Using Scenario Analysis to Assess Credit Impact of Climate Risks

Climate-driven extreme weather events and the transition to a low-carbon economy are expected to have material impacts on companies, with increasing significance for credit analysis. However, both physical and transition risks have a wide range of potential outcomes. To better understand the credit implications and prepare for climate risks it is important to assess the rage of possible outcomes for a given sector or company.

In its report, Climate scenarios vital to assess credit impact of carbon transition, physical risks, Moody’s Investors Service describes a conceptual approach to scenario analysis, leveraging Four Twenty Seven’s methodology for physical risks. The transition risk approach begins by assessing the sector-specific credit implications of national commitments to the Paris Agreement based on the IEA Stated Policies Scenario (STEPS). The second step is to assess the implications of a more ambitious transition scenario to see how firms may be affected by more rapid decarbonization.  This step leverages the IEA’s Sustainable Development Scenario.

For physical climate risk, Moody’s leverages Four Twenty Seven’s approach for exploring the range of potential outcomes in the next 30 years. It’s important to note that in the near-term the uncertainty in physical outcomes is not driven by policy changes, but rather by scientific uncertainty within the climate models. The climate takes a long time to fully respond to greenhouse gases in the atmosphere, so physical climate events in the next few decades will be driven by carbon dioxide that’s already been released. By grouping the outcomes of climate models within a single RCP into low, medium and high tiers one can explore the range of potential severity in climate hazards such as extreme temperature and precipitation. Moody’s will use data from Four Twenty Seven that follows this approach to provide a uniform starting point from which to explore the range of credit implications of different climate hazards across sectors.

Register for free to read the full report.

—————–

To learn more about scenario analysis for physical climate risks read Four Twenty Seven’s paper, Demystifying Climate Scenario Analysis for Financial Stakeholders and check out solutions for investors, banks and corporations to manage their climate risk.

Four Twenty Seven Announces its Physical Climate Risk Application

February 27, 2020 – BERKELEY, CA – Four Twenty Seven, an affiliate of Moody’s and the leading publisher of climate data for financial markets, today announces the release of a new on-demand climate risk scoring tool. This application responds to the financial sector’s growing call for the seamless integration of granular, forward-looking climate data into investment decisions and risk management practices.

Users are able to enter location and other data via an intuitive interface and immediately receive information on their assets’ exposure for floods, sea level rise, hurricanes & typhoons, heat stress and water stress to mid-century. The application allows users to browse and download detailed facility scorecards that include data on the underlying risk drivers for each hazard. The application also enables users to toggle between maps and tables to identify regional trends and multi-hazard exposure. Users can perform analyses for large volumes of locations via an API and integrate the outputs into downstream risk management and portfolio analysis applications.

As the material financial impacts of climate change become increasingly evident, understanding and preparing for climate risks is essential.  Real estate investors can use Four Twenty Seven’s physical climate risk app for due diligence and proactive risk management across their portfolio of properties. Portfolio managers can leverage the application to report climate risk exposure and enhance portfolio decision-making. Asset owners can evaluate long-term risk exposure and engage with corporations and managers to improve resilience. Banks can score thousands of locations at once to identify risk in commercial and residential lending portfolios. Corporations can identify risk hotspots and opportunities to build resilience in their global operations.

“We are excited to bring our on-demand physical climate risk application to the market.  Our app provides access to sophisticated climate model outputs in easily understandable metrics with just a few clicks,” says Four Twenty Seven’s  Founder & CEO, Emilie Mazzacurati. “Real-time access to forward-looking, location-specific data on climate risk enables investors, banks and corporations to manage their risk and invest in resilience.”

Learn more about the app or request a demo.

Download the Press Release.

Newsletter: The Economic Costs of Wildfires

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature an analysis of the economic risks of wildfires, highlight a Moody's report on climate risk of US utilities and share recent action by central banks.

In Focus: Impacts of Australia's Bushfires

427 Analysis - What California's Wildfires May Foreshadow in Australia

As Australia’s bushfires rage on, questions arise on the long-term impacts on human health, biodiversity and the economy. Four Twenty Seven's newest analysis highlights lessons learned from the recovery from recent wildfires in California and how they may apply in Australia. While immediate economic impacts include emergency relief bills, business interruptions, costly loss of goods and reduction in tourism, the long-term impacts vary based on municipalities’ financial resources, economic make-up and preparedness.

The analysis discusses wide-ranging outcomes in real estate markets, ranging from Santa Rosa, CA's increasing housing costs and mini economic boom after the 2017 fires to Paradise, CA's transformation from a town of 26,000 to a town of 2,000 and nearby Chico's associated 20% population grown and real estate boom due to fire evacuees.

A municipality's ability to rebound after a fire is largely determined by insurance penetration, percent of housing stock lost and whether or not there was long-term emigration from the area. However, cities not themselves touched by flames are also affected, from evacuees to toxic smoke. Preparing for this new normal is challenging, with many considerations to balance. California's costly "Public Safety Power Shutoffs" in the Bay Area last fall highlight the progress that still needs to be made in developing effective preventative measures for wildfires. 
Read the Analysis
Utilities Exposed to Increasing Climate Risk

Moody's Investors Service Analysis - US Regulated Electric Utilities Face Varied Exposure to Climate Hazards

Moody's new analysis leverages Four Twenty Seven's physical climate risk data to explore the exposure of regulated electric utilities to climate hazards, finding that there is varying exposure to climate risk which may be mitigated by adaptation. Changing temperature and humidity trends can lead to drastic changes in energy demand, while higher temperatures can reduce production capacity. These hazards are particularly prevalent in the Midwest and in southern Florida. Water stress is typically credit-negative for electric utilities which depend on water for cooling. Utilities in California and the Colorado River region are particularly exposed to water stress. The report highlights the utilities most exposed to these and other hazards, discusses the implications for their credit and emphasizes the importance of resilience investments to mitigate these risks.
New Warnings on the Material Risks of Climate Change

Financial Actors and Corporate Leaders Urged to Take Climate Seriously

The World Economic Forum for the first time identified climate-related risks as the top five most likely business risks, and also cited these risks among the most impactful for 2020. Climate change was a key topic at the annual meeting of business leaders in Davos last week, underscoring the urgent need to prepare for its impacts. Meanwhile, the CEO of the world's largest asset manager, BlackRock, wrote to CEOs emphasizing the systemic threat posed by climate change and urging corporations to show they are prepared. Climate risk will be enormously disruptive to markets, with short-term price corrections and long-term reallocation of value. Better transparency will ensure risk is priced accurately, and will motivate investments in adaptation and resilience at the corporate and municipal level.

Climate Risk as a Credit Risk

While physical climate risks are expected to occur on a longer time frame than many credit maturities, recent extreme weather events have made banks and other financial actors increasingly aware of the need to factor physical climate risks into decision-making. In their article, "The Changing Climate of Credit Risk Management,"  Four Twenty Seven's Chief Development Officer, Frank Freitas and Moody's Head of Portfolio and Balance Sheet Research, Amnon Levy, also highlight that "as a rule, more than half a firm’s value can be attributed to cash flows beyond 20 or 30 years." This underscores the materiality of climate risks that become increasingly prominent in the next several years.
Central Banks Move on Climate Risk Analysis

Climate Change - The Green Swan

"Traditional backward-looking risk assessments and existing climate-economic models cannot anticipate accurately enough the form that climate-related risks will take. These include what we call 'green swan' risks: potentially extremely financially disruptive events that could be behind the next systemic financial crisis." The Bank for International Settlements in collaboration with the Banque de France, released a new book on climate change, financial stability & the role of central banks.

Bank of England Consultation Paper on Climate Risk Scenarios

The Bank of England announced plans to integrate transition and physical climate risk into its Biennial Exploratory Scenario exercise in 2021. Building on the climate risk stress test for insurers released last year, this exercise will apply to both banks and insurers in 2021. The Bank welcomes feedback on its approach by March 18, 2020.

The French Central Bank's Climate Risk Stress Tests

Earlier this month the Banque de France announced that it will release scenarios for climate risk stress tests for its banks and insurers in March and aggregated results will be shared in December. Governor François Villeroy de Galhau emphasized the goal of the stress tests is to identify the resilience of France's financial sector while also improving climate risk assessments.
Webinar: Climate Risk in Real Estate

Moody's Analytics REIS Network Webinar: Feb. 4 at 2pm EST. 

Join this live webinar to learn about the Moody’s REIS Network and Four Twenty Seven’s physical climate risk data for real estate. The REIS Network is an ecosystem of connected applications joining extensive real estate data sets with investment and risk assessment workflows. 
During this webinar, FourTwenty Seven Senior Analyst, Lindsay Ross, will provide a demo of Four Twenty Seven’s on-demand physical climate risk application. Register here.
Inside the Office at Four Twenty Seven

Meet Controller, Yang Jing

Four Twenty Seven welcomes Yang as Controller. Yang implements efficient processes and policies in compliance with US and international accounting standards and Moody’s accounting policies. She is a Senior Vice President in Accounting for Moody’s, where she works with business leaders to ensure compliance with SEC and international accounting regulations while providing near real-time financial data to enable executive decision-making. 

Join the Team! Four Twenty Seven is Hiring

There are several opportunities to join Four Twenty Seven's dynamic team in offices across the U.S. and Europe. See the open positions below and visit our Careers page for more information.
  • Climate Risk Analyst with expertise in translating applied climate change science for a wide range of stakeholders
  • Regional Sales Directors (North America and United Kingdom), with extensive experience selling and supporting data products and services for large commercial, financial and government institutions
Upcoming Events

Join the Four Twenty Seven team at these events:

Twitter
Twitter
LinkedIn
LinkedIn
YouTube
YouTube
Facebook
Facebook
Website
Website
Email
Email
Copyright © 2020 Four Twenty Seven, All rights reserved.
Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

Our mailing address is:
Four Twenty Seven
2000 Hearst Ave
Ste 304
Berkeley, CA 94709









Demystifying Climate Scenario Analysis for Financial Stakeholders

December 4, 2019 – 427 REPORT. Scenario analysis is an essential yet challenging component of understanding and preparing for the impacts of climate change on assets, markets and economies. When focusing on the short term, the warming and related impacts we have already committed to calls for scenarios that are decoupled from economic and policy activities and instead focus on the impacts that are already locked in. This report explores which impacts are already locked in, identifies how Representative Concentration Pathway (RCP) scenarios fit into the conversation, and describes an approach to setting up scenario analysis for near-term physical climate risks.

Download the report.

As the effects of climate change increasingly threaten financial stability, investors and regulators are seeking to understand what impacts lie ahead, and calling for an increase in physical climate risk assessment and disclosure in line with the Task Force on Climate-related Financial Disclosures (TCFD). To assess the scale of financial risk posed by physical climate change it is important to quantify risks under different climate scenarios. How will changes in extreme weather patterns, longer droughts and rising seas differ under various scenarios? Answering these questions through scenario analysis helps uncover the range of risks, allowing investors to identify assets and markets that are more likely to become stranded over time and to begin developing forward-looking resilience strategies. However, science-driven, decision-useful scenario analysis poses many challenges for businesses and financial stakeholders today, due to complex feedback loops, varying timescales, and multiple interacting factors that ultimately determine how global climate change manifests.

 

Figure 2. Distribution of daily extreme temperature changes in 2030-2040, expressed as a percent change, relative to a baseline of 1975-2005 under RCP 8.5. This map shows statistically downscaled global climate models averaged together, for this time frame and scenario. NASA Earth Exchange Global Daily Downscaled Projections statistically downscales climate model outputs to a ~25 kilometer resolution (see full details here) White areas are excluded because they lack potential for significant economic activity.

This new report, Demystifying Climate Scenario Analysis for Financial Stakeholders, explores which physical impacts are already locked in, identifies how Representative Concentration Pathway (RCP) scenarios apply, and describes an approach to setting up scenario analysis for near-term physical climate risks. Scenario analysis is often approached from the perspective of transition risk, where policy developments and greenhouse gas (GHG) emission targets are the key drivers of risk pathways over the near-term, in the next 10 to 30 years. Physical risk, however, requires a different approach.  Impacts over the coming decades are largely locked in, making the emissions scenarios less relevant. Unlike transition risk, GHG emission pathways play a minimal role in the behavior of the near-term climate and GHG emission pathways only begin to meaningfully influence global temperatures near mid-century. The uncertainty in physical climate risks in the near-term is driven by uncertainty in physical processes, rather than in policy decisions.

For organizations looking to construct physical climate risk scenarios for risk management and strategy purposes, it is critical to understand the scientific phenomena driving our plausible climate futures. This report outlines an approach called percentile-based analysis, which allows users to explore the range of potential outcomes based on climate model outputs within a single RCP. This offers a flexible, data-driven approach, suitable for portfolio-level screenings, reporting, and in some cases, direct engagement with asset managers.

Key Takeaways:

  • Quantifying climate risks under different scenarios is a key element in understanding how physical climate risks pose financial risks.
  • Scenario analysis is often approached from the perspective of transition risk, where policy developments and greenhouse gas emission targets are the key drivers of risk pathways in the next 10 to 30 years. However, physical climate impacts over the coming decades are largely locked in, so physical risk requires a different approach.
  • Even if we stopped emitting carbon dioxide tomorrow, many physical climate impacts, such as increasing temperatures, more severe droughts, and rising sea levels, would already be locked in because of the time carbon dioxide stays in the atmosphere and the time it takes the atmosphere to respond.
  • The uncertainty in how physical climate risks may manifest in the next few decades is driven by model uncertainty, which should therefore be the focus of scenario analysis for physical climate risks in the near-term.
  • Percentile-based analysis offers a flexible, data-driven approach, suitable for portfolio-level screenings, reporting, and in some cases, direct engagement with asset managers.

Download the report.

Download the press release.

 

Four Twenty Seven Opens a Tokyo Office |フォー・トゥエンティー・セブンが東京オフィスを開設

OCTOBER 23, 2019 – BERKELEY, CA – Four Twenty Seven announces opening of Tokyo office and hires senior country representative.

Four Twenty Seven, an affiliate of Moody’s and the leading publisher of climate data for financial markets, is pleased to announce the opening of its office in Tokyo, Japan. Four Twenty Seven’s Tokyo office opens as investors and businesses in Japan and across the Asia-Pacific region face increasing market pressure to assess and disclose the risks physical climate hazards pose to their investments.

In conjunction with the opening of its office in Tokyo, Four Twenty Seven is also pleased to announce that Toshi Matsumae will serve as its Director of Japan. Toshi brings 30 years of experience leading financial services organizations in Japan. He leverages this expertise to lead Four Twenty Seven’s effort to provide climate risk screening to investors, asset managers, banks and corporations striving to understand their risk to physical climate hazards throughout Japan.

“We’ve seen growing demand from Japanese markets over the past year for transparency around exposure to physical climate risks in corporate assets, investment portfolios and in credit portfolios,” says Emilie Mazzacurati, Four Twenty Seven’s Founder and CEO.  “Four Twenty Seven’s on-the-ground presence in Japan will allow us to bring asset-level risk data to support this demand and inform global resilience-building.”

“The opening of Four Twenty Seven’s Tokyo office comes at a time when the financial sector is calling for better integration of forward-looking climate data into decision-making,” says Toshi Matsumae, Four Twenty Seven’s Director of Japan. “I look forward to working with investors and businesses throughout Asia to better understand and serve the needs of this evolving market.”

Download the Press Release.


2019年10月23日 –カルフォルニア、バークレー拠点の フォー・トゥエンティー・セブンが東京オフィスを開設

ムーディーズの関連会社で、気候変動に関するデータを金融業界に提供する業界のリーダー的存在のフォー・トゥエンティー・セブンは、この度東京オフィスの開設を発表した。これは日本及びアジア太平洋地域の投資家及び事業主が、彼らの投資物件と運用資産に対して日増しに増大する気候変動に伴う災害リスクと、それに対処するためのリスク評価及びディスクロージャーへの市場の要望に対応したものだ。

東京オフィスの開設に伴い、フォー・トゥエンティー・セブンは、この度、松前俊顕を日本事業の代表として起用することになった。松前は金融情報サービス業界での30年余りの経験を活かし、日本の投資家、資産運用会社、銀行、あるいは一般企業が今日抱える気候変動からの物理的リスクに対する科学的な理解と対応が可能となる気候リスクスクリーニングを提供していくことになる。

フォー・トゥエンティー・セブンの創業者で社長のエミリー・マザキュラティは「この一年日本の市場からは、企業資産、運用ポートフォリオ、債券ポートフォリオの気候変動の物理的リスクへの感応度に関する透明性を求める声が日増しに拡大してきた。」とコメントしている。さらに、「日本の市場でのフォー・トゥエンティー・セブンの存在で、銘柄レベルで提供される予想リスクデータにより、こうした要望に答え、他の主要地域での事例を伝えることができる。」と語っている。

さらに松前は「この度のフォー・トゥエンティー・セブンの東京オフィス開設は、まさに今日の金融業界からの要望のタイミングにマッチしている。日本及びアジア地域にて、気候変動インパクトに対するアプローチが確立されていなかった従来の状況から、気候データと科学的な対応が統合した意思決定に導かれる一助にフォー・トゥエンティー・セブンがなれることを希望する。」と付け加えている。

プレスリリースをダウンロード

Newsletter: Keeping Up with Regulatory Developments on Climate Risk

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature factsheets on regulatory action for financial climate risk, news from Four Twenty Seven and an update on the latest extreme heat.

In Focus: Financial Regulators Take on Climate Risk

Factsheets: Financial Climate Risk Regulation - What You Need To Know

Our new series, Financial Climate Risk Regulation, provides a summary of key recent and upcoming regulatory actions related to climate risk. From the European Union's directive on disclosure and the Bank of England's insurance stress tests, to France's surveys of its insurance and banking markets and the consultations of the European Supervisory Authorities around integrating sustainability into oversight requirements, regulators are moving quickly on climate risk with global implications for financial actors.

Staying up-to-date on these developments will provide early indications of regulatory action to come and give insight into potential rippling market impacts. Four Twenty Seven's factsheets on regulatory developments in the European Union, France and the United Kingdom, summarize each nation's stance on the financial risk of climate change, outline key actions and highlight upcoming dates to remember.
Read the Factsheets

NGFS Releases Technical Supplement on Climate Risk Assessments

Last week, the Network for Greening the Financial System published an overview of current approaches to assessing climate change's macroeconomic impacts and summarized key topics for further research. The supplement outlines ways for central banks and supervisors to assess climate-related risks through macroeconomic modeling, scenario analysis, stress testing, risk indicators and financial stability assessments.
"This is a Big Deal" - Media Coverage of Four Twenty Seven's Acquisition by Moody's
“This means the old paradigm of discussing climate change as part of so-called ESG (Environmental, Social and Governance) risks is inappropriate. The risks are increasingly physical and specific – the heat waves, the tsunamis, phenomena like the effect on Germany’s economy of two consecutive years’ low water in the Rhine. Models need to be adapted to them, new hedging opportunities created and ratings adjusted. It’s not a matter of fashion or reputation management but of basics like sales, cash flow and profit. Moody’s acquisition is a sign that the financial industry is beginning to take this on board," Leonid Bershidsky writes in a Bloomberg op-ed.

"Moody’s Corporation has purchased a controlling stake in a firm that measures the physical risks of climate change, the latest indication that global warming can threaten the creditworthiness of governments and companies around the world." The New York Times' Christopher Flavelle writes. 

Read more stories below and in our In the News page:
Heat Records Broken...Again

Extremely Hot Days are Expected to Continue

Last week, Belgium, Germany and the Netherlands all experienced their highest temperature ever recorded. Paris also hit a record high of 109°F (43°C), after France had its highest ever temperature 45.9°C (114.6°F) during a June heatwave made at least five times more likely due to climate change. Meanwhile, Anchorage, Alaska's 90°F temperatures surpassed previous records by five degrees. The city had at least 34 consecutive days of above average temperatures, with ice melt negatively impacting fishing and hunting and wildfires threatening human health. The eastern and midwest U.S. endured their first heat wave of the season this month, as thunderstorms and record heat disrupted power and took lives.

“There is likely the DNA of climate change in the record-breaking heat that Europe and other parts of the world are experiencing. And it is unfortunately going to continue to worsen,” Marshall Shepherd, professor of meteorology at University of Georgia told the AP. Earlier this month, the Union of Concerned Scientists released data projecting the number of days that will surpass extreme heat indices by mid-century and late century for every U.S. County. Under a 2.4°C (4.3°F) scenario, Los Angeles County may experience an average of 55 days annually with a heat index above 90°F, Dallas County would average 133 days and Broward County, FL 179 days. 

Extreme Heat Has Extreme Impacts on Economies and Human Health

The total cost of lost output due to extreme temperatures is projected to be $2.4 trillion annually according to the International Labor Organization's recent report. Agriculture and construction are expected to lose 60% and 19% of global working hours by 2030, with southern Asia and western Africa expected to experience the greatest losses.

Increasing average temperatures are already affecting industries around the world, as the alpine tourism sector takes a hard look at its climate risks and opportunitiesFrance declares a water shortage and water restrictions affect agriculture and industry across Europe.
Inside the Office at Four Twenty Seven

Meet Chief Revenue Officer, Lisa Stanton


Four Twenty Seven welcomes Lisa Stanton as our Chief Revenue Officer. Lisa oversees sales, client support, marketing and professional services globally. She brings over 25 years of experience in sales and client services for data analytics and investment products in the financial sector. 
Previously, Lisa spent twelve years with Barra, Inc. leading their client service, sales, consulting and partner relationships globally.  She has also led investment strategy and client relationship teams for Blackrock, AXA Rosenberg and, most recently, Grantham, Mayo, Van Otterloo, Inc., working with many of the world's leading institutional investors.

Four Twenty Seven Wins Wealth & Finance Award

Wealth & Finance Magazine recognized Four Twenty Seven with a Best in Climate-Related Economic Risk Reporting award. For six years the Alternative Investment Awards have acknowledged firms and individuals that positively shape the industry’s growth. “Historically considered an undervalued industry, the alternative investment has grown over the past few years. Behind this prominent growth and success, are the leading lights whose innovation, dedication and inventive ways has delivered some award-worthy results,” Wealth & Finance writes.

The award highlights Four Twenty Seven’s climate risk scores for listed instruments and on-demand scoring of real assets, that assess financial firm’s exposure to physical climate risk and inform risk reporting.

Upcoming Events

Join the Four Twenty Seven team at these events:

  • Aug 5 Climate Risk and Sovereign Risk in Southeast Asia, Singapore: Editor, Natalie Ambrosio, will present on sovereign climate risk. Invite-only.
  • Sept 10 - 12 – PRI in Person 2019, Paris, France: Stop by the Four Twenty Seven booth to meet with Chief Development Officer, Frank Freitas, Chief Revenue Officer, Lisa Stanton, Director Europe, Nathalie Borgeaud and other members of the team. 
  • Sept 16 – Insurance & Climate Risk Americas 2019, New York, NY: Lisa Stanton will attend.
  • Sept 23 - 29 – Climate Week NYC, New York, NY: Lisa Stanton and Senior Analyst, Lindsay Ross, will attend.
  • Nov 7-8 – Building Resilience 2019, Cleveland, OH: Director of Advisory Services, Yoon Kim, will speak on a panel about public-private partnerships.
Twitter
Twitter
LinkedIn
LinkedIn
YouTube
YouTube
Facebook
Facebook
Website
Website
Email
Email
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.
 

Our mailing address is:
Four Twenty Seven
2000 Hearst Ave
Ste 304
Berkeley, CA 94709








Factsheet — Financial Climate Risk Regulation in the European Union

July 29, 2019 – 427 FACTSHEET. Regulation on climate risk in Europe is likely to have a rippling effect across markets globally. There has been key legislation in the past few months, with more action on the agenda. Staying up-to-date on these developments will provide early indications of regulatory action to come. This factsheet on regulatory developments in the EU provides key background to the EU’s sustainable finance agenda, outlines key actions and highlights upcoming dates to remember.

Since establishing the High-Level Expert Group on Sustainable Finance (HLEG) in 2016, the European Union (EU) has positioned itself as a leader in sustainable finance. It has made rapid progress on integrating climate change into its financial sector, simultaneously addressing it from several angles, including risk disclosure, green bond labels, a taxonomy for adaptation and mitigation, and risk management oversight directives. As global financial actors operate, and are regulated, in Europe, EU regulations are likely to propel a development in best practices for addressing climate risk that reaches beyond the EU. Likewise, regulators and financial actors across the world are watching carefully as EU regulation may influence their own action. This factsheet, Financial Climate Risk Regulation in the European Union, summarizes the EU’s stance on the financial risk of climate change, notes key regulatory players and highlights recent and upcoming regulatory action applicable to financial markets.

Key Takeaways

  • The EC completed several milestones from its Action Plan in June 2019, including publishing updated nonbinding guidelines for incorporating climate risk into the non-financial reporting directive and releasing the Technical Expert Group report on a taxonomy for activities that contribute to climate adaptation and mitigation.
  • In April 2019, the European Parliament and Council agreed on text for regulation on disclosures relating to sustainability risks and investments, explicitly stating that climate change demands urgent action.
  • The European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority have provided technical advice on proposed changes to oversight requirements, suggesting that sustainability be explicitly integrated into risk management, operations, investment strategies and governance.
  • The European Banking Authority will spend two years assessing environmental, social and governance risks and their management in the banking sector. The assessment will be used to develop a draft amendment requiring “large institutions” to disclose their risk and the disclosures will be required three years after the regulation is implemented.

Read the Factsheet.

Read Four Twenty Seven’s other Factsheets on Financial Climate Risk Regulation.

Factsheet — Financial Climate Risk Regulation in France

July 29, 2019 – 427 FACTSHEET. In 2015 France laid the groundwork for legislating climate risk disclosure with Article 173 of its Energy Transition Law, mandating that publicly traded companies and asset managers report on their physical and transition risks from climate change. Building on its track record as an early mover, France’s financial regulators are now actively involved in national and international endeavors to frame climate risk as a financial risk and determine the most effective response.  Staying up-to-date on these developments will provide early indications of regulatory action to come. This factsheet on regulatory developments in France provides background on France’s sustainable finance agenda, outlines key actions and highlights upcoming dates to remember.

France’s Art. 173 helped build support for the Taskforce on Climate-related Financial Disclosures recommendations, prompted firms to begin disclosing climate-related risks early and set an example for other nations considering regulation on climate risk disclosure. Since this landmark legislation, French financial regulators have become engaged on addressing financial risks from climate change and the Banque de France was a co-founder and provides the Secretariat for the Network of Central Banks and Supervisors for Greening the Financial System (NGFS), which is focused on propelling the transition to a low-carbon and sustainable economy. By providing the Secretariat for the NGSF, the Banque de France identifies itself as a key player in international efforts to address climate risk. This factsheet, Financial Climate Risk Regulation in France, summarizes France’s stance on the financial risk of climate change, notes key regulatory players and highlights recent and upcoming regulatory action applicable to financial markets.

Key Takeaways

  • Banque de France was the first central bank to release an assessment of its climate risks in line with the TCFD and Art. 173, aiming to set an example of best practice for the French financial sector.
  • ACPR’s fall 2018 survey of the French insurance sector found that disclosures in Art. 173 reports varied between firms and lacked reporting on long-term climate strategies and yearly progress. ACPR made suggestions for insurers to improve their climate risk management based on this review.
  • In summer 2018, ACPR surveyed its banking sector on banks’ climate risk management, identifying “advanced institutions,” larger banks with ample resources that have integrated climate into risk management, and “wait-and-see” institutions, which are largely domestic, retail-oriented banks still focused on a corporate responsibility approach to climate change.
  • France’s stock market regulator, AMF, released a report asserting that climate change has been identified as a financial risk, it is still not sufficiently assessed by the market, and the regulator’s role is to inform and raise awareness on the topic.

Read the Factsheet.

Read Four Twenty Seven’s other Factsheets on Financial Climate Risk Regulation.

 

Four Twenty Seven Receives Majority Investment from Moody’s Corporation

We’re excited to announce that Four Twenty Seven has received a majority investment from Moody’s Corporation.  The acquisition bolsters Four Twenty Seven’s mission to help investors and corporations integrate climate change risk into investment decisions.

Four Twenty Seven will continue to be headquartered in Berkeley, CA, operating under its existing brand, and will be an affiliate of Moody’s Investors Service.

“Four Twenty Seven’s climate risk analytics, combined with Moody’s global coverage and extensive analytical capabilities, provides an ideal path to help market participants integrate climate impacts into risk management and investment decisions,” said Emilie Mazzacurati, Founder and CEO of Four Twenty Seven.

Four Twenty Seven scores physical risks associated with climate-related factors and other environmental issues, including heat stress, water stress, extreme precipitation, hurricane and typhoons and sea level rise. Its scores and portfolio analytics feature extensive global coverage and quantify climate risk exposures across asset classes, with detailed data covering over 2,000 listed companies, one million global corporate facilities, 320 REITs, 3,000 US counties, and 196 countries. Four Twenty Seven’s data and indicators are used by asset owners, asset managers, banks, corporations and government agencies to understand and evaluate the potential climate risk they hold in their portfolios and activities.

The addition of Four Twenty Seven enhances Moody’s growing portfolio of risk assessment capabilities and underscores the company’s work to advance global standards for assessing environmental and climate risk factors. Four Twenty Seven will also strengthen Moody’s growing thought leadership and research on incorporating climate risk into economic modeling and credit ratings. The deal complements Moody’s recent acquisition of Vigeo Eiris, a leading provider of ESG research, data, and assessments.

“Four Twenty Seven has built a strong platform for quantifying climate-related exposures and producing actionable risk metrics, which are essential to understanding and informing climate risk and resilience measures,” said Myriam Durand, Global Head of Assessments at Moody’s Investors Service. “Moody’s is committed to offering global, transparent standards for assessing environmental risk, and the acquisition of Four Twenty Seven advances our objective of integrating climate analytics into our offerings.”

About Four Twenty Seven

Four Twenty Seven (427mt.com) is the leading provider of market intelligence on the impacts of climate change for financial markets. We tackle physical risk from the ground up by identifying the locations of corporate production and retail sites around the world and their vulnerability to climate change hazards such as sea level rise, droughts, floods and tropical storms, which pose an immediate threat to investment portfolios.

Four Twenty Seven’s ever-growing database includes over one million corporate sites and covers over 2000 publicly-traded companies. Four Twenty Seven also produces climate risk scores for Real Estate Investment Trusts, U.S. Munis and Sovereigns. We offer data products and software solutions  to access these unique data offerings, as well as reporting services, scenario analysis and real asset portfolio risk assessments .

Four Twenty Seven has won multiple award for its innovative work on climate risk and resilience and our work has been featured by Bloomberg, Reuters, NPR and the Financial Times. Four Twenty Seven was founded in 2012 and is headquartered in Berkeley, California with offices in Washington, DC, Paris, France, and soon, Tokyo, Japan

Download the Press Release.

Four Twenty Seven Wins Alternative Investment Award

JULY 8, 2019 – LONDON, UK – Four Twenty Seven receives Wealth & Finance Magazine’s Alternative Investment Award for Best in Climate-Related Economic Risk Reporting 2019. 

Wealth & Finance Magazine recognized Four Twenty Seven among the winners of their 2019 Alternative Investment Awards. For six years these awards have acknowledged firms and individuals that positively shape the industry’s growth. “Historically considered an undervalued industry, the alternative investment has grown over the past few years. Behind this prominent growth and success, are the leading lights whose innovation, dedication and inventive ways has delivered some award-worthy results,” Wealth & Finance writes.

The Best in Climate-Related Economic Risk Reporting award highlights Four Twenty Seven’s climate risk scores for listed instruments and on-demand scoring of real assets, that assess financial firm’s exposure to physical climate risk and inform risk reporting. Our analysis leverages best-in-class climate data at the most granular level and scores assets on their exposure to physical climate impacts based on their precise geographic location. Investors use this data to drive investment strategies, forward-looking risk management and TCFD/risk disclosures.