Risk Stress Test

Yesterday the Bank of England released specifications for integrating climate risk scenarios into its insurance industry's biennial stress tests. This "exploratory" exercise is an enormous step towards catalyzing a growing understanding of possible impacts of transition and physical climate risks on financial assets.

The guidance lays out potential impacts by providing sector-specific percentages of potential loss under three scenarios by sector and by region. These quantitative financial impact assumptions are not a projection but a starting point for the insurance industry to explore potential impacts of climate change on their portfolios.

The Bank of England leveraged Four Twenty Seven's analytics on climate risk exposure in equity and real estate markets to inform its assumptions about which sectors will experience the largest impacts. We explain how data on risk exposure in equities can be leveraged for this type of analysis in our new blog series on scenario analysis.

The Bank of England also recently released a practitioner's guide for assessing the financial impacts of physical climate change, to help the insurance sector address climate risks.

Blog Series: Scenario Analysis for Physical Climate Risk

Our new blog series provides our reflections on how corporations and financial institutions can integrate physical climate risk into scenario analysis. Scenario analysis for physical risk is fundamentally different from transition risk. Corporations and investors increasingly recognize the need to integrate physical risk into scenario analysis but are looking for guidance and best practices on how to proceed.

Our first blog focuses on the foundations, demonstrating how characteristics of climate science affect how climate data can be used to inform scenario analysis. We argue that because physical risks over the next 10-20 years are largely independent from policy decisions and emission pathways, investors would be better served by scenario analysis that focuses on the inherent uncertainty of projected impacts, independent from assumptions on GHG emission scenarios. 

The next blog focuses on Equity Markets, with concrete examples of how available data can inform financial stakeholders ready to start putting scenario analysis into action. We look at data on climate risk exposure by sector to explore how climate risk analytics can inform early developments of stress test assumptions, as done by the Bank of England.  
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EU Technical Expert Group
Releases Guidance
Yesterday the European Commission released its final guidance on integrating climate change into corporate disclosuresThis guidance applies to 6,000 companies, banks and insurers in Europe and maps to the TCFD recommendations. The guidance includes key recommendations from Advancing TCFD Guidance for Physical Risks and Opportunities, published by the European Bank for Reconstruction and Development (EBRD) and GCECA last year, for which Four Twenty Seven was a lead author. 
The EU also released the Technical Expert Group (TEG) report on a taxonomy for activities that contribute to climate adaptation and mitigation. The taxonomy aims to help investors and policymakers understand which economic activities contribute to the transition to a low-carbon economy, through both mitigation and resilience. It outlines qualitative screening criteria to identify adaptation of economic activities and adaptation by economic activities, providing activity-specific examples for a range of sectors. The proposed taxonomy is still under legislative review.
Second TCFD Status Report
While more firms are releasing TCFD disclosures, investors call for an increase in informative disclosure of the financial impact of climate risks. The Task Force on Climate-related Financial Disclosures (TCFD) released its second progress report earlier this month, emphasizing that the quality of risk disclosures must continue to improve as firms build their understanding and capacity to address climate risks. 91% of surveyed firms said they plan to at least partially implement the TCFD recommendations, but only 67% plan to complete implementation within the next three years. This progress must be accompanied by continued knowledge sharing and research on financial risk pathways for climate impacts, meaningful exposure data and best practices for reporting.

Even as TCFD reporting increases, quantitative assessment of physical risk exposure lags behind. Explore physical climate risk reporting by French firms in our analysis of physical risk in Article 173 reports and stay tuned for Four Twenty Seven's forthcoming analysis on physical risk disclosure in TCFD reports.
Investors Factor Climate Risk into Decisions
The past month has seen a flurry of news around the business risks of climate change and the financial sector response. CDP's annual climate change report estimates that 215 companies could incur around $1 trillion in climate-related costs if they don't prepare for these impacts. Companies expect these costs to begin accumulating in around five years. While some are not yet acting, others are, such as Japanese Hitachi Ltd preparing for increased rainfall in Southeast Asia and Brazilian Bank, Banco Santander, considering how increased water stress may damage borrowers' ability to repay loans. 

Alison Martin of Zurich Insurance Group told a meeting of CFOs that physical risks such as drought, extreme heat and flooding will be "incredibly meaningful." She emphasizes that the first step in integrating climate change into planning is for a company to understand its risk exposure. Meanwhile investors say they are increasingly factoring physical climate risk into their decision-making to minimize their risk and increase returns. Four Twenty Seven's on-demand scoring of real assets and analysis of asset-level risk in equity portfolios enables both corporations and investors to understand their exposure and strategically address physical climate risks.
Devastating Impacts Call for Preparation

Catastrophic Midwest Flooding Has Rippling Impacts

At the end of May only 58% and 29% of the U.S. corn and soy crops had been planted respectively. After persistent flooding beginning in Mid-March, inundated fields delayed planting. This means that some farmers will miss the planting window, which closes in June due to the heat and dryness of later summer months.
Those crops that do get planted will have to overcome soggy soil conditions and will remain at the peril of the summer's weather. It's already clear that this will be a below average crop yield, which translates into  more expensive corn in cattle feed and higher prices in grocery stores.

The Climate Connection

While the Mississippi River continues to swell, extreme precipitation has recently hit Houston and the Southeast with damaging floods. The past 12 months have been the wettest on record for the U.S. The national average of 37.7 inches since last June is 7.7 inches above average. 
A weak El Niño likely contributed to increased rainfall, but climate change also plays a role as warmer air holds more water. This month also saw record high temperatures in the western U.S., caused by a bulging jet stream making warm air flow south to north. While this does happen naturally, it may be happening more often due to warming ocean waters. This jet stream activity also contributes to other extreme events like the Midwest flooding.

The Need to Rethink Preparedness

From floods and heat waves to fires and hurricanes, federal recovery efforts for extreme events have cost almost half a trillion dollars since 2005. As disasters become more common and costs increase, there is an urgent need to invest in resilience proactively rather than spending billions on recovery. Last fall's Disaster Recovery Reform Act made an
important step by allowing FEMA to use a small portion of its disaster relief funding for risk mitigation ahead of disasters. However, this is the start of what must be a systemic shift in addressing extreme events. “If we don’t want to spend hundreds of billions of dollars on recovering for disaster, we need to spend tens of billions [on resilience],” Four Twenty Seven Strategic Advisor, Josh Sawislak, told Bloomberg.

"There is a silver lining to our climate challenges — economic growth. Americans are very good at innovating and building and we can leverage our need to be more resilient by growing the economy with good resilient and sustainable jobs," Sawislak wrote.
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Copyright © 2019 Four Twenty Seven, All rights reserved.
Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

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Scenario Analysis for Physical Climate Risk: Equity Markets

In this second installment of our blog series of scenario analysis, we focus on how investors can start exploring impacts on portfolios of listed equities/fixed income with existing climate risk analytics. The series provides our current reflections on how corporations and financial institutions can integrate physical climate risk into scenario analysis. The first installment, on foundations, focuses on important characteristics of climate science that affect how climate data can be used to inform scenario analysis for economic and financial risk. A forthcoming post will discuss scenario analysis at the asset level for real asset investments and corporate facilities.

Scenario Analysis Serves Different Purposes

Scenario analysis serves different purposes for real asset investors and for equity or fixed income investors. When looking at a single real asset, scenario analysis can be used to inform very concrete decisions regarding the asset, working directly with the asset operator: whether and what flood protections to put in place, insurance requirements, anticipated impacts on operational costs from water and energy consumption, etc.

In contrast, for an equity or fixed income portfolio, investors’ influence on the resilience of the underlying asset (e.g. a corporation or a sovereign entity) is much more limited. In a previous publication we discussed the importance of shareholder engagement with corporations as a key channel for investors to help raise awareness of rising risks from climate change, and encourage companies to invest in responsible corporate adaptation measures. Investors, however, would be hard pressed to run scenario analysis on individual portfolio companies themselves, and disclosures from corporations on scenario analysis remain weak and fragmented.

Meanwhile, prudential authorities in Europe have been signalling expectations that insurers and banks perform scenario analysis on their portfolio to examine potential impacts of climate change, to understand how different climate-driven outcomes might prevent the insurers and lenders from meeting their financial obligations. Most recently, in April, the Bank of England Prudential Regulatory Authority (PRA) released a proposed set of specifications for scenario analysis that includes some simplified assumptions on climate impacts on financial portfolios.

In this piece we examine how available climate risk analytics can be leveraged to inform early attempts at developing stress test assumptions and simulate potential outcomes on investment portfolios aligned with the relative exposure of corporations by sectors and by regions.

Climate Risk Analytics for Equities/Fixed Income

We leverage our data on corporate physical risk exposure to determine what assumptions can be made in this type of early stress test. In this piece, we analyze the climate risk scores for 1730 of the largest companies in MSCI All Country World Index (ACWI). This physical risk assessment is based on the exposure of the underlying database of about a million facilities globally.

We score each company on three components of physical climate risk: Operations Risk, Supply Chain Risk and Market Risk.

427 Methodology Chart
Figure 1. 427 indicators for physical climate risk exposure in corporations (equities/fixed income)
  • A company’s Operations Risk is based on its facility-level exposure to hurricanes & typhoons, sea level rise, floods, extreme heat and water stress. The analysis also considers the sensitivity of different types of facilities. For example, manufacturing plants with their high energy demands are more sensitive to extreme heat than offices.
  • Supply Chain Risk is based on the risk in countries that export commodities that the company depends on and a company’s reliance on climate-sensitive resources such as water, land and energy, based on its industry.
  • Market Risk is based on where a company’s sales are generated and how its industry has historically been impacted by weather variability.

Scores are normalized, with 0 being the least exposed and 100 being the most exposed. (For more details, please refer to our previous report Physical Climate Risk in Equity Portfolios as well as our Solutions page)

In line with considerations of relevant time horizons and of impacts being locked in over the climatic short term (detailed in Part 1), our standard equity risk score data considers projected climate impacts in the 2030-2040 time period under a single RCP scenario, RCP 8.5 (the worst case scenario, also known as business as usual), but leverages several climate models.

From Climate Hazard Exposure to Financial Impacts

Studies of how physical climate hazards translate into financial impacts at the company level are scarce. While a growing body of research explores the complex relationships between climate hazards and economic impacts, which vary by sector and by region, academic research on the relationship between climate events and corporate/stock performance, at scale, is still limited. Our approach focuses on leveraging what can be estimated in a robust, data-driven way: relative exposure of companies to climate hazards.

Our analysis of global corporations shows the relative exposure of industries to climate related risks across all three dimensions: operations risk, market risk and supply chain risk (Table 1). This table shows the sectors with the highest exposure, including manufacturing, infrastructure (utility, energy, transportation), and industries with high dependency on natural resources (food, apparel).

Table 1. Industries most exposed to physical climate risks . Source: Four Twenty Seven.

Services, not shown in the table, are not only less exposed, they’re also far less sensitive to changes in climatic conditions, with the exception of the financial sector, which holds the risk of all the other sectors in its investment, lending or insurance portfolios. Note that real estate is not included in this analysis, but data on regional exposure in that sector can be found in our white paper on climate risk in real estate.

These differentiated impacts by sectors can lay the foundations for a stress test, as industry risk levels can be used to set initial assumptions on sector-wide impacts. Following the example set out by the Bank of England’s PRA, for example, investors could assume that sectors with high exposure might see a 10% or 20% drop in value, whereas sectors with medium exposure would see half of that impact. These assumptions are not intended to substitute for financial impact modeling, but provide a shortcut to test how a portfolio might perform under climate-driven duress.

Drivers of Exposure to Physical Climate Risk

While some sectors overlap with those examined in scenario analysis exercises for transition risk, such as utilities and energy, other sectors with high exposure are not typically included in scenario analysis, like tech manufacturing or pharmaceuticals. Understanding the nuances of the risk pathways in each sector and their relative exposure to different hazards is critical to refining assumptions and developing models that can quantify value-at-risk by sector with some accuracy.

Manufacturing companies in the tech sector rely on complex value chains that can be interrupted by extreme weather events, particularly in Asia, which is a region highly exposed to typhoons and extreme precipitation. They also often produce expensive and water sensitive products using costly machinery and can incur costs and damages from extreme events on site.  Pharmaceuticals are particularly exposed because of the prevalence of their manufacturing in water-stressed regions (India, California) and regions highly exposed to hurricanes & typhoons. For example, damaged manufacturing sites in Puerto Rico had rippling impacts on pharmaceutical operations globally during Hurricane Maria in 2017. Pharmaceuticals is also one of the groups with the most weight in the MSCI ACWI, making this exposure particularly significant (Fig 2).

Figure 2. The average company risk score by GICS Industry Group, with Operations Risk on the y-axis and Market & Supply Chain Risk on the x-axis. Red represents those industries with the highest exposure, green represents those with the lowest exposure and the size of the bubble signifies an industry’s weight in the MSCI ACWI.  Source: Four Twenty Seven.

In the utility sector, the nature of the exposure is very different from that observed in transition risk analysis: carbon neutral power generation can be as exposed as thermal generation – for example due to water stress or floods for hydro facilities. In addition, utilities rely on expensive equipment, such as cables, poles, fuel storage and pipes that are often exposed to severe weather and sensitive to extreme conditions. Their operations are also resource-intensive, relying heavily on energy and water for cooling. They can experience operations disruptions during peak energy demands or due to equipment damage during storms.

The exposure of the automobiles & components sector has been illustrated by recent flooding in Japan. Automobile companies rely on manufacturing processes and machinery that can be interrupted due to flooding or hurricane damage, but their reliance on employee labor also makes these companies vulnerable to the wider regional impacts of extreme events. For example, during Japan’s extreme flooding in July 2018, Mazda was forced to halt operations at some of its facilities that were not physically damaged themselves, because its employees could not travel safely to work.

Conclusion

Climate change calls for a better understanding of impacts of physical hazards on financial markets, which remains a topic largely unexplored. Yet as regulators push insurers and banks towards the integration of climate scenarios into stress testing, robust, data-driven views on the relative exposure of sectors or regions provide a helpful foundation from which to explore the potential impacts on equity and fixed income portfolios.

Over time, better data will become available as academic and industry providers develop models that capture the nuances of climate impacts on different industries and geographies, but also as companies make a concerted effort to disclose better data on their past and anticipated financial exposure to extreme weather and climate-related events.

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Four Twenty Seven’s data products and portfolio analytics support risk reporting and enable investors and businesses to understand their exposure to physical climate risks across asset classes.

Newsletter: Central Banks Lead the Way on Climate Risk Disclosures

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we explore the second year of Art. 173  reports, highlight regulators'  action on climate risk and share new findings on financial climate risk in Asia.

In Focus: Lessons Learned from Art. 173 Reporting - An Update

Physical Risk Analysis is Stronger in Art. 173's Second Year

The second year of reporting under Article 173 in France saw increased analysis of physical climate risk, but there is still substantial room for improvement. We reviewed disclosures from 49 asset owners in France, finding that almost half of the respondents conducted more substantial physical risk analysis compared to last year. Insurance companies AXA and Generali provided the most detailed analysis for property portfolios, adding to their previous methodology. FRR and Comgest provided the most thorough assessment of physical climate risk in their investment portfolios and BPCE Group was the only bank with a complete analysis of physical risk.

Many firms still cite lack of data and tools as a barrier to adopting thorough analysis of physical risks. Those firms that are on the forefront of climate risk reporting disclose asset-level risk exposure and are beginning to explore how to assess value at risk and scenario analysis for physical climate risks, which are emerging as key research topics.
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TCFD Moving the Market

While French firms are refining their climate risk disclosures, other companies across Europe are beginning to report on climate risk. 30 out of the top 80 companies in Europe made statements in support of TCFD and/or released disclosures, according to the Climate Disclosures Standard Board's review, First steps on climate-related financial disclosures in Europe. Only seven of these firms addressed physical risks.

ClimINVEST reviews developments in physical climate risk assessment in the financial sectors of France, the Netherlands and Norway, finding that common needs across these countries include in-house capacity building, improved risk assessment tools, increased understanding of the impacts of extreme events & guidance on corporate engagement. The report also reviews the landscape of physical risk data providers, including Four Twenty Seven.

How do these developments in TCFD reporting affect the greater landscape of financial risk disclosure and management? In its winter issue the Climate Change Business Journal interviewed Founder & CEO, Emilie Mazzacurati, about the history of the TCFD, it’s uptake to-date and how the recommendations influence other developments on risk disclosure. Emilie says, “The market is in exploratory mode: this is an emerging issue, and the collective understanding of impacts on corporations and financial markets is fast evolving. What is clear, however, is that this is a very material issue, and that is here to stay.”
Central Banks and Regulators Take Action

A Call for Action: Climate Change as a Source of Financial Risk

In its first comprehensive report, the Network for Greening the Financial System (NGFS) makes the case for climate change as a material financial and economic risk and outlines six recommended actions. The first four are directed at central banks and supervisors: integrate climate risks in financial stability monitoring, set an
example by assessing risks in central bank portfolios, promote the growth of publicly available data and encourage continued research and knowledge sharing on climate risks. The report makes two final recommendations for policy-makers: encourage continued uptake of climate risk disclosures, in line with the TCFD and develop a taxonomy of activities that support the transition to a resilient low-carbon economy and those that are highly exposed to climate and environmental risks. 

Integrating Physical Climate Risks into Insurance Stress Tests

In April the Bank of England Prudential Regulation Authority (PRA) released a policy statement responding to feedback it received on its consultation paper "Enhancing banks' and insurers' approaches to managing the financial risks from climate change," and including the final Supervisory Statement on the topic. PRA also released a request for technical input to life and general insurers on draft scenario guidelines for the 2019 insurance stress test.
The draft outlines three scenarios, including a sudden disorderly transition, a long-term orderly transition and a "hot house" scenario without transition and lists metrics of physical risk hazards and transition risk for each scenario. Feedback from industry participants is requested by May 31. 

Survey of French Banks and Insurers on Climate Risk

The French banking supervisor, ACPR surveyed French banks and insurers on their management of climate-related risks. The analysis found that governance of risks is improving significantly, slowly shifting from a corporate responsibility perspective to an integrated element in risk management strategies. However, this is not yet consistent and has yet to lead to operational adaptation for businesses.
While banks and insurers have made significant progress on assessing transitition risk, progress in undertanding physical and liability risks is much slower. In response to these findings ACPR will establish two working groups with the financial sector, one on governance of climate-change related risks and another on risk metrics and scenario analysis. 

Climate Change: Awareness to Action

The Australian Prudential Regulation Authority (APRA) surveyed 38 regulated entities including authorized deposit-taking institutions, superannuation firms and insurers on their risk perceptions, governance, strategy, risk management, metrics and targets and disclosures. Firms identified several opportunities associate with climate risk response: positioning themselves as
industry leaders, developing new products and promoting community resilience. Over 50% of respondents are conducting financial analysis of key risks. Many cite data limitations, resource constraints, regulatory uncertainty and lack of defined terms and methods as barriers to conducting scenario analysis. 

Climate Change and the Federal Reserve

"In short, climate change is becoming relevant for a range of macroeconomic issues, including potential output growth, capital formation, productivity, and the long-run level of the real interest rate," writes Glenn D. Rudebusch of the Federal Reserve Bank of San Francisco. His economic research letter highlights the ways that climate risks are pertinent for monetary policy, encouraging continued research on the financial impacts of climate change hazards. 
Asian Investors Exposed to Water-Related Climate Risk

Are Asia's Pension Funds ready for Climate Change?

Asia's financial sector faces unique climate risks due to the population's concentration in large urban areas highly exposed to climate risk and their economies' reliance on water, a threatened resource. China Water Risk, Manulife Asset Management and the Asia Investor Group on Climate Change, released a new report exploring the drivers of climate risk exposure for asset managers in Asia and recommending strategies to build resilience.

They found that public pension funds, sovereign wealth funds and central banks tend to have portfolios concentrated in their domestic markets, which are also highly exposed to climate risks. The export economies of India and China are particularly vulnerable to water stress, and businesses must prepare for the shift in economic policy towards more resilient industries. In light of high exposure to climate impacts that are already locked in, financial actors should promote adaptation finance, assess their portfolios' physical risk exposure and engage with companies and industry initiatives.
Yale 2019 Symposium on Sustainable Finance Call For Papers
The Yale Initiative on Sustainable Finance is seeking papers for its 2019 Symposium on "The State of Play in ESG Investing.” They will consider empirical research papers, literature reviews or position papers from scholars, practitioners and industry experts. Selected authors will be asked to present at the symposium in November. Specific focal topics within the broad theme of ESG investing include: environmental and social impact metrics; portfolio-level ESG assessment and metrics; ESG in financial disclosures; future reporting frameworks for ESG information; private equity and ESG; and social- and green-impact bonds. Abstracts are due by May 17
Upcoming Events

Join the Four Twenty Seven team at these events:

  • April 30 - May 1  – Ceres Conference 2019, San Francisco, CA: Meet with Founder & CEO, Emilie Mazzacurati on Wednesday.
  • April 30 – NAREIM Sustainability & Investment Management, Chicago, IL: Chief Operating Officer, Colin Shaw, will present on climate risk data for real estate at this gathering of the National Association of Real Estate Investment Managers. 
  • May 1 – Addenda Capital Investor Day, Toronto, Canada: Colin Shaw will present on physical climate risk. 
  • May 9 – Addenda Capital Investor Day, Montreal, Canada: Emilie Mazzacurati will present on physical climate risk. 
  • May 9 –  PRI Reporting Consultation Workshop, San Francisco, CA: Editor, Natalie Ambrosio, will participate. 
  • May 14 – Northern European Partnership for Sustainable Finance Conference, Stockholm, Sweden: Director, Europe, Nathalie Borgeaud, will attend.
  • May 16 - 17 – EPRI Energy and Climate Research Seminar, Washington, DC: Yoon Kim will present on climate risks in the power system. 
  • June 4 - 7 – Innovate4Climate, Singapore: Yoon Kim will present on climate risk and resilient infrastructure. 
  • June 10 - 12 – US SIF Annual Conference, Minneapolis, MN: Senior Analyst, Lindsay Ross will attend.
  • June 11 - 12 – RI Europe, London, UK: Hear Emilie Mazzacurati present on scenario analysis for physical climate risk and meet with Director, Europe, Nathalie Borgeaud, at Four Twenty Seven's booth.
  • June 19  – Columbia University and PRI Private Round Table, New York, NY: Emilie Mazzacurati will discuss stress testing for physical climate risks at this workshop.
  • June 19 - 21 – Columbia University - At What Point Managed Retreat? New York, NY: Lindsay Ross will attend.  
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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

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Article 173: Lessons Learned from 2018 Climate Risk Disclosures in France

April 30, 2019 – 427 ANALYSIS. The second year of reporting under Article 173 in France saw increased uptake of disclosures of physical risk. Our review of 2018 disclosures from 49 asset owners in France shows that almost half of the respondents conducted more substantial analysis of their exposure to physical impacts of climate change compared to last year. We find insurance companies Axa and Generali provided the most detailed analysis for property portfolios, while FRR and Comgest provided the most thorough assessment of physical climate risk in their investment portfolios and BPCE Group was the only bank with a complete analysis of physical risk.

Art. 173: A Second Year of Mandated Climate Risk Reporting

2018 was the second reporting year under Art. 173  of the French Law on Energy Transition and Green Growth, which was passed in August 2015. It requires major institutional investors and asset managers to explain how they take Environmental, Social and Governance (ESG) criteria, including climate change, into account in their risk management and investment policies.

Art. 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 reporting on both physical impacts of climate change and transition risks (impact of the transition to a low-carbon economy).

We carried out a desktop analysis of the 2018 reports (applying to 2017 portfolios) to understand how financial institutions responded to the requirements laid out by Art. 173 and how their reporting has evolved since last year. We reviewed 49 asset owners in France, including public pension funds, asset managers and insurance companies, with an aggregate €5.5 trillion euro ($6.8tn) under management. Our analysis included all public entities covered by the Art. 173, as well as private insurers with over €2bn in assets under management. 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.

Art. 173 Reporting Trends in Year Two

Who Reported?

We were able to find Art. 173 reports for 36 out of 49 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 for companies to not publish reports if they can justify that climate change is not a material risk, or to solely file their reports with the regulator rather than releasing them.

We found twenty five Art. 173 reports from insurance companies, five from pension funds, two from asset managers and four reports issued by banking institutions. We also found a press statement from HSBC that mentioned an Art. 173 report but we were unable to find the report itself and did not include it in the analysis.

Figure 1. The percent of firms releasing more thorough analysis of physical climate risks (teal), similar assessments (orange) and less complete assessments (blue) compared to last year. Source: Four Twenty Seven

Did Firms Change Their Disclosure Strategy?

Overall, 23 companies (47%) have made significant improvements in their disclosure since last year. These companies have either kept the same methodological framework and refined it or have published substantially more comprehensive reports than last year. Among them, two firms, Groupe Macsf and Carac, have published a report for the first time. Only four companies (8%) have provided reports which were less complete than last year, including one company for which we found a report last year, but not this year.  45% of the firms published reports which were very similar to last year.

How Did Firms Report This Year?

Table 1 presents a detailed breakdown of how insurance companies and asset managers have taken physical climate risks into account in 2018 reports.

12 organizations (25%) only discussed their carbon footprint or their exposure to energy transition risk, without including physical risk disclosures. A small group of organizations (10%) mentioned physical risk as a topic they were exploring without being able to provide a complete analysis for the moment, many citing the lack of tools and models as a major impediment to reporting physical risks.

Figure 3. The number of firms completing top-down and bottom-up assessments in 2017 (blue) and 2018 (orange). Source: Four Twenty Seven

11 institutions (23%) used a thorough methodology to analyze their exposure to physical risks, compared to only seven companies last year. Several firms released noticeably improved disclosure this year. Out of those firms that did asses their exposure to physical climate risk, nine (19%) carried out a bottom-up analysis of physical risks by assessing the asset-level risk exposure of at least some of their portfolio. Two institutions (4%) performed a “top-down” analysis, carrying out a multi-asset class, sector-level analysis of physical climate risk.

 

Finally, eight firms (17%) were classified in the “work in progress” category. These companies studied physical climate risk at the company-level among many other criteria as part of a broader analysis of the sustainability of their portfolio. Many of these companies acknowledge that they have not yet been able to develop a complete methodology for assessing physical risks.

 

Figure 2. The percentage of firms without any report (teal), classified in the “work in progress” category (red), only mentioning physical risks (light blue), not mentioning physical risks (blue), releasing a report with a bottom-up methodology (orange) and using a top-down approach (yellow). Source: Four Twenty Seven

Axa

Axa is one of France’s leading multinational insurance firms holding 905B€ of assets. While Axa’s 2018 Art. 173 disclosure is very similar to last year, with a bottom-up approach and an internal analysis, the study has increased in accuracy and scope. Like last year, the methodology considers European natural disasters as well as the geographical location of individual assets and the destruction rate of building materials.

In addition to the traditional report about Art. 173 which lays out the principles and commitments of the firm regarding the ESG criteria,  Axa released its first report aligning with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. Axa’s analysis covered $34 billion worth of assets, compared to $15 billion last year, encompassing commercial real estate debt, infrastructures debt, and property debt. Unlike last year, the assessment was not limited to the financial impact of windstorms but also included the potential impact of floods on the infrastructure in its portfolio. Like last year, the analysis considers 100% of the infrastructure portfolio but this year it also covers 88% of the real estate portfolio in 14 countries, compared to 41% last year.

Figure 4 demonstrates the physical risk exposure to windstorms and floods for the analyzed infrastructure. On the left, the graph displays the annual average destruction rate, which is linked to the average loss generated every year (3.3M€ on average). The map on the right shows the destruction rates due to a 100-year event, with an estimated loss of 27.2 M€. In 2019, Axa plans to expand its internal model to evaluate the financial losses resulting from floods in more European countries.

Axa used a value at risk methodology to assess the potential costs and revenues associated with climate change for each company in its equity and corporate bond portfolios, but this assessment largely focused on transition risks.

Figure 4. Infrastructure exposure to windstorms and floods. Source: Axa

Generali

Generali France is a French insurance company with 521B€ worth of assets. Generali also provided a more detailed evaluation of the potential impact of physical risks on its property assets than last year. It analyzed 268 assets, compared to 112 last year. Unlike last year, the analysis was not limited to the Paris area, but was expanded to all real estate assets held by the company. 89% of the assets are located in Paris, 7% outside Paris and 4% in the overseas department. They carried out a broader analysis of physical risks by adding earthquakes and avalanches to the study, in addition to flood and drought. The assessment rates assets from “high” to “very low” risk, finding that 5.4% of assets or 18 sites are classified as “high risk” for flood, 2% of assets (11 buildings) are classified as “medium risk” to drought and four of these 11 buildings are concentrated in the same building zone near Paris.

Comgest

Comgest is an international asset management group with 25.7 B€ worth of assets. The firm released physical risk disclosure reports for its three largest funds: global, European, and emerging market.  Four Twenty Seven conducted the physical risk analysis for Comgest, splitting physical risks into three categories: operations risk, market risk, and supply chain risk. The analysis also included a comparison of portfolio risk scores to relevant benchmark indices to highlight the holdings’ relative risk exposure. This asset-level assessment included exposure to storm, drought, extreme rainfall, floods, sea level rise, and heat stress. The analysis resulted in an aggregate score reflecting the portfolio’s exposure to physical climate risks, based on the sectors in the portfolio and the geographic distribution of companies’ assets.

Figure 5. Ranking of the most exposed companies in Comgest’s global portfolio. Source: Comgest (Four Twenty Seven analysis).

Regionally, the portfolio companies in Asia are most exposed to physical climate risks. Half of the sites are located in Japan and China, which makes the portfolio vulnerable to cyclones and extreme rainfall. The rest of the portfolio is located in the United States and Europe, which have relatively low exposure to physical risks. The risk of rising sea level is relatively low for the portfolio, with only 15% of the sites being exposed.

Figure 6. Map showing the exposure of the sites of companies in Comgest’s global fund to extreme rainfall. Source: Comgest (Four Twenty Seven Analysis)

Conclusion

Overall, 2018 showed an increase in the inclusion of physical climate risks assessment by French financial institutions. However, reporting on physical climate risk remains a challenging task for investors. Many organizations lack the tools, models and data to perform a comprehensive assessment of their portfolios, and for many firms, physical risks appear to still be a lower priority than transition risks. Those firms that are on the forefront of climate risk reporting disclose asset-level risk exposure and are beginning to explore how to assess value at risk and scenario analysis for physical climate risks. 2019 reporting is ongoing and has already brought some new high profile reporters, including the French Central Bank, Banque de France. The positive trends in 2018’s Art. 173 reports, along with continued uptake of TCFD recommendations, ongoing pressure from central banks and regulators, and increasing losses from extreme weather events, suggest that we will see continued growth in physical climate risk disclosures during the third year of Art. 173 reporting.

This analysis was written with support from Roman Dhulst and Natalie Ambrosio.

————————

Four Twenty Seven’s ever-growing database includes around one million corporate sites and covers 2000 publicly-traded companies. We offer portfolio analysis to support TCFD and Article 173 reporting, real asset screening, and other solutions to help investors and businesses leverage this data.

Newsletter: France’s Central Bank Publishes First TCFD Report

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we highlight the French Central Bank's climate risk assessment, discuss climate risk in real estate and share progress updates on the EU action plan. 

In Focus: Banque de France Publishes First Art. 173 Report
Banque de France, France's central bank, released a comprehensive analysis of climate risk in its portfolio on March 12. The assessment aligns with both Article 173 and the Task Force on Climate-related Financial Disclosures' recommendations. It includes an analysis of physical climate risk exposure in Banque de France's equity, debt and sovereign bond portfolios, provided by Four Twenty Seven.

This report is part of a broader effort by a number of central banks to lead by example and demonstrate how financial institutions need to assess their portfolios' exposure to climate risk. Banque de France is a founding member and provides the Secretariat for the central bank and supervisor Network for Greening the Financial System (NGFS), which focuses on strengthening the global response required to meet the goals of the Paris agreement and manage climate-related risks. 
Read the Report
Real Estate Investors Tackle Climate Risk

Climate Risk and Real Estate Investment Decision-Making

This report explores the evolving understanding of climate risk in real estate, sharing current best practices for measuring and managing risk. The Urban Land Institute and Heitman, a real estate investment management firm, surveyed over 25 investors and investment managers globally on their efforts to integrate climate risk into their investment decisions. Their strategies include mapping physical risk for current portfolios, integrating climate risk into due diligence efforts, exploring ways to mitigate risk and engaging with policy makers on resilience-building efforts.

The report also highlights Four Twenty Seven's asset-level risk screening of Heitman's real estate portfolio and the Four Twenty Seven and GeoPhy analysis of climate risk in REITs. The Washington Post recently cited the report, emphasizing the regional initiatives focused on building resilience to climate impacts and their implications for investors, while a Forbes article, discusses the findings in terms of the economic impacts.

Further Reading

Continued Progress on the EU Action Plan

Respond to the European Commission's Consultation on Disclosure 

The European Commission has released a consultation soliciting expert feedback on their draft supplement integrating climate change into the Non-Financial Reporting Directive (NFRD), based on the Technical Expert Group (TEG) on Sustainable Finance's final recommendations. This is an important step towards increasing the transparency and resilience of the financial system by creating legislation that includes physical climate risk disclosure by companies and investors. The deadline for feedback is March 20

Respond to the TEG Preliminary Green Bond Standard Recommendations

In another of its workstreams the TEG is helping the EC create an EU green bond standard. Earlier this month the TEG released its interim report, explaining the purpose of the proposed green bond standard and its suggested content. The TEG is inviting feedback which will be considered in the development of its final recommendations scheduled to be presented to the EC this June. The deadline for feedback is April 3. 
Four Twenty Seven in the News

Business and the Effects of Global Warming - The Economist

Data limitations, potential first-mover disadvantage, and complicated risk pathways all influence how companies disclose their climate risks and invest in resilience. The Economist covers challenges companies face when addressing climate risk, their wide-ranging reactions and developing solutions, citing Four Twenty Seven.


Facing Up to Climate Change - The Bond Buyer Podcast

Do bond ratings reflect governments’ and businesses’ exposure to physical climate change?  Founder & CEO, Emilie Mazzacurati, joins the Bond Buyer’s Chip Barnett to discuss physical climate risk for investors, businesses and governments. Emilie describes the financial sector’s growing awareness of material climate risk in their bond and equity portfolios and shares efforts being taken to understand and address these risks. 

Climate Change Business Journal Awards

The Climate Change Business Journal (CCBJ) released its 10th annual CCBJ Business Achievement Awards, recognizing outstanding business performance in the climate change industry. CCBJ acknowledged Four Twenty Seven’s release of the first global dataset on climate risk in real estate, developed with GeoPhy, and acknowledged the California Heat Assessment Tool. The tool was collaboratively developed as part of California's Fourth Climate Change Assessment, to help local health practitioners plan for the impacts of changing heat waves on local populations.
Upcoming Events

Join the Four Twenty Seven team at these upcoming events:

  • March 20-22 – Climate Leadership Conference, Baltimore, MD: Director of Advisory Services, Yoon Kim, will speak about the evolving landscape of climate risk disclosure.
  • March 20 – CCBJ 2018 Business Achievement Awards Ceremony, San Diego, CA: Senior Data Analyst, Josh Turner, will join this gathering to receive awards on Four Twenty Seven's behalf. 
  • March 21-22 – San Giorgio Group, Venice, Italy: Founder & CEO, Emilie Mazzacurati, will chair a panel on adaptation and resilience and will speak during a breakfast panel on adaptation finance during this gathering of climate finance experts.
  • March 22 – ICARP Technical Advisory Council Meeting, Sacramento, CA: Yoon Kim will join this quarterly meeting to present on private sector perspectives on assessing physical climate risks. 
  • April 2-3 – Climate City Expo: Business, Asheville, NC: Senior Analyst, Lindsay Ross, will join this gathering focused on innovation in climate resilience.
  • April 10-12 – RI Asia Japan, Tokyo, Japan: Hear Emilie Mazzacurati present on scenario analysis for physical climate risk and meet with Chief Development Officer, Frank Freitas, at Four Twenty Seven's booth.
  • April 8 - 19 – Japan and Australia: Meet with Emilie Mazzacurati and Frank Freitas while they're in Japan and Australia. 
  • April 13-16  – APA National Planning Conference, San Francisco, CA: Yoon Kim, and Director of Analytics, Nik Steinberg, will speak on a panel called, "Beyond Vulnerability: Innovative Adaptation Planning."
  • April 23-25 – National Adaptation Forum, Madison, WI: Yoon Kim will speak about integrating public health into climate adaptation and Editor, Natalie Ambrosio, will present on local adaptive capacity from a private sector perspective.
  • April 29 - May 1  – Ceres Conference 2019, San Francisco, CA: The Four Twenty Seven team will join investors and corporations at this annual gathering.
  • June 11 - 12 – RI Europe, London, UK: Hear Emilie Mazzacurati present on scenario analysis for physical climate risk and meet with Director, Europe, Nathalie Borgeaud, at Four Twenty Seven's booth.
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Newsletter: PG&E Bankruptcy Sparks Investor Concern

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we explore climate risk in the S&P 500, discuss the impacts of climate change on credit risk and share the latest reports on climate risk disclosure. 

In Focus: Climate Risk in the S&P 500

Barron's: An Exclusive Look at the Companies Most Exposed
to Climate Change Risk - And What They're Doing About It

Barron's features Four Twenty Seven's equity risk scores to explore physical climate risk exposure in the S&P 500, finding Western Digital, NextEra Energy, Micron Technology and Merck to be among the most exposed corporations in the United States. Barron's compelling story shows how (some) corporations are preparing for these risks, highlighting the need for more substantial and standardized disclosures on risk and resilience. 

Bloomberg also reports on corporate climate reporting, highlighting the self-reported exposure of many U.S. companies in CDP, as well as reported opportunities from a changing climate, such as Home Depot's estimation that increasing disasters and higher temperatures will mean more sales, particularly of fans and cooling appliances.
PG&E Bankruptcy Sparks Investor Concerns
The bankruptcy of PG&E, California's largest utility, has become a symbol of the very material impacts climate change can have on corporations and financial markets. While credit ratings agencies like Moody's had downgraded PG&E's credit rating to junk status based on its tens of billions of dollars in wildfire liability in the weeks preceding the bankruptcy, the question for investors is how these risks can be detected and priced in earlier.

In a broad review of emerging practices for ESG, Credit Risk and Ratings, the UN Principles for Responsible Investment highlights the increased transparency by credit rating agencies and investors into their thinking on ESG integration, although these groups often have different goals for their ESG analysis.

Indeed, the world of credit ratings is slowly moving towards a better integration of ESG considerations at large, including some aspects of climate change risk, like transition risk. Trucost, of S&P Global recently released a report on integrating transition risk scenario analysis into credit rating instruments, while  Fitch Ratings introduced ESG relevance scores that provide industry-specific explanations of ESG factors. Systematic integration of physical climate risk in corporate ratings, however, remains the next frontier for financial markets.
EU Releases Recommendations for
Climate Risk Disclosures

EU Technical Expert Group Report on Climate-related Disclosures

As part of Europe's Action Plan on Financing Sustainable Growth, the Technical Expert Group on Sustainable Finance released their final recommendations to the European Commission on integrating climate change into the Non-Financial Reporting Directive (NFRD). The European Commission plans to adopt the directive in June, after a round of stakeholder consultation

The report integrates climate risks into the existing NFRD framework, which includes business model; policies and due diligence processes; outcomes; principal risks and their management; and key performance indicators. It maps this framework to TCFD recommendations and goes further, referencing the EBRD-GCECA report on metrics for physical climate risks and opportunities reporting. While many of the metrics identified in the recommendations are for transition risk, the authors do integrate physical climate risk throughout the report and also require disclosure of a company's impact on climate change.
Quantifying Climate Risk:
Stories from the Field

Dutch Central Bank Assesses Water Risk in the Financial Sector

The Dutch Central Bank broke new grounds in its effort to quantify environmental risk in financial markets. In its report Values at risk? Sustainability risks and goals in the Dutch financial sector, DNB assesses the exposure of the Dutch financial sector to water stress, biodiversity loss, resource scarcity and human rights controversies, leveraging Four Twenty Seven's analytics on water stress.

Building on the Base: TCFD Disclosure in Asia

This report surveys the uptake of TCFD recommendations by large companies in Asia, focusing on the financial services, agriculture, energy, materials, buildings, mining and transport sectors. The research found that insurance, transport and energy sectors scored the highest for both quality and coverage of TCFD reporting, while asset owners and managers had lower average scores. 

On Again: France Enters Third Year of Mandatory Disclosures

2019 marks the third reporting year under Art. 173 in France, which requires investors to disclose their exposure to both transition and physical risk.  Noteworthy reports from previous years' reporting include analysis by French sovereign wealth fund Fonds de Réserve pour les Retraites (FRR) and insurance company Allianz France, which both integrate physical risk analysis by Four Twenty Seven. Read more about our reporting and analytics solutions for investors and banks. 
Upcoming Events

Join the Four Twenty Seven team at these upcoming events:

  • March 20-22 – Climate Leadership Conference, Baltimore, MD: Emilie Mazzacurati will speak about the evolving landscape of climate risk disclosure.
  • April 10-12 – RI Asia Japan, Tokyo, Japan: Hear Chief Development Officer, Frank Freitas, present on climate analytics for investors and meet with Emilie Mazzacurati at Four Twenty Seven's booth.
  • April 13-16  – APA National Planning Conference, San Francisco, CA: Director of Advisory Services, Yoon Kim, and Director of Analytics, Nik Steinberg, will speak on a panel called, "Beyond Vulnerability: Innovative Adaptation Planning."
  • April 23-25 – National Adaptation Forum, Madison, WI: Editor, Natalie Ambrosio, will present on local adaptive capacity from a private sector perspective and Yoon Kim will also join the convening.
  • April 29 - May 1  – Ceres Conference 2019, San Francisco, CA: The Four Twenty Seven team will join investors and corporations at this annual gathering.
  • June 11 - 12 – RI Europe, London, UK: Hear Emilie Mazzacurati present on climate risk in financial markets and meet with Director, Europe, Nathalie Borgeaud, at Four Twenty Seven's booth.
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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

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Newsletter: Towards Adaptation Standards

Four Twenty Seven's monthly newsletter highlights recent developments in climate adaptation and resilience. This month, we release a new report to help corporations and investors understand local adaptive capacity, share initiatives to standardize adaptation and highlight resources on adaptation finance.

In Focus: Assessing Local Adaptive Capacity 

427 Report: Helping Corporations and Investors Understand
Local Adaptive Capacity 

Building resilient communities and financial systems requires an understanding of climate risk exposure, but also of how prepared communities are to manage that risk. From flooded or damaged public infrastructure hindering employee and customer commutes to competition for water resources threatening business operations and urban heat reducing public health, the impacts of climate change on a community will impact the businesses and real estate investors based in that community.

Our newest report describes Four Twenty Seven's framework for assessing adaptive capacity in a way that’s actionable for corporations seeking to understand the risk and resilience of their own facilities and for investors assessing risk in their portfolios or screening potential investments. We create location-specific analysis by focusing on three pillars: 1) awareness, 2) economic and financial characteristics, and 3) the quality of adaptation planning and implementation. This helps the private sector understand their assets' risks and provides an entry-point for collaboration on local resilience-building. 
Read the Report
Towards Adaptation Standards
While climate mitigation has traditionally been the focus of efforts to address climate change, the past few years have seen an increased recognition of adaptation as a critical element of confronting climate change. As efforts grow to understand, quantify and catalyze adaptation investment there is a growing need for standardization and metrics around resilience investments.

EU Technical Expert Group on Sustainable Finance  

The European Commission's Action Plan on financing sustainable growth lays out a two year timeline for implementation, with a goal to create a taxonomy for climate adaptation finance by the end of 2019. To accomplish this goal, the EU has launched a Technical Expert Group (TEG) on Sustainable Finance and is calling for expert feedback on what actions qualify as adaptation and mitigation.
This will contribute to the ongoing effort to identify investments that build resilience in specific industries. The TEG recently released its preliminary report outlining its current thinking and explaining where it is soliciting feedback. The report shows the current lack of consensus around adaptation metrics and the need to standardize resilience definitions.

Expert Group on Resilient Bond Standards

A parallel initiative by the Climate Bonds Initiative (CBI) is focused on strategically incorporating adaptation into green bond standards. While green bonds have tended to focus on mitigation to date CBI launched an Adaptation and Resilience Expert Group (AREG) in November, which will develop Adaptation and Resilience Principles for bonds.
These principles will be released for public consultation in June 2019 and will lay the foundation for the development of sector-specific adaptation and resilience criteria. Founder & CEO, Emilie Mazzacurati, and Strategic Advisor, Josh Sawislak, are members of AREG.
Science Suffers in Government Shutdown
Four Twenty Seven analysts Josh Turner and Colin Gannon attended the American Meteorological Society's annual meeting last week, where the absence of hundreds of federal scientists was sorely felt. Numerous sessions were cancelled or poorly attended, and information sharing was lost in both directions. 
 

 
Most Americans may not feel the shutdown's impacts on a daily basis, but there are long-lasting implications far beyond the lack of conference attendance. While only those employees responsible for "essential services" continue to work with limited pay, data collection for long-term climate studies will be hindered, research on wildfire impacts will be delayed and hurricane model improvements and emergency training aren't progressing as they should. Some federal data sites are not currently accessible and the dearth of economic monitoring means that key data used by investors and policy-makers, like agricultural production numbers, are no longer being reported. 

Despite these obstacles, the private sector is persevering in its efforts to understand and address climate impacts. IBM announced that it will release the world's first hourly-updating, highest-resolution global weather forecasting model later this year and McKinsey just added 121 weather-data variables to its agriculture analytics tool, refining crop yield predictions. This year also promises to see continued growth in publicly hosted data sets, satellite data, and machine learning techniques for climate projections.
Resources for Adaptation Finance

Plugging the Climate Adaptation Gap with High Resilience Benefit Investments

In this report S&P Global Ratings  highlights both the funding gap and the multifaceted benefits of resilience projects. It outlines both challenges and benefits of quantifying benefits of adaptation projects and the barriers to adaptation, providing a small case study on the economic benefits of adapting to sea level rise.  Lastly, the brief report emphasizes the need for private investment to support limited public funding.

Financing Climate Futures: Rethinking Infrastructure

This report outlines a vision for a realigned financial system, prepared for long-term climate risks and opportunities.  The OECD, World Bank and UN Environment explain the dire need to disclose climate-related financial information in infrastructure projects and to invest in low-emission, resilient infrastructure that is both prepared for a changing climate and able to catalyze economic growth. 

Money for Resilient Infrastructure

The ebook Money for Resilient Infrastructure: How to Finance America's Climate Changed Future, explains recent developments in the financial sector's understanding of climate-related risks and highlights the growing demand for resilient infrastructure. Joyce Coffee outlines infrastructure finance options, investment instruments and strategies for obtaining resilience financing. 
Emilie Mazzacurati Named Top 100 in Finance
The Top 100 Magazine includes Founder and CEO, Emilie Mazzacurati, in the 2018 Top 100 People in Finance. 

“I’m honored to be recognized by The Top 100 Magazine,” says Emilie.  “We’re pushing the boundaries of how the financial world thinks about climate change, and appreciate the recognition on how our work helps drive the conversation on climate risk.” The Top 100 Magazine writes that while climate data "may seem like a fairly novel niche within the financial sector, the demand for this data has grown exponentially over the past two years... [Four Twenty Seven's] analysis leverages best-in-class climate data at the most granular level, and scores assets based on their precise geographic location. This provides the financial industry with the most comprehensive overview of investment outcomes related to present and future climate changes."

Upcoming Events

Join the Four Twenty Seven team at these upcoming events:

  • January 23 – From Sciences Po to the Economic Risk of Climate Change, San Francisco, CA: Hear Founder & CEO, Emilie Mazzacurati, speak at this Sciences Po American Foundation event at 6:30pm. Use discount code 427 for a $10 ticket.
  • February 12 – Investing for Impact, New York, NY: Emilie Mazzacurati will present on adaptation as an impact investment opportunity at this annual convening hosted by The Economist.
  • March 20-22 – Climate Leadership Conference, Baltimore, MD: Emilie Mazzacurati will speak about the evolving landscape of climate risk disclosure.
  • April 10-12 – RI Asia Japan, Tokyo, Japan: Chief Development Officer, Frank Freitas, will present on climate analytics for investors and Emilie Mazzacurati will also join this convening.
  • April 13-16  – APA National Planning Conference, San Francisco, CA: Director of Advisory Services, Yoon Kim, and Director of Analytics, Nik Steinberg, will speak on a panel called, "Beyond Vulnerability: Innovative Adaptation Planning."
  • April 23-25 – National Adaptation Forum, Madison, WI: Editor, Natalie Ambrosio, will present on local adaptive capacity from a private sector perspective. 
  • April 29 - May 1  – Ceres Conference 2019, San Francisco, CA: The Four Twenty Seven team will join investors and corporations at this annual gathering.
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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

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Emilie Mazzacurati Named to the Top 100 in Finance

JANUARY 15, 2019 – BERKELEY, CA – Market Intelligence provider Four Twenty Seven is pleased to announce that Founder & CEO, Emilie Mazzacurati, has been named to The Top 100 Magazine’s, Top 100 in Finance for 2018.

“I’m honored to be recognized by The Top 100 Magazine,” says Emilie.  “We’re pushing the boundaries of how the financial world thinks about climate change, and appreciate the recognition on how our work helps drive the conversation on climate risk.”

Emilie founded Four Twenty Seven in 2012, just after Hurricane Sandy devastated the Atlantic Coast. Inflicting nearly $70 billion in damages, the storm provided the world with a vivid demonstration of how climate change affects the financial markets. She elaborates, “I’m proud that Four Twenty Seven has become the market leader for data on the physical impacts of climate change in financial markets. By helping investors account for those risks, we help build resilience for our clients but also for society at large.”

The full awards and magazine issue will be released in late February. The Top 100 enterprise publishes the most popular biography-based titles in the industry. They are the original producer of The Top 100 Magazine and other publications such as The Top 40 Under 40, The Top 100 Lawyers, The Top 100 Doctors, The Top 100 Women in Business, and many more.

Read The Top 100 Magazine article. 

Newsletter: A Dire Warning

Four Twenty Seven's monthly newsletter highlights recent developments in climate adaptation and resilience. This month, we focus on recent scientific evidence of growing climate impacts, and highlight new resources to help the financial sector take action and manage exposure to climate change.

In Focus: Science Calls for Urgent Action

Recent Scientific Reports Send Dire Warning on Rapid Climate Change

At least 15 extreme weather events during 2017 were made more likely due to climate change according to the seventh "Explaining Extreme Events" report released last week. The research by the American Meteorological Society examined 16 extreme weather events for climate fingerprints, finding that climate change influenced events ranging from droughts in the U.S. and East Africa to floods in South America, China and Bangladesh, and heat waves in the Mediterranean and China.

Also released last week, NOAA's 2018 Arctic Report Card finds that Arctic air temperatures are still warming twice as fast as elsewhere and that sea ice was younger, thinner and less extensive than other years in 2018.

These findings come on the heels of the Intergovernmental Panel on Climate Change special report on global warming of 1.5 °C above pre-industrial levels. This report showed that warming of 1.5°C by 2050 will significantly affect global heat waves, arctic sea ice, sea level rise, species lost, crop yields coral reefs and fisheries. This in turn, will lead to cascading impacts on communities and economies globally.
 

Further Reading

  • About one-third of the Arctic's infrastructure is on permafrost that has a high chance of thawing by mid-century, based on warming that is already locked in, according to a new report published in Nature (read the summary on Earther). 
  • The New York Times' Brad Plumer outlines five key adaptation takeaways from the U.S. 4th National Climate Assessment, which includes a chapter on adaptation.
  • This is an engaging and deep exploration of the diverse impacts of climate change on ocean life and the rippling effects it has on economies and livelihoods around the world, from Reuters. 
Four Twenty Seven Wins Risk Markets Technology Alternative Data Provider Award 

Award Reflects Growing Interest of Financial Markets in Climate Data

Four Twenty Seven was awarded the 2019 Risk Markets Technology Award for Alternative Data Vendor of the Year. The Risk Awards are the longest-running and most prestigious among industry commendations,  recognizing leadership in the global derivatives markets and in risk management.

The award from Risk Magazine is a clear signal that financial markets are starting to take climate risk seriously. Investors who wish to develop a fully-informed view of their portfolios need forward-looking data on the impacts of climate change on corporations and public issuers and they're increasingly eager for this data. A judge noted that Four Twenty Seven's “Deep datasets and sophisticated analytics, [are] setting a high bar in what will become of increasing concern to investors.” 

Announcements at COP 24 echoed this theme, as 415 asset managers wrote a letter urging their governments to act on climate change, accompanied by a briefing paper for policy-makers emphasizing the economic risks posed by climate change and the importance of the Paris Agreement. Investor action is also growing in the U.S., where banks such as Bank of America and BNP Paribas joined the new U.S. Alliance for Sustainable Finance to help propel adaptation and clean energy investment in the U.S. 
Read Risk Magazine's Announcement
Industry Guidance on Financial Climate Risks

Navigating Climate Scenario Analysis

This guide to scenario analysis provides resources for institutional investors to leverage scenario analysis for both transition and physical risks. The Institutional Investors Group on Climate Change (IIGCC) highlights 10 key takeaways, surveying the current landscape of scenario analysis and emphasizing the importance of understanding the process and intentionally weighing the trade-offs between comprehensive and simple approaches. IIGCC also includes examples from asset managers already working on this and features a list of curated data providers, including Four Twenty Seven. 

Getting started on Physical Climate Risk analysis in finance -
Available approaches and the way forward

The Institute for Climate Economics surveys the landscape of financial climate data providers, in this report for investors. The report provides a detailed comparison of relevant data offerings that currently enable investors to assess and address climate risk in their portfolios, including numerous references to Four Twenty Seven's data products for equities, munis, sovereigns and real assets. The analysis compares providers based on their time horizon, intended audience, hazards, granularity and use cases.

Experts on Climate Change

This DWS report integrates several perspectives on the implications of climate change for institutional investors, starting with a scientific call to action from Dr. Emily Shuckburgh at the British Antarctic Survey. The report is a compilation of essays covering the fiduciary duty of trustees to understand the materiality of climate risks, actuarial responsibility to consider climate change, the current landscape of regulation around climate risks and pension funds' view of climate change, and an approach to integrating climate risk into an ESG engine. 

The Private Sector's Climate Change Risk and Adaptation Blind Spots


New research on corporate CDP responses reveals that corporate disclosures likely underestimate the costs of physical climate-related risks and that few companies disclosed indirect climate risks relating to the broader community, which affect businesses through supply chains, consumer preferences, and employee commutes. The report shows 76% of companies reporting climate risks use soft adaptation approaches, such as planning, 47% used hard approaches such as technology upgrades and only 3.3% reported ecosystem-based adaptation. As more businesses asses their exposure to climate change risks, they must take the next step of investing in adaptation.
Upcoming Events

Join the Four Twenty Seven team at these upcoming events:

  • January 6-10 – 99th AMS Annual Meeting, Phoenix, AZ: Senior Data Analyst, Josh Turner, will present a poster on the California Heat Assessment Tool and Senior Data Analyst, Colin Gannon, will also join this convening of meteorologists and climate scientists.
  • January 7-10 NCSE 2019 Annual Conference, Washington, DC: Director of Advisory Services, Yoon Kim, and Strategic Advisor, Josh Sawislak, will facilitate sessions on private sector roles in building community resilience and on climate-ready infrastructure, respectively.
  • February 12 – Investing for Impact, New York, NY: Hear Founder & CEO, Emilie Mazzacurati, present on adaptation as an impact investment opportunity at this annual convening hosted by The Economist.
  • March 20-22 – Climate Leadership Conference, Baltimore, MD: Emilie Mazzacurati will speak about the evolving landscape of climate risk disclosure.
  • April 10-12 – RI Asia Japan, Tokyo, Japan: Chief Development Officer, Frank Freitas, will present on climate analytics for investors.  
  • April 13-16  – APA National Planning Conference, San Francisco, CA: Yoon Kim and Director of Analytics, Nik Steinberg, will speak on a panel called, "Beyond Vulnerability: Innovative Adaptation Planning."
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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

Our mailing address is:
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Newsletter: TCFD Reporting on the Rise

Four Twenty Seven's monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don't miss highlights from this year's risk reporting cycle, new resources for implementing the TCFD recommendations and opportunities to get involved in developing best-practices for climate risk disclosure! 

In Focus: TCFD Reporting on the Rise

Task Force on Climate-related Financial Disclosures Status Report


The first Status Report from the Task Force on Climate-related Financial Disclosures (TCFD), released earlier this fall, summarizes the ways in which financial reports incorporate the TCFD recommendations. It includes a review of over 1,700 companies including banks, insurance, asset managers and asset owners representing the financial sector and energy, transportation, materials and agriculture in non-financial sectors.

While most of these companies made disclosures that aligned with at least one TCFD recommendation, companies rarely disclosed the financial impact of climate change and integrating scenario analysis remains a challenge. The report emphasizes the need for more "decision-useful" information and notes that TCFD integration will require continued industry-specific thought-leadership and knowledge exchange.
 

France Leads the Way with Article 173 Reports 

The TCFD status report found that Europe had the highest percentage of companies integrating TCFD guidance into their disclosures, perhaps influenced by legislation such as France's Law on Energy Transition and Green Growth, with its Article 173 which mandates the disclosure of both physical and transition risks. Several French investors incorporate TCFD recommendations into their Article 173 reports, for example:
Awards and Best Practices for TCFD Reporting

The Leading Edge of Climate Risk Reporting

The Asset Owners Disclosure Project's (AODP) report Winning Climate Strategies: Practical solutions and building blocks for asset owners from beginner to best practice surveys the landscape of physical climate risk approaches to date, featuring investors such as Four Twenty Seven clients Aviva and First State Super for their innovative efforts to understand and address the portfolio risk posed by physical climate change.
AODP Global Climate Index 2018 for Pension Funds also gives a AAA rating, the highest score, to Four Twenty Seven client FRR, in recognition of its exhaustive effort to provide transparency on climate risk in its portfolios.

Four Twenty Seven Receives UNCTAD ISAR Honours for Climate Risk Scores

Four Twenty Seven was recognized by the UN Conference on Trade and Development (UNCTAD) with ISAR Honours for our company climate risk scores that support emerging best practices in corporate reporting. The International Standards of Accounting and Reporting Honour (ISAR) fosters the dissemination of initiatives that improve global corporate reporting and integrate environmental, social and governance factors into reporting cycles.
Resources for Climate Risk Disclosure

Interactive Online Tool with Sector-specific Guidance from EBRD

What should disclosures look like, in practice? The European Bank for Reconstruction and Development (EBRD) launched a Knowledge Hub with case studies and emerging best practices around physical climate risk and opportunity disclosures.
This interactive platform allows users to easily navigate to Manufacturing, Agribusiness, Power & Energy, Mining or Commercial Property sectors to access case studies with examples of approaching risks, opportunities and scenario analysis in physical risk disclosure. 

IGCC Report Outlines Resources for Australian Asset Managers

The Investor Group on Climate Change's report Investing in Resilience: Tools and frameworks for managing physical climate risk is a concise resource guide for investors striving to incorporate physical climate risk into their decision-making. Specifically targeting Australian investors, the report includes a diverse set of risk assessment tools, ranging from Australian-specific geospatial tools to global datasets such as Four Twenty Seven's.
Opportunities to Get Involved

Sign on to Support the TCFD

Individuals, governments and private companies are all invited to join investors in officially supporting the Task Force for Climate-related Financial Disclosures. Four Twenty Seven is part of a group of over 500 organizations already acknowledging the TCFD as an important framework for promoting transparency during the urgent transition to a resilient economy.
 

Events Section on the TCFD Knowledge Hub

Sort by theme and location to find events on TCFD implementation that are applicable to your work and browse the new Case Studies section of the TCFD Knowledge Hub to learn from others with similar challenges. 
 

Opportunity for Investors to Contribute to Research on ESG Integration

Responsible Investor (RI) is investigating how ESG is integrated into investment decisions and is asking investors to fill out this five minute survey to share their approach to ESG. RI is seeking input from all perspectives, including investors who are active in the ESG space and those who are skeptical of these approaches. Respondents will remain anonymous and answers will not be attributable.
Assessing Risk to Build Resilience

Four Twenty Seven Appointed to Develop Resilience Primer for Shipping

Four Twenty Seven will develop a primer on best-practices and opportunities for building climate resilience in the shipping sector as part of the Resilience Shift initiative from Lloyds' Register. The initiative fosters global infrastructure resilience through projects, investments and events and Four Twenty Seven will support this effort by engaging with key stakeholders in the shipping sector to create industry-specific guidance on resilience strategies.

Webinar Recording: Climate Risk in Real Estate

Watch this webinar recording to learn about Four Twenty Seven and GeoPhy’s analysis of exposure to physical climate hazards in global real estate investment trusts (REITs).  The presentations includes key findings from the white paper, Climate Risk, Real Estate, and the Bottom Line and a discussion of how physical climate data is leveraged in financial risk reporting for the real estate sector.
Inside the Office at Four Twenty Seven

Meet Vice President of Engineering, Klaus Fabian

Our VP of Engineering, Klaus Fabian, is automating our data analytics platform, building the user-interface that our clients are looking forward to. Klaus draws on more than 25 years of experience in new product development.

Klaus co-founded and served as CTO of Incorta, a business intelligence and analytics software provider funded by Google Ventures and Kleiner Perkins.

Previously he managed business intelligence and reporting software at Oracle, including BI Publisher and served as product manager for the Aegis Equity Portfolio Risk Analysis suite at MSCI (then Barra).
Upcoming Events

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

  • November 13-15 – International Summit at Greenbuild Conference and Expo, Chicago, IL: Emilie Mazzacurati will provide the luncheon plenary address, "Climate Intelligence: Decision-making in the Age of Climate Change," on Tues Nov. 13.
  • November 16 – Methodologies and Tools to Evaluate the Financial Impact of Climate-related Risks and Opportunities, Milan, Italy: Nathalie Borgeaud will present Four Twenty Seven's methodology to assess physical climate risk in financial portfolios during this workshop.
  • November 27 - Risk Awards Gala, London, UK. Emilie Mazzacurati and Frank Freitas will join for the longest-running and most prestigious awards for firms and individuals involved in the global derivatives markets and in risk management.
  • November 26-28 – UNEP FI Global Roundtable & Climate Finance Day, Paris, France: Emilie Mazzacurati, Frank Freitas and Nathalie Borgeaud will participate in these events dedicated to mobilizing the financial sector to create a sustainable financial system.
  • December 4 – Investment Without Displacement: Solutions for Equitable, Healthy and Vibrant Communities, Los Angeles, CA: Manager Kendall Starkman will present data on climate risk in real estate during a panel on climate change's impact on housing markets. Invite-only.
  • December 5-6 – RI Americas, New York, NY: Hear Frank Freitas speak on a panel about climate risk in real estate markets and visit the Four Twenty Seven booth.
  • December 10-14 – AGU Fall Meeting, Washington, DC: Director of Analytics, Nik Steinberg, will present on the California Heat Assessment Tool at this annual meeting of climate scientists.
  • January 6-10 – 99th AMS Annual Meeting, Phoenix, AZ: Senior Data Analyst, Josh Turner, will present a poster on the California Heat Assessment tool during this convening of meteorologists and climate scientists.
  • January 7-10 NCSE 2019 Annual Conference, Washington, DC: Director of Advisory Services, Yoon Kim, and Strategic Advisor, Josh Sawislak, will facilitate sessions on private sector roles in building community resilience and on climate-ready infrastructure, respectively.
  • February 12 – Investing for Impact, New York, NY: Hear Emilie Mazzacurati present on physical climate risks and opportunities at this annual convening hosted by The Economist.
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