The Compounding Challenges of Climate Hazards and COVID-19

April 22, 2020 – Four Twenty Seven Analysis.  The devastating human health and economic impacts of the COVID-19 pandemic are exacerbated by climate hazards, which threaten communities around the world. This analysis explores exposure to floods, heat stress, hurricanes and wildfires in U.S. municipalities alongside the impacts of COVID-19 on the same regions. It discusses the compounding challenges for economies, infrastructure and human health and the importance of preparing for these overlapping disasters.

Introduction: Climate Preparedness Takes on New Meaning

Last week in the Southern U.S., residents and policy-makers weighed the risks of high winds and flooding alongside the risks of spreading COVID-19, as many evacuated to storm shelters, and 750,000 people lost power across ten states from Texas to West Virginia. Meanwhile that same week 50,000 people in Connecticut lose power because of a storm, with restoration efforts complicated by COVID-19 precautions. The threat of climate-driven extreme weather events takes on new meaning when standard responses such as evacuating to shelters conflict with guidelines for preventing the spread of the disease. The pandemic’s impacts have been compared to Hurricane Katrina hitting all 50 states. FEMA, which is leading the nation’s response, typically only battles disasters in a few states at once.

To ensure the safety of residents, many are typically urged to evacuate ahead of hurricanes and wildfires. However, crowded evacuation centers are prime conditions for diseases to spread. Authorities in several states are actively exploring the best responses to this challenge, considering options for increasing the capacity of evacuation centers, taking temperatures before admitting evacuees and booking blocks of hotel rooms as a last resort.

Hazards such as heat waves and wildfires pose human health risks that will contribute to already overwhelmed healthcare systems. Further, many communities rely on cooling centers and visit public spaces such as shopping malls to seek relief during summer months. Measures to reduce the spread of COVID-19 include the closure of facilities such as libraries and malls that typically serve as cooling centers. During a time when residents are encouraged to stay in or near their own homes, a heat wave would pose new danger. However, measures to improve preparedness, such as ensuring that hospitals have back-up power generators, improving availability of virtual healthcare and seeking alternative sources of personal protective equipment, will help communities prepare for the impacts of climate hazards as well as the pandemic.

The economic consequences of the pandemic also exacerbate the challenges presented by climate hazards for cities and residents. For those individuals who have lost their jobs due to COVID-19-related closures, decreased income may make it difficult to acquire needed emergency supplies or pay to relocate to a safe haven. Local governments already reaching deep into their coffers and straining existing resources, may have trouble allocating emergency personnel and resources to evacuate residents and to rebuild after a disaster.

This analysis explores the regions of the U.S. that are particularly exposed to the climate hazards of floods, heat stress, hurricanes and wildfires and how this exposure may exacerbate existing challenges due to COVID-19.

Extreme Rainfall and Flooding

Devastating flooding last year disrupted lives, threatened livelihoods and contributed to 19 million acres of cropland going unplanted. Seventy percent of those acres were in the Midwest, which was sodden for months. Communities are bracing for new floods this year which are expected to be severe, though not as devastating as last year’s floods. Counties in the Midwest are among the most exposed to increasing extreme precipitation due to climate change in the next several decades (Figure 1), where these floods are likely to become a regular occurrence.

Figure 1. Exposure to extreme rainfall by county, with red representing the most exposed counties and dark green representing the least exposed. Source: Four Twenty Seven.

This year, inundation would exacerbate the existing challenges of containing COVID-19, while COVID-19 containment precautions would, in turn, make flood response more challenging. Midwestern states such as Michigan, Illinois and Indiana are among states with the highest number of COVID-19 cases relative to their populations. While less densely populated communities have fewer cases to date, many Midwestern counties such as Cook County in Illinois and Franklin and Hamilton Counties, in Ohio already have a significant number of COVID-19 cases. Likewise, smaller towns typically have fewer financial resources and fewer staff dedicated to emergency relief.

The economies of many Midwestern communities depend upon agricultural and manufacturing industries, which require manual labor and the physical presence of the employees. Some manufacturing facilities reopened to produce personal protective equipment, and farms and grocery stores are both considered essential. However, these industries are at heightened risk of disruption from employees falling ill, as seen at several meatpacking facilities across the country. Floods can exacerbate these challenges, inundating roadways, manufacturing facilities, farms, and even grocery stores, preventing healthy staff from getting to and from their place of employment and disrupting the movement of goods. These impacts can also threaten food security if they disrupt food supply chains.

Heat Waves

Figure 2. Exposure to heat stress by county, with red representing the most exposed counties and dark green representing the least exposed. Source: Four Twenty Seven.

NOAA predicts above-average temperatures for much of the country through July, with no regions expecting below-average temperatures. Exposure to extreme heat is concentrated in Missouri and western Illinois, fanning out across the Midwest and South and including several areas that have had high numbers of COVID-19 cases to date (Figure 2). For example, the metropolitan areas surrounding Chicago and Detroit have both been hard hit by COVID-19 and face moderate exposure to heat stress. The Southeast corner of Florida faces high numbers of COVID-19 impacts as well as high heat stress and a looming hurricane season.

It is currently unclear how warmer temperatures will affect the spread of the virus. However, heat waves hinder worker productivity and can lead to safety concerns for outdoor workers, such as farmers. In addition to their human health impacts, heat waves also lead to higher peak energy demand as use of air conditioning surges. If governments and businesses alike continue to require or encourage their employees to work from home, reliance on air conditioning and power will likely be higher this year than in typical summer months. Resulting power outages can disrupt business continuity, particularly with operations dispersed across employees’ homes.

Hurricanes

Figure 3. Exposure to hurricanes by county, with red representing the most exposed counties and dark green representing the least exposed. Source: Four Twenty Seven.

Climate change is contributing to more frequent intense hurricanes and more severe storms are expected this season compared to the average season. States along the Gulf Coast and Atlantic Ocean are highly exposed to hurricanes (Figure 3), and several of these states, such as Louisiana and Florida, also have among the highest numbers of COVID-19 cases to date.

Local governments that depend upon sales tax are likely to feel the most immediate fiscal impacts from COVID-19, while those that rely more on property tax may feel longer term impacts influenced by foreclosures. In Florida, sales tax was responsible for 77% of the state’s general revenue in the 2018-2019 fiscal year, which suggests that it will face the fiscal impacts of COVID-19 over the next several months, corresponding with the hurricane season, when funds may be most needed. Other states, such as Louisiana, have extended their tax filing date indefinitely, which will delay tax income. Regions that depend on tourism, such as the Florida Keys, will be going into hurricane season with fewer fiscal resources than usual this year. A lack of fiscal resources will challenge preparedness efforts and emergency response to hurricanes.

Wildfires

As climate change contributes to more severe droughts and extreme heat events, wildfire season in the western U.S. has worsened over the past several years. California, Washington and Colorado are among those states most exposed to wildfires, and they are also among those states with the highest numbers of COVID-19 cases to date.

While the spring is usually spent preparing for wildfire season, these preparations have been hindered this year. Annual efforts to remove brush have been postponed, while hiring has been delayed and annual trainings have been canceled. Fire agencies are going into this year’s season understaffed, with many firefighters already sick or quarantined. They are also wary of the dangerous conditions of base camps, where firefighters sleep in close quarters on the front lines.

The economic impacts of COVID-19 on employment and incomes will exacerbate the losses caused by wildfires and will likely lead to higher numbers of residents facing tough questions around whether or not to leave an area if they lose their homes. The resulting emigration or delayed rebuilding will in turn reduce local government revenues.

Residents in fire-prone areas increasingly wear N95 masks to protect themselves from wildfire smoke. However, these masks are in short supply and authorities have directed that masks should be saved for medical personnel. If shortages persist into this year’s wildfire season, communities could face greater long-term respiratory health impacts due to wildfire smoke.

Conclusion

As COVID-19 continues to spread and its timeline remains unknown, each region of the country faces exposure to climate hazards which will complicate containment efforts. However, in a time when local jurisdictions and individuals are paying increased attention to disaster preparedness there is an opportunity to strategically prepare for climate hazards and invest in resilience that supports responses to any disaster. Hurricanes, wildfires, floods and heat waves are inevitable in our changing world, and the more proactive resilience-building that occurs, the better positioned communities will be to minimize the loss of lives and livelihoods.

COVID-19 and Climate: Multifaceted Impacts

March 18, 2020 – 427 ANALYSIS.  The spread of the coronavirus (COVID-19) has created a global public health emergency and catalyzed an economic recession.  The crisis also has important implications for climate action and resilience-building. This analysis highlights several of these interacting factors.

The unprecedented global public health crisis from COVID-19 has led to a deteriorating global economic outlook, but  also presents a range of implications for climate change. While COVID-19’s immediate impacts include emissions reductions, the longer-term impacts on climate action and resilience-building are more complex. Likewise, COVID-19 may provide insight into how prepared communities are for the increasing frequency of disasters and how financial institutions can prepare for sudden disruptions. This article will explore several of these impacts, outlining topics to watch as we strive to understand the long-term implications and ensure the safety of communities and businesses.

COVID-19 and Emissions

The rapid spread of COVID-19 has led some of the world’s largest economies to grind to a halt as social distancing measures prohibit non-essential business. The resulting emissions reductions provide a small silver lining to this unprecedented global crisis. In mid-February China’s emissions were 25% lower than a few weeks prior and Italy’s nitrogen dioxide emissions have dropped significantly. However, these may be short-term victories for the planet.

There is much more uncertainty on long term effects. On the one hand, this period of disruption will likely be followed by economic stimulus efforts, providing credits to industries with large emissions, such as steel, cement, and airlines, driving a rapid rebound in emissions. On the other hand, experts note that there is potential for the outbreak to shift travel patterns for the long-term, leading to more telecommuting as companies get acclimated to remote work. There is potential for permanently behavior changes that would have long term impact on oil demand and emissions. Whether or not governments focus on promoting a rebound in traditional energy or use this as an opportunity to catalyze a systemic shift to reduce emissions could be a key determinant in the impact on long-term greenhouse gas emissions.

Setbacks to Climate Action

It is evident that in the short-term ambitious climate policies are not a priority, as the attention of citizens and legislators turns to safeguarding communities and economies from the multifaceted impacts of COVID-19. Numerous climate-related events have been canceled, and in-person negotiations planned ahead of COP-26 have been delayed through at least April. The U.K. changed its generous environmental budget allocations and Spain stopped all legislative activity, with implications for climate action. While the European Union has announced a continued commitment to its Green Deal, meant to make the European Union climate neutral by 2050, the news has gotten limited attention due to the circumstances.

As increasingly severe travel and gathering restrictions begin to have rippling impacts, ongoing climate research is disrupted, including arctic research expeditions and several NASA projects. These studies include research on the ocean-atmosphere heat exchange, seasonal hydrology in the Mississippi River, and thunderstorms across the U.S. While NASA does not expect the delays to be detrimental to the projects, delays may range from several months to over a year. This may challenge efforts to ensure that the most current science underpins resilience-building efforts and climate progress.

Lessons Learned in Preparedness

A global pandemic is a well-rehearsed scenario in risk management, and institutions that had prepared and thought through implications of such an occurrence are faring better than those with less preemptive planning. For example, last October banks in Hong Kong underwent a stress test that simulated a pandemic, cyberattack and telecom breakdown happening concurrently. Now facing an actual pandemic, some banks are grateful for additional preparedness measures they had implemented due to the stress test. The COVID-19 crisis may in turn lead banks, other businesses and governments to identify opportunities for additional preparedness measures for future risk.

Reduced Resilience

As communities around the world face various levels of restrictions and concern for large gatherings grow, supply chains are threatened and manufacturing grinds to a halt, vulnerability to climate impacts increases. If a devastating storm or wildfire forced residents from their homes into crowded evacuation centers, the typical damage, loss and public health costs would compound upon the danger and challenges already being faced due to COVID-19. Likewise, the costs of recovery from a climate disaster would be dire on top of the increasing economic uncertainty.

Similarly, as companies face the impacts of the pandemic, including adapting to remote work if possible, an extreme weather event would complicate their efforts. While office buildings and key facilities may be prepared with generators in case of power outages and water proofing for floods, business’ operations are now particularly dependent on public power and communication infrastructure, as well as the resilience of each employee’s home. In addition to the disruption if employees are ill, many businesses are more vulnerable to disruptions from climate hazards during this time, which in turn increases macroeconomic vulnerability. Of course, the pandemic itself has many multifaceted economic and business impacts.

Conclusion: Underscoring the Need for Resilience

COVID-19 has understandably pushed climate action to the back burner as the public health crisis unfolds and fears of a long-term economic recession are pressing. However, the ways policy-makers, business and individuals respond to today’s public health emergency and the resulting successes and failures may provide lessons for responding to other multifaceted disasters, applicable to extreme weather events and natural disasters. Likewise, the COVID-19 crisis may reinforce the value of preparedness for businesses and communities and help highlight opportunities to invest in adaptation and resilience.

 

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.
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Economic Impacts of Bushfires: What California’s Wildfires May Foreshadow in Australia

January 29, 2020 – 427 ANALYSIS. As Australia’s bushfires rage on, questions arise on the long-term impacts on human health, biodiversity and the economy. This analysis shares lessons learned from the recovery from recent wildfires in California to offer some pointers of what might happen when the bushfires finally subside. 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.

Real Estate Markets

Over the past three years wildfires have razed thousands of buildings across California, destroying multiple communities. The impacts on real estate markets varies depending on the share of properties destroyed in a local community, as well as insurance penetration. After five percent of Santa Rosa’s housing stock burned in 2017, the city experienced an increase in property prices and rents following the fire: displaced households needed new dwellings, construction workers and emergency relief officials needed housing and amenities, and local businesses found new clientele. Although an estimated 3,300 people left Sonoma County after the 2017 fires, in Santa Rosa, CA, rebuilding has occurred more rapidly than expected. The areas affected by the fires had relatively high insurance rates, and families were able to pay for the reconstruction of their houses. Irreplaceable personal items were lost, but the city experienced a mini-economic boom due to construction in the area.

In contrast, the city of Paradise went from 26,000 residents before the Camp Fire down to 2,000. More than one year later, only a handful of houses have been rebuilt, and many residents struggle with whether they should move back. Insurance penetration was much lower in Paradise, and many low-income households cannot afford to rebuild their lives there.

Aside from short-term shortages in housing stock, long-term impacts on real estate and local economies depend on two main factors: whether the area experienced a permanent or long-term population loss, and whether insurance companies continue to offer policies for the area. This phenomenon has also been at play after other climate-related events, such as when Hurricane Maria hit Puerto Rico. The storm led to a four percent decrease in the island’s population.

Impacts can also indirectly touch other communities near wildfires: the same Camp Fire that devastated Paradise narrowly missed the neighboring city of Chico, CA. While Paradise’s economy has yet to recover, within three months of the fire, Chico’s population grew by 20%, with the addition of about 20,000 people. While Chico became the nation’s hottest real estate market the month after the fire, it also missed relief funds offered to towns touched by flames. From a sewer system now tasked with transporting 600,000 more gallons per day, to the need for more police force and a higher hospital demand, a year after the event, the city struggled to accommodate a population the city planners hadn’t expected for a decade.

Business Impacts

In California, the biggest impact was on the utility sector. As power lines and electric equipment were found to have started the wildfires, the liability ultimately resulted in Pacific Gas & Electric’s (PG&E) bankruptcy, coined “the first climate-change bankruptcy.” In Australia fires are most often started by dry lightning so utilities are not so exposed to liability risk, but may still be exposed to significant costs from disruptions and repairs associated with wildfires.

The insurance sector is also very exposed. Merced Property and Casualty local insurance company went bankrupt after California’s Paradise fire. The company had USD23 million (AUD34 million) in assets and owed USD64 million (AUD94 million)  in liabilities after the fire, which the state of California took over after the company defaulted. Insurance claims for the bushfires have already reached around AU939 million (USD646 million). Australian insurance companies could face material losses, particularly those with concentrated portfolios of properties or companies in regions affected by the fires.

For example, insurer IAG is the primary insurer in New South Wales and is thus expected to face the most financial risk from the current fires. IAG and Suncorp have both temporarily stopped selling wildfire insurance in exposed areas of Australia, to prevent last-minute insurance purchases. The final bill may be absorbed by reinsurance companies, which also need to contend with multiple, costly events globally. Increased losses, even if they do not lead to a bankruptcy, can also open the door to liability. In 2019 insurance giant QBE saw a shareholder resolution regarding its lack of preparedness for climate impacts.

Beyond utilities and insurance, businesses across sectors face several short-term risks from wildfires, including business interruptions, labor shortages and reduced consumer activity due to evacuations or smoke which can affect urban centers not themselves touched by flames. Businesses may also face increased costs due to equipment and property damage or loss.  In the long term, recurring wildfires could decrease attractiveness of certain parts of Australia, which would reduce companies’ hiring pool and decrease tourism revenues.

Municipal Resources

Residents’ decisions to stay in a recovering area is largely affected by whether insurance companies choose to provide coverage or pull out after wildfires. This in turn, is a key factor in the viability of long-term development and the strength of cities’ tax bases. Faced with potential population loss, local governments may attempt to provide public insurance if private insurers leave a city or region, such as the National Flood Insurance Program (NFIP) in the U.S. However, as seen with the NFIP, this mechanism can lead to unsustainable development and a moral hazard, encouraging unwise economic decisions by shifting risks from the individual buying property, to the government and therefore the public.

The desire to help an area rebuild needs to be balanced against a forward-looking perspective on the new realities of climate change. As temperatures increase, droughts become more common and wildfire conditions become more frequent, climate change will make some areas no longer suitable for human settlement. In California some insurers have stopped offering wildfire insurance to certain fire-prone counties. After careful deliberation the state recommended the creation of a Wildfire Victims Fund to help pay claims to wildfire victims, while also supporting wildfire mitigation. However, this comes alongside recommendations to require home and community fire risk reduction standards, establish a development fee for new construction in the wildland-urban interface, and mandate that new development must be reachable by firefighters within a maximum amount of time.

The impact of wildfires on a city’s credit rating may also affect its economic prospects after an event. Issuers in Sonoma County were not downgraded after the 2017 fires, because of their strong credit quality, insurance coverage, commitment to rebuilding and long-term economic viability. The County has an emergency reserve fund, which helped make up the shortfall in property taxes for destroyed properties, assuaging any concern from rating agencies on their balance sheet post-disaster.

However, a Moody’s credit analyst noted that smaller, less well-resourced communities like those burned during the 2018 fires in rural Shasta County, will face less rapid rebuilding, which means less revenue and more difficulty repaying their debt. This highlights the need for proactive preparedness efforts, particularly as those municipalities in particular need of financing may see credit declines if they experience wildfire loss.

Hidden Costs: Health Impacts

Image Credit: NASA Earth Observatory/Aqua/MODIS

Wildfires’ impacts on human health can be long-lasting and widespread. While Paradise, CA burned down in 2018 San Francisco, about 200 miles away, had the worst air quality in the world. This led to school closures and business disruptions during the event, but its impacts are still being felt. Three to five months after Sonoma County’s 2017 fires there was a 20% increase in emergency room visits for breathing challenges, as well as a 20% increase in visits for cardiac problems three months after those fires. While populations are advised to stay inside to shelter from smoke, many evacuation victims do not have that option.

Suburban wildfire smoke is particularly dangerous because burning gas stations, buildings, cars and other man-made materials releases many toxins, along with tiny PM 2.5 particles. The long-term impacts of inhaling countless chemicals are not yet fully understood but will likely exacerbate the well-documented damage to lungs and hearts caused by PM 2.5 particles. As public health costs increase, municipalities’ expenses may rise and human productivity may decline, posing additional risk to economies and communities made fragile by wildfire.

Preparing for a New Normal

Recent attempts at risk mitigation highlight the challenges to improve prevention. In October and November 2019 over a million Californian’s lost power during multiple PG&E “Public Safety Power Shutoffs,” meant to reduce the risk of wildfire during “red flag” conditions, with high winds and warm temperatures. With less than a day’s notice in some cases, residents, businesses and schools around San Francisco’s Bay Area spent days without power. Elderly and those relying on medical equipment faced life threatening hardship, local businesses experienced significant loss, long-term, high-profile research was disrupted, and costs of the event were expected to be around USD2 billion (AUD3 billion).

Australia and California used to share firefighting resources since they didn’t need them at the same time, and firefighting contractors built their businesses around staggered fire seasons. Now, Australia and California fight fires concurrently, business models must shift and municipalities must reallocate resources.

As climate change increases the occurrences of wildfires across the globe, policymakers and communities will need to balance these considerations and invest in adaptation and resilience to limit the impact of future fires.

This article was also published on The Fifth Estate and Which-50.

Natalie Ambrosio contributed to this analysis.

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Four Twenty Seven works with investors and businesses to provide portfolio hotpot screenings and real time due diligence with site-specific data on heat stress, water stress and other climate risks. Wildfire analytics are forthcoming. Contact us for more detailed analysis and site-specific data on climate risk exposure and its economic impacts.

Newsletter: How does climate risk threaten financial stability?

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature analyses on climate change from the Federal Reserve, highlight insights on climate risk across sectors and announce the opening of Four Twenty Seven's Tokyo Office.

In Focus: Regulators Speak Up on the Financial Impacts of Climate Change

Federal Reserve Publishes Research on Climate Resilience

Last week, the Federal Reserve Bank of San Francisco released a set of articles on the impacts of climate change on communities and the economic and financial implications of these risks. The articles cover a range of topics including the impacts of sea level rise on real estate assets and lending, the need for innovation in insurance markets and the implications of climate-induced migration for the private sector. Four Twenty Seven contributed a piece on the connection between community resilience and asset-level resilience, describing a methodology for investors to understand and promote community adaptive capacity.

"The collection of 18 papers by outside experts amounts to one of the most specific and dire accountings of the dangers posed to businesses and communities in the United States — a threat so significant that the nation’s central bank seems increasingly compelled to address it." - The New York Times' Christopher Flavelle wrote.
Read the Publication

International Monetary Fund to Assess Financial Risk of Climate Change

“'We are doing work on the pricing of climate risks and to what extent it is priced into stock and bond markets,' Tobias Adrian, financial counselor and director of the IMF’s monetary and capital markets department, told Reuters." Adrian cited the costly impact of Hurricane Dorian in the Bahamas and growing investor concern around the mispricing of climate risk in mortgage-backed securities as examples of the widespread financial impacts of climate change. This was one of many climate change conversations at the IMF's annual meeting last week.
Resources for Resilience Across Sectors  

Optimizing Community Infrastructure

Optimizing Community Infrastructure: Resilience in the Face of Shocks and Stresses examines the multiple dimensions of infrastructure that underpin resilient societies. The book discusses transportation infrastructure as well as utilities, land use and buildings and includes case studies and guidance on financing resilient infrastructure. Four Twenty Seven co-wrote a chapter with Climate Finance Advisors that examines how physical climate risks can impact infrastructure assets throughout their life cycle and ways in which investors and lending institutions can identify and manage physical climate risks in infrastructure assets. 

Resilient Cities - Transforming Over Time

This set of editorials discusses innovative opportunities to adapt communities and infrastructure to climate risks. The pieces cover the economic and social elements of climate risk and resilience, and Four Twenty Seven contributed an article, Addressing Shared Climate Risks to Build Community-Corporate Resilience. 

Podcast: Climate Change is Here. Are We Ready?

Founder & CEO, Emilie Mazzacurati, joins a new podcast, The Last Environmentalist, to discuss the evolving views of climate risk in the financial sector. Emilie describes near-term impacts of climate change on real estate markets, adaptation actions taken by corporations and the linkages between climate risk and resilience across private and public sectors.
 Climate Change Exacerbated the Impacts of Typhoon Hagibis
Within 24 hours Typhoon Hagibis sent over three feet of rain into areas surrounding Tokyo, as fierce winds exacerbated flooding from storm surge. At least 74 people died, 34,000 homes lost power and 110,000 lost running water. Meanwhile, disrupted ground transportation and damaged facilities had rippling effects. Subaru stopped operations at three facilities in the area due to disruptions at their suppliers, other automobile manufacturers halted production at damaged facilities and logistics firms incurred the costs of doubling their distance with alternate routes. 

While many areas of Japan have robust building standards to account for already frequent typhoons, the frequency and distribution of storms in Japan is shifting. Three of Japan's most costly typhoons since 1950 have happened in the past two years, with Typhoon Hagibis expected to be the fourth. The storm was unique partly because it is rare for storms to hit Tokyo with so much force. Research shows that tropical cyclones in the Northwest Pacific Ocean Basin are reaching maximum intensities further north than they used to, partly influenced by climate change, which means areas less accustomed to these extreme storms may experience them more often. 
Inside the Office at Four Twenty Seven

Four Twenty Seven Opens Toyko Office and Announces Country Director

Yesterday, Four Twenty Seven announced the opening of its Tokyo Office. This 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.

Four Twenty Seven welcomes Toshi Matsumae as Director of Japan. Toshi leverages his 30 years of experience in sales and development 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,” said 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.”

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.
  • 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
  • Controller experienced in financial reporting, planning and analysis
  • Director of Financial Data Systems with significant experience in the development and management of financial data processing, storage and retrieval
Upcoming Events

Join the Four Twenty Seven team at these events:

  • Oct 25 – Yale Alumni Real Estate Annual Conference, New Haven, CT: Senior Analyst, Lindsay Ross, will speak about resilience planning in real estate.
  • Nov 5 – Moody's ESG Conference, London, UK: Director of Analytics, Nik Steinberg, will discuss climate change's financial implications and Chief Revenue Officer, Lisa Stanton, will also join. 
  • Nov 7 –  Moody's U.S. Public Finance Conference, New York, NY: Lindsay Ross will participate. 
  • Nov 7 - 8 – Building Resilience 2019, Cleveland, OH: Global Director of Client Services, Yoon Kim, will speak on a panel about public-private partnerships.
  • Nov 8 – Yale Initiative on Sustainable Finance Symposium, New Haven, CT: Editor, Natalie Ambrosio, will speak about physical climate risk disclosure. Invite-only.
  • Nov 13 - 15 – SRI Conference, Colorado Springs, CO: Natalie Ambrosio will speak about physical climate risk in investments.
  • Nov 21 - 22 – IACPM 2019 Annual Fall Conference, Miami, FL: Lisa Stanton will speak at this International Association of Credit Portfolio Managers conference.
  • Nov 29 – Climate Finance Day, Paris, France: Lisa Stanton, Director, Europe, Nathalie Borgeaud, and Senior Analyst, Léonie Chatain, will attend.
  • Dec 4 – 2019 HIVE Conference, Austin, TX: Strategic Advisor, Josh Sawislak, will present about how to use data to build resilience. 
  • Dec 4 - RI New York 2019, New York City, NY: Yoon Kim, will speak on the panel “Banks, insurers and climate risk stress-testing,” and Lindsay Ross and Natalie Ambrosio will host Four Twenty Seven's booth.
  • Jan 6 - Jan 9NCSE 2020 Annual Conference, Washington, DC: Yoon Kim and Lindsay Ross will speak about cross-sector resilience-building and resilient infrastructure, respectively.
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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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The Last Environmentalist Podcast: Climate Change Is Here. Are We Ready?

How does the private sector view climate change, why is this important for global climate adaptation and how does someone in this field remain motivated?  Founder & CEO, Emilie Mazzacurati, joins Josh Dorfman’s new podcast, The Last Environmentalist, to discuss these topics and much more. The conversation covers the evolving views of climate risk in the financial sector and how this awareness can translate into resilience-building.  Emilie describes near-term impacts of climate change on real estate markets, adaptation actions taken by corporations and the interacting nature of climate risk and resilience across private and public sectors.

For more detail on climate risk in real estate, read our recent analysis, Real Estate Climate Risks: How Will Europe be Impacted? For more insight on shareholder engagement, read our report, Engaging with Corporates to Build Adaptive Capacity.

Addressing Shared Climate Risks to Build Community-Corporate Resilience

Introduction: Companies Begin Adapting to Climate Change

Increasingly severe and frequent extreme weather events and chronic stresses are threatening urban communities and economic stability globally. In September 2019, during Typhoon Faxai almost a million people lost power throughout Tokyo and commuter trains were canceled. Evacuations were ordered, disrupting both residential life and business operations. Sony stopped operations at a PlayStation 4 console manufacturing site due to power outages, a Nissan production facility was partly flooded, and 10 shipping containers tipped over at Tokyo Port. In the United States, Hurricane Dorian led to the closure of ports spanning from Miami to Georgetown, with implications for local and global trade and the businesses downstream in the supply chain.

Businesses are increasingly aware that climate change hazards pose financial risks through operational disruptions and repair costs. Some corporations are beginning to implement resilience measures, investing in forward-looking climate risk assessments, considering flood resilience measures for their facilities, and improving their water efficiency. However, asset-level preparedness is only the beginning of essential climate resilience measures that businesses must take. Economic resilience is integrally connected to community resilience because corporations rely on functional transportation, power, and water infrastructure for their operations and depend on the city residents that make up their employee and client bases.

Economic Resilience & Community Resilience: Two Pieces of the Same Puzzle

Economic resilience is critical to community resilience, while business continuity is also dependent on resilient communities and infrastructure. Local businesses underpin local economies, which are key to maintaining stability within a city. As credit rating agencies increasingly integrate physical climate risks into their municipal bond ratings, cities’ preparedness for climate impacts will shape their access to capital. Economic stability is a key element in credit rating agencies’ methodologies for determining municipal credit ratings. Thus, the resilience of local business and economic activities to climate impacts will be a key feature of assessments of city climate resilience.

 

Figure 1. Hurricane Irma flooded this parking garage in downtown Jacksonville, FL. Extreme weather events disrupt infrastructure with implications for the businesses and residents that rely on their services. Photo from iStock.

Likewise, local businesses contribute directly to community resilience. Job opportunities attract new residents to cities and a growing population means a growing tax base, with more financial resources to invest in adaptation. When local businesses recover quickly after extreme events, residents retain their jobs and are more likely to stay in the area, both sustaining the tax base and maintaining social capital—an important element of urban resilience. When businesses are resilient to extreme events they can also offer emergency support, including turning their facilities into shelters, offering food, and donating rescue and first aid equipment, as seen after Hurricane Harvey hit Houston in 2017.

However, it is not a one-way relationship. If a catastrophic hurricane or wildfire destroys homes, displaces residents, and disrupts transportation infrastructure in a city, even climate-proofed corporate facilities will not be able to operate effectively. If employees cannot get to work safely or if they are displaced from the area, business operations may be disrupted. Likewise, if goods cannot be transported to and from a manufacturing facility or storage center, disruptions can ripple through supply chains with wide economic impacts. During Japan’s deadly rainfall in July 2018, Mazda Motor Corporation’s headquarters incurred no major damage. However, operations were halted for days because over 100 employees had flooded homes and many faced challenges traveling to work.

Innovation: Partnering Across Sectors for Shared Resilience

Since the resilience of businesses and cities is inextricably connected, the most effective resilience-building will involve collaborating towards shared resilience. Private and public sector stakeholders often use different terms, have different operating and planning processes, and are unaccustomed to collaborating with counterparts from the public or private sector. The development of a model for private-public partnerships that leverages respective strengths and advances shared climate resilience priorities, is a needed innovation.

Businesses and governments must work to establish trust and create a shared language around climate risks, establishing a foundation for successful collaboration on proactive adaptation and resilience planning as well as disaster response. Each can engage by identifying and contributing their strengths to shared efforts. Businesses can provide resources for the adaptation planning process and implementation, including technical expertise, staff time, and financial resources. For example, Facebook contributed over $200,000 to the development of the San Francisquito Creek Joint Powers Authority’s strategy for sea level rise resilience along the San Francisco Bay, which had implications for its Menlo Park campus. These local vulnerability assessments or adaptation plans can inform businesses’ own resilience-building efforts, while climate risk assessments completed for corporate risk management initiatives can also inform regional resilience planning. Information-sharing goes both ways.

Corporations rely on community adaptation to build resilient regional infrastructure and minimize the impacts of extreme events on their assets. Private-public partnerships can be an important mechanism for building support for these initiatives. For example, the Bay Area business community was influential in passing Measure AA, the regional parcel tax to restore the San Francisco Bay and improve resilience to flooding.

Private-public partnerships can also identify opportunities to increase regional preparedness for extreme events. For example, Airbnb works with San Francisco’s Hub for Emergency Preparedness and Portland, Oregon, to enable hosts to offer their homes for free and for other residents to open their homes to disaster victims in areas affected by an extreme event. This system allowed Airbnb to provide lodging to residents in the wake of Hurricanes Harvey, Maria and Irma in 2017, potentially reducing emigration and increasing the possibility of residents continuing to go to work.

As companies begin to incorporate forward-looking climate risk assessment into their processes, they are increasingly well positioned to engage with the surrounding community to support informed resilience building. Likewise, local governments can bring their understanding of climate change impacts on city infrastructure and operations to inform collaborations with the businesses in their community. Effective partnership, leveraging shared objectives and values, as well as unique capabilities, is called for now to improve economic and urban resilience in the face of changing climate conditions.

This article was originally posted by NewCities and was written with support from Yoon Kim.

Newsletter: How will climate affect Europe’s real estate & U.S. retail?

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature analysis on climate risk in European real estate, Moody's research on credit quality and heat stress and the first climate resilience bond.

In Focus: Real Estate Climate Risk in Europe

Four Twenty Seven Analysis - Real Estate Climate Risks: How Will Europe be Impacted?

From this summer's record-breaking heat waves to storm-surge induced flooding, Europe is increasingly experiencing the impacts of climate change. Extreme events and chronic stresses have substantial impacts on real estate, by damaging individual buildings, decreasing their value and potentially leading to unusable assets. These asset-level impacts also have wider market implications.

Our latest analysis assesses the exposure of retail sites and offices across Europe to floods, sea level rise and heat stress. We find that 19% of assessed retail spaces and 16% of offices in Europe are exposed to floods and/or sea level rise, with floods presenting the highest risk for both types of asset. The analysis identifies the cities with the largest percent of facilities exposed to floods and sea level rise, and discusses the implications this exposure has for business continuity and real estate markets across the continent. 
Read the Analysis
Credit Quality in U.S. Governments Exposed to Heat Stress

Moody's Investors Service Analysis - Growing Exposure to Heat Stress Mitigated by Economic and Fiscal Strengths

Moody's new analysis overlays Four Twenty Seven's data on exposure to heat stress in U.S. governments with information on outstanding debt and credit quality, finding that 21% of outstanding debt they rate is exposed to high or very high heat stress. This exposure is concentrated in the central U.S. and Florida. The Southeast has the most debt exposed to heat stress, but this debt tends to be from larger, well-resources governments with diverse economies, which improves governments' resilience to extreme events. Bloomberg covers the report, emphasizing the potential implications of heat stress for Midwest bond issuers. Register for free to read the analysis:
Read the Report
New Principles Support Integration of Resilience into Bond Markets

CBI Releases Climate Resilience Principles 

Last Week the Climate Bond Initiative released Climate Resilience Principles, integrating forward-looking climate risk assessment and resilience considerations into bond markets. The guidance document is meant to inform investors', governments' and banks' reviews of how projects and assets contribute to a climate-resilient economy. The principles will be integrated into the Climate Bonds Certification of green bonds, signaling a valuable step toward the consistent use of resilience standards for debt projects. Four Twenty Seven is proud to have contributed to the Adaptation and Resilience Expert Group that developed the principles. 

EBRD Issues First Climate Resilience Bond

The European Bank for Reconstruction and Development (EBRD) issued the first bond to solely finance climate resilience projects. This is the first bond to fulfill the requirements of the new Climate Resilience Principles. Craig Davies, head of climate resilience investments at the EBRD, told Environmental Finance "The climate resiliency principles that the CBI has developed are a really important landmark because they very clearly set out eligibility criteria, and some very simple but clear and robust methodologies for defining a climate-resilient investment." The EBRD's four year bond raised $700 million to finance "climate-resilient infrastructure, business and commercial operations, or agricultural and ecological systems."

The EBRD also released a consultation draft of a Framework for Climate Resilience Metrics in Financing Operations this week. The report, published jointly with other multilateral development banks and the International Development Finance Club, outlines a vocabulary to facilitate consistent discussion and measurement of resilience investment.
Global Commission on Adaptation Launches Year of Action
The Global Commission on Adaptation presented its flagship report, Adapt Now: A Global Call for Leadership on Climate Resilience this week at the United Nations Climate Summit. This report emphasizes the return on investment of climate adaptation, noting that "investing $1.8 trillion globally in five areas from 2020 to 2030 could generate $7.1 trillion in total net benefits." It focuses on early warning systems, climate-resilient infrastructure, improving dryland agriculture, mangrove protection and increasing the resilience of water resources. This kicks off the Commission's Year of Action, during which it will advance recommendations, accelerate adaptation, promote more sustainable economic development and collate findings to present at the Climate Adaptation Summit in October 2020.
The Commission's report was informed by a paper called Driving Finance Today for the Climate Resilient Society Tomorrow by the UNEP Finance Initiative and Climate Finance Advisors. It outlines financial barriers to the acceleration of adaptation investment and recommends six actions to unlock adaptation finance. These actions include accelerating climate-relevant policies, implementing climate risk management, developing adaptation metrics, building financial sector capacity, highlighting investment opportunities and leveraging public institutions to accelerate adaptation investment. 
Retailers Prepare for Physical Climate Risk
Women's apparel store, A'gaci, filed for bankruptcy in January 2018 after most of its stores were hit by hurricanes in Texas, Florida and Puerto Rico. Hurricanes can affect retail operations by causing building damage, merchandise loss and supply chain disruptions, and Hurricane Irma caused an estimated $2.8 billion loss for the sector. Retail Dive explores the implications of climate change for the retail sector at large, using Four Twenty Seven's data on retail site exposure. With over 17,000 retail facilities exposed to floods in the U.S., some businesses are beginning to prepare, reorganizing their distribution patterns and supply chains. Some retail stores, such as Home Depot, can also see increases in demand after extreme events, and will particularly stand to benefit if their facilities are resilient to climate hazards and can accommodate the associated surge in business. 

New research by a Federal Reserve Board Economist, finds that weather variability impacts retail sales. On average, sales tend to increase with temperature and decrease with rain and snowfall. Overall there is not a clear shift in shopping habits from outdoor stores to indoor venues during extreme weather, but these patterns do show regional variation, suggesting that the impacts of extreme weather events vary by region. The impact of extreme events on sales will have an impact on retail employees and local economies depending on these companies. Businesses can leverage this research, alongside data on climate risk exposure, to plan for these shifts in consumer behavior. 
Inside the Office at Four Twenty Seven

Meet Operations Coordinator, Naoko Neishi 

Four Twenty Seve welcomes Naoko, who supports senior management and works with the Operations Manager to achieve operational excellence. Naoko has over 16 years of experience as a sales assistant and office manager in the United States and Japan, working in the financial and engineering industries.

Upcoming Events

Find Four Twenty Seven at Climate Week NYC:

Join the Four Twenty Seven team at these events:

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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.
 

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








AIA Video: Stripping Down Climate Risk

Why do climate risks matter for real assets and how can we invest in a more resilient future? There is a growing need to ensure that infrastructure assets and real estate are built to withstand the increasingly severe weather events we experience in a changing climate. Four Twenty Seven Strategic Advisor, Josh Sawislak, discusses how different types of uncertainty will influence physical climate impacts and transition risk outcomes, and how asset design can consider these impacts. Innovating in climate resilience is essential to reduce risk management costs, but it also provides economic opportunities around job creation and product development.

Four Twenty Seven offers real asset screenings and data on climate risk in real estate to inform climate risk mitigation and investments in resilience. Read our paper on Climate Risk, Real Estate, and the Bottom Line or our blogs on scenario analysis for physical climate risk to learn more about these topics.

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.  
Read the Blogs
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.
Upcoming Events

Join the Four Twenty Seven team at these events:

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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.
 

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