PRI Webinar: Measuring and Managing Physical Climate Risk

This PRI webinar, hosted in conjunction with DWS, discusses recent research in identifying physical climate risks and integrating this information into investment decisions. DWS shares its process for leveraging Four Twenty Seven’s equity risk scores to create a climate-optimized index.

Speakers

  • Murray Birt, ESG Thematic Research Strategist at DWS, breaks down physical climate risk and its financial impacts.
  • Emilie Mazzacurati, Founder & CEO of Four Twenty Seven, presents a methodology for assessing and visualizing climate risk in portfolios.
  • Edward Baker, Senior Policy Advisor at PRI, shares new investor data on climate risk reporting under the TCFD recommendations.
  • Gerold Koch, Director of Passive Product Development at DWS, discusses DWS’ strategy for creating a climate-optimized index.
  • Jessica Elengical, Head of ESG Strategy, Alternatives at DWS, speaks about the impacts of physical climate risks on real estate investments.

Time and Tides – Flooding in Japan

July 15, 2018 – 427 ANALYSIS: Record-setting rains in Japan led to floods and landslides that disrupted business operations of automobile manufacturers, electronic companies and others. Understanding the ownership and operations of facilities located in the damaged areas provides insight into what companies and industries may exhibit downturns in performance over the near term and be vulnerable to similar storms in the future.

Japan was the inundated by over 70 inches of rain in early July, an event that resulted in significant loss of life and business disruptions. The clouds have since receded, leaving economic damage with long-term implications yet to be understood. However, estimates expect industry losses to be in the billions USD. Destruction was centered in Okayama and Hiroshima, driven by flooding and landslides.

Typhoons Prapiroon and Maria contributed to this rainfall and climate scientists expect a warmer climate to increase the severity of these storms. Japan has fewer preparations in place for floods than it does for other extreme events, and understanding the various manifestations of risk caused by extreme rainfall is essential to mitigating damage in the future.

Much of Okayama sits immediately below mountains, which makes it particularly exposed to devastating landslides following significant rainfall events. Bursting pipes and power outages led over 250,000 homes in the Okayama and Hiroshima Prefectures to go without water for several days after the floods. Landslides destroyed homes and exacerbated infrastructure damage caused by flooding.

Many business operations were severely impacted by these events as well, and some facilities remain closed.  Companies such as Panasonic experienced physical damage due to flooded facilities, and others were impacted by damaged infrastructure and communities, impacting their supply chains and workforce.

Okayama and Hiroshima are centers of economic activity for a number of key sectors in Japan, hosting production facilities for auto manufacturing, consumer electronics, retail trade and others. The figure below highlights the concentration of facilities of companies in the auto manufacturing industry by the sector of their operations. Companies that rely heavily on manufacturing operations are particularly vulnerable to flooding due in part to their utilization of expensive equipment that can easily incur water damage.

The heavy rainfalls showed no favorites in their disruption of manufacturing facilities across industries. For example, Mitsubishi and Mazda halted operations at some factories during the storms, due in part to supply chain disruptions. Many companies were also forced to pause operations because employees couldn’t get to work. While Mazda’s headquarters in Hiroshima Prefecture and a production facility in Yamaguchi Prefecture weren’t damaged themselves, they remained closed after the storms until employees could return to work safely. Likewise IHI Corp. closed its No. 2 Kure factory in Hiroshima  because of water shortages and employees’ commute challenges.

The extent of   long-term economic impacts that these companies will bear in the aftermath of last week’s storms is not yet known, but merits ongoing examination as the region recovers. Understanding the location of a corporation’s facilities and their exposure to extreme weather events is a key starting point for gauging exposure, and therefore can be instrumental in understanding company’s future performance.

Four Twenty Seven’s extensive facility level database can help investors proactively identify their portfolio companies’ exposures both to chronic climate effects and to individual extreme weather events such as the extreme rainfall that beset Okayama and Hiroshima. This deeper understanding can drive better risk-return tradeoffs, and importantly, shareholder engagement strategies that foster investments in resilience.

Responding to Economic Climate Risk in Australia

June 25, 2018 – 427 REPORT. Regulatory pressure and financial damage are necessitating an increase in physical climate risk disclosure in Australia. In exercising their own due diligence and assessing the exposure to physical climate risks in their portfolios, investors arm themselves with valuable information on corporate risk exposure which they can leverage to engage with companies around resilience. This report explores the connection between climate hazards and financial risks and shares examples of corporate adaptation and investor engagement to build resilience.

The global tide of interest in the Task Force on Climate-related Financial Disclosures (TCFD) has hit the shores of Australian financial markets, steered by regulators concerned about the systemic risk climate change poses to the economy. In 2017 Australian Prudential Regulation Authority’s Geoff Summerhayes was the first Australian regulator to formally endorse the TCFD. “Some climate risks are distinctly ‘financial’ in nature. Many of these risks are foreseeable, material and actionable now,” he said. This sentiment was echoed by John Price of the Australian Securities and Investments Commission in 2018 and reflects growing regulatory concern over climate risk disclosure internationally, as shown by Article 173 of France’s Law on Energy Transition and Green Growth and the 2018 European Commission Action Plan.

This Four Twenty Seven Report, Responding to Economic Climate Risk in Australia, explores the drivers of financial risk in Australia and discusses approaches to addressing this risk. The nation’s dominant industries are particularly threatened by the prevalent climate hazards. For investors, understanding a company’s risk to climate change is an essential first step to mitigating portfolio risk, but must be followed by corporate engagement to build resilience. Institutional investors are increasingly leveraging shareholder resolutions and direct engagement to prompt companies to disclose their climate risks and adapt.

Key Findings

  • Australia’s “Angry Summer” of extreme weather in 2013 cost the economy $8 billion and was followed by another summer of extremes in 2016-2017.
  • Construction, mining and manufacturing constitute almost 20 percent of Australia’s economy and are highly vulnerable to heat stress and water stress, which threaten large swaths of the nation.
  • Boral Limited and Rio Tinto are both Materials companies exposed to water and heat stress in their operations, but they have different risk scores stemming from differing vulnerabilities in their markets and supply chains.
  • Engagement on climate is relatively new for Australian shareholders, but is gaining momentum, with institutional asset managers voting on several climate risk disclosure resolutions in 2018.
  • Investors can address physical climate risk by reviewing their asset allocations, disclosing their own risks, investing in new opportunities and engaging with corporations.

Download the report.

Webinar: Emerging Metrics for Physical Climate Risks Disclosures

This Four Twenty Seven webinar on emerging metrics and best practices for physical climate risks and opportunities disclosures covers recent developments in TCFD and Article 173 reporting, challenges to assessing climate risk exposure, strategies for investors to incorporate this information into decision-making and approaches to build corporate resilience.

Speakers

  1. Emilie Mazzacurati, Founder and CEO, presents key findings from the EBRD-GCECA report: Advancing TCFD guidance on physical climate risks and opportunities and emerging best practices in physical risk reporting.
  2. Nik Steinberg, Director of Analytics, shares challenges and approaches for using climate data for business decisions.
  3. Frank Freitas, Chief Development Officer, discusses corporate engagement opportunities for investors and approaches to integrating climate change into investment strategies.
  4. Yoon Kim, Director of Advisory Services, shares examples of innovation in corporate resilience-building.

Newsletter: How to disclose physical climate risks & opportunities

 

 

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss our new report on shareholder engagement,  recommendations for physical climate risk disclosure and upcoming webinars on physical climate risk.

In Focus: From Risk to Resilience – Engaging with Corporates to Build Adaptive Capacity

New report from Four Twenty Seven provides strategic guidance for shareholder engagement on physical climate risk


Released this week at RI Europe, our latest report From Risk to Resilience – Engaging with Corporates to Build Adaptive Capacity explains the value of engagement for both corporations and investors and describes data and case studies to drive engagement strategies. We identify top targets for shareholder engagement using data-driven strategies and provide sample questions as an entry point for investors’ conversations with corporations. The report shows investors can help raise awareness of rising risks from climate change and encourage companies to invest in responsible corporate adaptation measures.

Read coverage of the report in CFO Magazine’s article, Investors Push for Climate Risk Disclosure.

Read the Report

Advancing TCFD Guidance on Physical Climate Risk and Opportunities

A practical guide to climate risk and opportunities disclosures.


This seminal report aims to inform and support early adoption of climate risk reporting, based on findings from industry-led working groups with financial institutions and corporations. The report was sponsored by the European Bank for Reconstruction and Development, in partnership with the Global Centre of Excellence in Climate Adaptation.

The report calls on companies to perform forward-looking risk assessments and disclose material exposure to climate hazards. It also invites firms to investigate benefits from investing in resilience and opportunities to provide new products and services in response to market shifts. Co-authored by Four Twenty Seven and Acclimatise, the report provides best-in-class metrics and recommendations for effective disclosure in line with the TCFD.

The report was released at a high-profile conference hosted by EBRD – view conference materials, including a full summary, slides, op-eds and video at www.physicalclimaterisk.com.

Read the Report

427 Webinar: Emerging practices for TCFD reporting on physical climate risk 

Four Twenty Seven will host a webinar on TCFD reporting, emerging metrics and best practices for physical climate risks and opportunities disclosures. There will be two sessions of the same webinar to accommodate multiple time zones.

Agenda:

1. Metrics and emerging best practices for physical climate risks disclosures under Art. 173 and TCFD: Emilie Mazzacurati, Founder and CEO, will present key findings from the EBRD-GCECA report: Advancing TCFD guidance on physical climate risks and opportunities and emerging practices in physical risk reporting.

2. Using climate data to assess physical climate risks: Nik Steinberg, Director of Analytics, will discuss challenges and tools for using climate data for business decisions.

3. Building corporate resilience: Yoon Kim, Director of Advisory Services, will discuss do’s and don’ts of scenario analysis and share examples of innovation in corporate resilience-building.

3. Opportunities for investors: Frank Freitas, Chief Development Officer, will discuss corporate engagement opportunities for investors and approaches to integrating climate change into investment strategies.

5. Q&A: The webinar will include extended time for live Q&A.

Tues. June 12 at 8am PT; 11am ET; 4pm CET:

Register Here

Tues. Wed. 13 June at 9am HKT/SGT; 10am JST; 11am AEST (June 12 at 6pm PT):

Register Here

UN PRI Webinar: Measuring and Managing Physical Climate Risk

UN PRI and DWS present a webinar to explore the latest research on physical climate risks and their impacts on investment portfolios.

Speakers will discuss strategies for identifying physical climate risk in portfolios and incorporating this information into investment strategies.
Expert panel:

  • Murray Birt, ESG Thematic Research Strategist, DWS
  • Jessica Elengical, Head of ESG Strategy, Alternatives, DWS
  • Gerold Koch, Passive Product Development, Americas, DWS
  • Emilie Mazzacurati, Founder and Chief Executive Officer, Four Twenty Seven
  • Moderated by: Edward Baker, Senior Policy Advisor, Climate and Energy Transition, PRI

Wednesday, June 13, 8:am PT; 11am ET; 4pm BST

Register Here

Upcoming Events

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

  • June 7-9: 7th Sustainable Finance Forum, Waddesdon, UK: 427 COO Colin Shaw will discuss the use of corporate facility data to assess climate exposure at this forum hosted by the Sustainable Finance Programme at the University of Oxford.
  • June 12: Four Twenty Seven Webinar: Metrics for Physical Climate Risks Disclosure, 8am PT and 6pm PT: This webinar will cover TCFD reporting, emerging metrics and best practice for physical climate risks and opportunities disclosures.
  • June 13:  PRI Webinar: Measuring and managing physical climate risk, 8:00am PT: Founder & CEO Emilie Mazzacurati will join DWS and PRI in this discussion of the latest research on physical climate risk.
  • June 12-14: VERGE Hawaii, Honolulu, HI: Kendall Starkman, will speak about Four Twenty Seven’s work modeling the impacts of heat on human health.
  • June 18-21: Adaptation Futures 2018, Cape Town, South Africa: Director of Advisory Services, Yoon Kim, will facilitate a session exploring integrating climate risks into infrastructure investment decisions.
  • July 18: Summer in the City CSR Investing Summit, New York, NY: Emilie Mazzacurati will discuss methods to assess physical climate risk exposure on a panel about the business impacts of climate change.
  • June 26GRESB Sustainable Real Assets Conference, Sydney, Australia: Chief Development Officer Frank Freitas will speak on a panel on innovation and tools for building climate resilience in real asset portfolios at GRESB’s annual conference on resilient infrastructure investments.
  • August 28-29: 3rd California Adaptation Forum, Sacramento, CA: Kendall Starkman will facilitate a panel on mobilizating climate adaptation through partnerships at this biennial convening of adaptation professionals from across California.
  • September 11: Save the date for a Four Twenty Seven side event on resilience finance alongside the UN PRI and GCAS.
  • September 12-14: PRI in Person, San Francisco, CA: Visit the Four Twenty Seven booth and meet with our team at this annual gathering of responsible investment industry leaders.
  • September 12-14: Global Climate Action Summit, San Francisco, CA: Join the Four Twenty Seven team at this convening of global climate adaptation experts meant to propel action around the Paris Agreement.

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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for financial institutions, corporations, and government institutions.Our mailing address is:
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Engaging with Corporates to Build Adaptive Capacity

June 5, 2018 – 427 REPORT. Shareholder engagement is a critical tool to build resilience in investment portfolios. Investors can help raise awareness of rising risks from climate change, and encourage companies to invest in responsible corporate adaptation measures. We identify top targets for shareholder engagement on physical climate risks and provide data-driven strategies for choosing companies and approaching engagement. Our report includes sample questions as an entry point for investors’ conversations about climate risk and resilience with corporations.

Shareholder engagement on climate change has grown tremendously in recent years. Over 270 investors, managing almost $30 trillion collectively, have committed to engage with the largest greenhouse gas emitters through the Climate Action 100+. In addition to their ongoing efforts to engage and encourage companies to reduce emissions, investors are becoming aware of the financial risks from extreme weather and climate change. Climate change increases downside risks: a negative repricing of assets is already being seen where climate impacts are most obvious, such as coastal areas of Miami. As climate change can negatively impact company valuations, investors must strive to bolster governance and adaptive capacity to help companies build resilience.

This Four Twenty Seven report, From Risk to Resilience – Engaging with Corporates to Build Adaptive Capacity, explains the value of engagement, for both corporations and investors and describes data and case studies to drive engagement strategies. While news coverage of extreme weather events can clue investors in to which corporations may be experiencing climate-driven financial damage, new data can empower investors to identify systemic climate risk factors and proactively engage companies likely to experience impacts in the future. Reactive engagement strategies based on news stories can also use data to more thoroughly explore corporations highlighted in the news, by examining other hazards that may pose harm to their operations.

The report also identifies the Top 10 companies with the highest exposure to physical climate risk in the Climate Action 100+ and calls for investors to leverage their engagement on emissions to also address urgent issues around climate impacts and building resilience.

Once they identify companies, shareholders can use a variety of questions to gain a deeper understanding of companies’ vulnerability to climate hazards and their governance and planning processes, or adaptive capacity, to build resilience to such impacts. The report provides sample questions for different components of climate risk, including Operations Risk, Market Risk and Supply Chain Risk, as well as Adaptive Capacity.

Key Takeaways

• The impacts of a changing climate pose significant downside risk for companies; a risk bound to increase as the climate continues to degrade.
• At present, investors are likely to become aware of exposure to financial damages from extreme weather events only after they have occurred. Disclosure is limited but gaining traction.
• Corporate engagement is a tool to encourage companies to deploy capital and technical assistance to build resilience in their operations and supply chains.
• Investors can select target companies reactively based on prior incidents or pro-actively identify firms that would benefit from resilience plans.
• Investors should question companies on their exposure to physical climate risks via their operations, supply chain and market, as well as how they are building resilience to these risks through risk management and responsible corporate adaptation strategies.

Download the report.

Download the press release.

Newsletter: US Munis Increasingly Vulnerable to Floods, Storms and Drought

 

 

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss our new report on muni climate risk exposure, details on upcoming Four Twenty Seven webinars and an update on risk disclosure resources!

In Focus: U.S Munis Increasingly Vulnerable to Floods, Storms, and Drought

New report from Four Twenty Seven analyzes exposure to climate hazards in U.S. muni market


Our latest report Assessing Exposure to Climate Change in U.S. Munis identifies U.S. cities and counties most exposed to the impacts of climate change. As credit rating agencies start integrating physical climate risk into their municipal ratings, our new climate risk scores help inform investors with forward-looking, comparable data on the climate risks that impact these municipalities. Learn more about Four Twenty Seven climate risk scores for cities and counties and options to finance city resilience in our Webinar: Building City-level Climate Resilience, May 23.

Read the Report

Advancing TCFD Guidance on Physical Climate Risk and Opportunities

EBRD and GCECA Conference on May 31

Advancing TCFD Guidance on Physical Climate Risks and Opportunities is a targeted initiative to lay the foundations for a common conceptual framework and a standard set of metrics for physical climate risks and opportunities disclosures. Working with thought-leaders in the financial and corporate sectors, the European Bank for Reconstruction and Development (EBRD) and the Global Climate Center for Excellence on Climate Adaptation (GCECA), with the support from technical experts Four Twenty Seven and Acclimatise, developed a set of technical recommendations on metrics for risks and opportunities disclosures.

The final report will be released during a conference held at the EBRD’s headquarters in London on May 31st, 2018. Four Twenty Seven founder and CEO Emilie Mazzacurati will facilitate the panel discussion on the project’s key findings with Murray Birt from DWS, Simon Connell from Standard & Chartered, Craig Davies from EBRD, and Greg Lowe from AON.

TCFD Knowledge Hub

The recently launched TCFD Knowledge Hub is a curated platform of insights and resources on climate risk reporting. Users can search by keyword or sort for resources by the four TCFD themes. There is a broad set of research, tools and frameworks for implementing the TCFD recommendations, including our Lender’s Guide for Considering Climate Risk in Infrastructure Investments, our Technical Brief on Using Climate Data and a Climate Scenario Guide for Investors.

Helping Banks Build Climate Resilience

Acknowledging that financial impacts, regulatory pressures and industry action all point toward the need for climate-related risk disclosure and more comprehensive data, IDB Invest asserts that what may have formerly been ancillary ESG factors must now be central to business decisions. They report on four key messages from their annual Sustainability Week, in their article “Four insights for banks willing to seize sustainable finance opportunities.” 

The key takeaways are that risk analysis must include more than solely financial data, technology is a crucial ally in translating data into actionable insights, new ways to understand risk bring new market opportunities, and prioritization of ESG and climate analysis demand shifting human capital needs. Four Twenty Seven provided one of the featured new technologies, combining climate data with data on bank’s credit portfolios to assess climate-related risks and new market opportunities for banks in Ecuador. Read more.

Tomorrow! Four Twenty Seven Webinar:
Building City-level Climate Resilience

Wed, May 23, 2018 11:00AM – 12PM PT 

Four Twenty Seven is hosting a webinar to provide insight into concrete actions that cities can take to more effectively attract investor financing for climate adaptation and resilience, and share findings from our comprehensive analysis of city-level physical climate risks in the U.S. The webinar will be recorded and made available in the Insights section of our website. Register here.

Save the date – Four Twenty Seven Webinar:
Metrics for Physical Climate Risks Disclosure

Four Twenty Seven will host a webinar on TCFD reporting, emerging metrics and best practice for physical climate risks and opportunities disclosures. We will provide insights and lessons from the front line on:

  • How to use climate data to assess risks
  • Do’s and don’ts of scenario analysis
  • How to structure your TCFD/Art. 173 disclosures
  • Strategies for corporate engagement

Tues. June 12 at 8am PT; 11am ET; 4pm CET:

Register Here

Tues. Wed. 13 June at 9am HKT/SGT; 10am JST; 11am AEST (June 12 at 6pm PT):

Register Here

The Third California Adaptation Forum

The biennial California Adaptation Forum will take place in Sacramento from August 28-29. This multidisciplinary gathering of adaptation professionals and local stakeholders will include plenaries, workshops and sessions discussing trends in climate resilience, forward-looking adaptation policy, strategies for adaptation finance and new tools.

Upcoming Events

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

  • May 23: Four Twenty Seven Webinar Building City-level Climate Resilience, 11am-12pm PT: This webinar will discuss city level physical climate risks and opportunities to access climate adaptation and resilience financing. Register here.
  • May 23: Capital Region Climate Readiness Collaborative Quarterly Meeting, Sacramento, CA: Advisory Services Manager, Kendall Starkman, will join this quarterly meeting focused on the drivers of poor air quality in the Capital Region.
  • May 31: Advancing TCFD Guidance on Physical Climate Risk and Opportunities, London, UK: Four Twenty Seven is a strategic partner for this event hosted by EBRD and GCECA to discuss emerging guidance on metrics for physical climate risk disclosures and scenario analysis and Emilie Mazzacurati will moderate a panel presenting findings on physical risk metrics.
  • June 5-6: Responsible Investors Europe, London, UK: Hear Emilie Mazzacurati speak on a panel on corporate engagement and also meet with Chief Development Officer, Frank Freitas, and Senior Risk Analyst, Léonie Chatain, to discuss ratings and engagement on physical climate risk in equities.
  • June 7-9: 7th Sustainable Finance Forum, Waddesdon, UK: COO Colin Shaw will speak on a panel called “Supply chain transparency and network analysis” at this forum hosted by the Sustainable Finance Programme at the University of Oxford.
  • June 12: Four Twenty Seven Webinar: Metrics for Physical Climate Risks Disclosure, 8am PT and 6pm PT: This webinar will cover TCFD reporting, emerging metrics and best practice for physical climate risks and opportunities disclosures.
  • June 12-14: VERGE Hawaii, Honolulu, HI: Kendall Starkman, will speak about Four Twenty Seven’s heat assessment work at this convening of corporate, government and NGO stakeholders committed to building resilient cities and economies.
  • June 18-21: Adaptation Futures 2018, Cape Town, South Africa: Director of Advisory Services, Yoon Kim, will facilitate a session exploring integrating climate risks into infrastructure investment decisions.
  • June 26: GRESB’s Sustainable Real Assets Conference, Sydney, Australia: Meet with  Frank Freitas at GRESB’s annual conference on resilient infrastructure investments.
  • August 28-29: 3rd California Adaptation Forum, Sacramento, CA: Save the date for this opportunity to join over 600 climate leaders in workshops, sessions and networking around adaptation action in California.
  • September 12-14: PRI in Person, San Francisco, CA: Join the Four Twenty Seven team at this annual convening of responsible investment industry leaders.
  • September 12-14: Global Climate Action Summit, San Francisco, CA: Join the Four Twenty Seven team at this convening of global climate adaptation experts meant to propel action around the Paris Agreement.

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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for Fortune 500 companies, investors, and government institutions.Our mailing address is:
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Using Climate Data – 427 Technical Brief

April 25, 2018 – 427 TECHNICAL BRIEF. Financial institutions, corporations, and governments  increasingly strive to identify and respond to risks driven by physical climate impacts. Understanding the risks posed by climate change for facilities or infrastructure assets starts with conducting a risk assessment, which requires an understanding of the physical impacts of climate change. However, climate data in its raw form is difficult to integrate into enterprise risk management, financial risk modelling processes, and capital planning. This primer provides a brief introduction to climate models and data from a business or government perspective.

The first of several reports explaining the data and climate hazards analyzed in Four Twenty Seven’s equity risk scores and portfolio analytics, Using Climate Data unpacks the process through which raw climate data is transformed into usable metrics, such as future temperature projections, to help financial, corporate and government users productively incorporate climate-based analytics into their workflows. Beginning by explaining what a global climate model is, the report explains climate data’s format, computational choices to hedge uncertainty and resources for aggregated climate projections tailored to specific audiences.

Key  Takeaways

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

Download the Report.

Fintech Meets Climate Data

We chat with our new Chief Development Officer, Frank Freitas, about his motivations to join Four Twenty Seven after almost 30 years in finance and fintech, and his vision for new products and markets in climate analytics.

Why did you decide to join Four Twenty Seven?

First and foremost, the fact that our firm provides data-driven analytics that quantify real issues facing our planet today is very attractive to me. I have spent my entire career in finance and, like others, have increasingly come to see the need for alignment of investment decisions with those that preserve the future of our planet. To me, Four Twenty Seven’s mission and vision exist at the center of this nexus.

When I encountered the Four Twenty Seven white paper on climate risk in equity markets, I was impressed by the level of thought-leadership embedded in the research, and by the high level of quantitative rigor applied to the development of its risk scores. The acceleration of climate’s influence on corporate performance are upon us, and investors are rapidly awakening to the risks that climate change brings to financial markets. Four Twenty Seven’s sophisticated climate data analytics are at the forefront of identifying the most exposed corporations and assets globally.

My career to date has been focused on the development of analytical solutions for institutional investors, ranging from multi-factor risk models at Barra (now MSCI) to the solutions we built in my previous company, Pluribus Labs, where we combined data science and natural language processing with quantitative modeling to distill a variety of unstructured data sources into investible signals.

In my subsequent conversations with Emilie and the Four Twenty Seven team, I quickly came to realize that Four Twenty Seven’s research methodology really resonated with me, and that the culture here is fabulous. It’s rare that you have an opportunity to do what you love and also provide solutions that impact the planet’s future — my role at Four Twenty Seven enables me to do just that!

How is technology spurring innovation in research around financial risk?

There are a number of drivers at play in this respect.  First and perhaps most obviously, the availability of computing power at our fingertips makes data analysis on large data sets more available and more affordable than ever before.  If you had told me when I started my career that I would be able to create an account on a cloud computing platform like Google’s GCP or Microsoft’s Azure and have massive amounts of compute power available within minutes, I wouldn’t have believed you!  Four Twenty Seven’s ability to distill terabytes of climate data from an ensemble of models into actionable insights at the asset level is a great way to leverage this computing power.

Relatedly, the ubiquity of meaningful data, both unstructured and structured, also provides a much broader set of lenses through which to view the world.  Financial research has always focused on the development of insights from any and all available data sources on companies, industries and economies.  Today, an ever-increasing volume of data sources are accessible for analysis.  For example, features extracted from satellite images of our planet can be used to arrive at estimates on a wide variety of metrics, ranging from crop yields to consumer brand sales changes.  Similarly, observations gleaned from the ‘Internet of Things’ (IoT) can provide us with insights into weather trends and CO2 emissions at the sub-city level.  Moving forward, opportunities afforded by organizations’ self-reporting of their climate risks and mitigation plans specifically related to climate change will provide additional data points for firms like ours to incorporate into our ground truth analysis of companies, industries and economies.

Couple these two trends with increasingly sophisticated machine learning and feature extraction techniques and you wind up with tremendous opportunities to develop insights into both the physical risks of climate change and the steps that companies are taking to mitigate these risks.

What are the priorities during your first year at Four Twenty Seven?

Emilie and the team have translated their broad and deep base of intellectual property into purpose-built solutions for a number of key market segments in the financial sector. These solutions enable asset owners and investors alike to understand their holdings’ exposure to the physical reality of climate change.

Our goals for this year are to continue tuning our existing offerings through engagement with our clients and to position the firm for its next phase of growth.  Thanks to entities like the Task Force on Climate-related Financial Disclosures (TCFD), market participants are increasingly aware of the need to incorporate climate risk analytics into their investment process, and we will continue to evangelize this message in our own interactions with the investment community.  We are currently in fundraising mode and will use proceeds from our capital raise to support plans to leverage our proprietary facility database to quantify the relationship between weather and company performance.  In addition, we intend to on-board additional data sources to inform our analytics and add desktop visualization tools to our client offerings. This promises to be a busy year!

Can Investors Anticipate the Impacts of Climate Change on Equities?

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

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

Monsoons Damage Automobile Manufacturers

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

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

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

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

Sea Level Rise in Japan

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

Assessing Companies’ Exposure to Climate Risk

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

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

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

 

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