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

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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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Disasters are Getting Worse and We Need a New Plan

I couldn’t seem to turn on the TV this week without being inundated with coverage of the ongoing floods and tornadoes in the Midwest. The dearth of other content is not just due the doldrums of the sports and political seasons — things are genuinely getting worse on the disaster front. Much worse.

The horrible scenes of twister damaged homes across the Midwest and continuing flooding along the entire Mississippi River merely displaced the stories on recovery efforts from the Hurricanes Maria, Irma, Harvey, Michael as well as the Camp Fire and other drought inflamed disasters in California and the Western U.S.

The Fourth National Climate Assessment predicts more frequent and severe storms, longer and more severe droughts, and the continued and likely accelerating rise of sea levels. All of this will only add to the challenges faced by states, counties and municipalities that are on the front lines of these disasters and to the taxpayers who foot the bill for the hundreds of billions in recovery and rebuilding costs.

The Government Accountability Office found that the increasing frequency and scale of disasters as well as the federal government’s role in funding recovery and flood and crop insurance, make climate disaster a high risk for federal fiscal exposure. GAO reported that the federal recovery efforts alone have cost nearly half a trillion dollars since 2005. To put that spending in context, it represents approximately $4,000 out of the pockets of every American family. Congress will either have to put our nation further into debt or shift the burden to our taxpayers. Addressing climate change is not only an environmental imperative, it’s critical to our nation’s economic security.

It is clear that we have learned a lot about how to respond to, and recover from, major disasters. In the past 40 years. federal agencies, state and local governments, and the extensive network of volunteer organizations such as the American Red Cross, Habitat for Humanity and the Cajun Navy deserve much credit for their growing ability to save lives and help rebuild communities.

It is also clear that just getting better at response and recovery will keep us on the defensive, always playing catch-up. More importantly, the focus and investment post-disaster does little to keep us safe in the first place. We have to retire the old approach that we can just come in after the storm or fire and rebuild — even if we rebuild stronger. Ask anyone who lost their home, business, community or especially a loved one to one of these disasters. They will tell you that as appreciative as they are for the world-class support from governments and volunteers, it’s small comfort for the trauma and years of personal recovery they face. We need to get ahead of the curve by investing in resilient communities and infrastructure so fewer families have to live in devastation.

Congress is beginning to address this. While some members seemed locked in a partisan fight that is keeping funding from storm and fire ravaged communities in Texas, Florida, Puerto Rico, and California, Congress did add a program in the 2018 Disaster Recovery Reform Act that shines a ray of hope on efforts to be more proactive in disaster mitigation. The creation of a National Public Infrastructure Pre-Disaster Mitigation fund, which FEMA plans to implement through a new program called Building Resilient Infrastructure and Communities allows FEMA to invest in communities before a disaster strikes. Research by the National Institute of Building Sciences found that just building to the current resilient building codes returns 11 times the cost of the initial investment. FEMA’s new program will allow several hundred million dollars in resilient investments to move forward each year without having to run the congressional appropriations gauntlet, but this is really just a small start.

FEMA’s new pre-disaster fund represents only six cents for every dollar spent on reactive recovery. We need to help communities rebuild, but we also need to be serious about investing to make our communities safe from the coming storms, fires, and other climate threats. While construction to current resilient building codes is the right answer for new construction, it doesn’t address the vast balance of structures built on codes that are old and don’t address the new science and technology of climate resilience. We need to invest in fixing or replacing our failing infrastructure and ensuring that all new construction is resilient to future risks — or we will face this problem all over again.

This doesn’t mean that the federal government alone shoulders the entire responsibility. A successful resilience strategy will only work if we bring both the public and the private sectors into the fight. Resilient building codes are one example, but we also need to value and incentivize resilient investments for everyone.

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. Some of these jobs are found in building, upgrading and maintaining our new and existing infrastructure to make it resilient to the increasing risks from a climate-impacted world.

Not only can we put Americans to work building our resilient future, we can take the lessons we learn in that effort and export it to the rest of the world. This is an approach that works for all Americans and provides a strong economic as well as environmental future for people in all parts of our nation and the world.

This is what we did to become world leaders in democracy, agriculture, manufacturing and technology in the previous centuries, and we can do it with climate in the 21st century. Climate change is real and addressing it is literally an opportunity we can’t afford to ignore.

This story was first published on The Hill.

Anticipating Sea Level Rise Impacts on Real Estate Investments

What does the future hold?

New research on sea level rise emphasizes the potential for dire changes over the course of the century. Recent satellite data suggests that warming water is causing East Antarctica to melt more quickly than previously thought and a study released in early May found that almost a quarter of West Antarctica’s ice is thinning, with its largest glaciers shrinking five times faster than in 1992. A study based on expert opinion found that there is the possibility of sea levels rising by 2 meters (6.5ft) under an extreme scenario of  5˚C global temperature increase. This would mean an area of land as big as Libya would be lost, and up to 2.5% of the population globally could be displaced.

The cascading direct and indirect impacts of sea level rise affect all facets of the regional economy. Source: Union of Concerned Scientists.

Extreme scenarios of sea level rise will have severe impacts on our cities and economies. Sea level rise is happening today to a lesser extent; however it is already having tangible impacts on real estate values. This means increasing costs for property owners and tenants, but it also has far-reaching market impacts on access to and cost of insurance, fluctuations in market values and potential increase in local taxes to fund adaptation efforts.

Of all U.S. states, Florida is expected to experience the greatest consequences of sea level rise. Between 1960 and 2015, sea levels along the Florida coast rose by 10-15 cm (4-6 in), and the range of projections vary wide looking a few decades out, with projections ranging from  33 to 122cm  (13-48 in) by 2060.

Widespread flooding risk in Florida

65,000 homes in Florida worth $35 billion are expected to be underwater or impacted daily by high tides in 2040. From soaring insurance premiums and increasing risk of disclosure to declining property value and diminishing tax revenue, sea level rise is already challenging property owners, investors and banks. Among other impacts, the value of single-family homes in Miami-Dade County that are exposed to sea level rise declined by about $465 million between 2005 and 2016.

Furthermore, climate change is predicted to increase the number of strong hurricanes in the region. These stronger storms will combine with sea level rise to exacerbate the impacts of extreme floods. Storm surge flooding damages buildings and landscaping,  destroys merchandise,  and can also have wide-reaching economic impacts due to damaged power and transportation infrastructure.

Downtown Jacksonville, FL flooded during Hurricane Irma. Source: iStock.

Last but not least, tidal flooding, also called “nuisance” or “sunny day” flooding increased from 1.3 to 3 days per year in the Southeast from 2000-2015. By the end of the century tidal flooding could happen daily.  Even with no rainfall, these floods have significant impacts – halting traffic, overburdening drainage systems and damaging infrastructure.

Investors and businesses have a responsibility to understand these risks: using best available science to measure exposure to sea level rise and other flood risks, getting informed on adaptation efforts by local governments, and engaging with local industry associations or other groups to promote further investments in resilience.

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Four Twenty Seven works with investors to provide portfolio hotpot screenings and real time due diligence with site-specific data on sea level rise and other climate risks. Contact us for more detailed analysis and site-specific data on sea level rise exposure and detailed analysis of local jurisdictions’ response.

Bond Buyer Podcast: Facing up to Climate Change

Do bond ratings reflect governments’ and businesses’ exposure to physical climate change?  Founder & CEO, Emilie Mazzacurati, joins the Bond Buyer’s Chip Barnett to discuss physical climate risk for investors, businesses and governments. Emilie describes the financial sector’s growing awareness of material climate risk in their bond and equity portfolios and shares efforts being taken to understand and address these risk. Chip and Emilie also discuss the challenges cities face when striving to adapt to climate impacts, the benefits of building resilience and the interactions between corporate and community resilience.

For more insight on the interactions between climate change, cities and financial risk read our reports on Assessing Exposure to Climate Risk in U.S. Munis and Assessing Local Adaptive Capacity to Understand Corporate and Financial Climate Risks, or listen to our webinar on Building City-level Climate Resilience.

Four Twenty Seven Wins Climate Change Business Journal Awards

FEBRUARY 19, 2019 – SAN DIEGO, CALIFORNIA – Four Twenty Seven receives Climate Change Business Journal Awards for three climate change risk and resilience projects. 

The Climate Change Business Journal (CCBJ) released its 10th annual CCBJ Business Achievement Awards, recognizing outstanding business performance in the climate change industry. CCBJ assesses markets and business opportunities across the emerging climate change industry and acknowledged Four Twenty Seven’s contributions to this field through our global dataset on climate risk in real estate, the development of the California Heat Assessment Tool and our contribution to the EBRD-GCECA initiative on Advancing TCFD Guidance on Physical Climate Risks and Opportunities.

Four Twenty Seven and GeoPhy earned the Technology Merit: Climate Change Risk Modeling and Assessment award for releasing the first global dataset on climate risk exposure in real estate investment trusts (REITs). REITs represent an increasingly important asset class that provides investors with a vehicle for gaining exposure to real estate portfolios. However, real estate is also increasingly affected by risks from climate change. Four Twenty Seven applied its scoring model of asset-level climate risk exposure to GeoPhy’s database of listed REITs holdings to create the first global, scientific assessment of REITs’ exposure to climate risk.

The California Heat Assessment Tool (CHAT) earned the Project Merit: Climate Change Adaptation and Resilience award for its innovative approach to helping public health officials, health professionals and residents understand what changing heat wave conditions mean for them, through a free online platform. CHAT is part of California’s Fourth Climate Change Assessment, a state-mandated research program to assess climate change impacts in California, and was developed by Four Twenty Seven, Argos Analytics, the Public Health Institute and Habitat 7 with technical support from the California Department of Public Health.

The European Bank for Reconstruction and Development and the Global Centre of Excellence on Climate Adaptation initiative on Advancing the TCFD Recommendations on Physical Climate Risks and Opportunities earned the Advancing Best Practices: Climate Change Adaptation and Resilience award. This project culminated in a conference and report building on Taskforce on Climate-related Financial Disclosure (TCFD) recommendations and providing common foundations for the disclosure of climate-related physical risks and opportunities. It identifies where further research or market action is needed so that detailed, consistent, industry-specific guidelines can be developed on the methodology for quantifying and reporting these risks and opportunities. Four Twenty Seven and Acclimatise provided the technical secretariat that led the working groups and authored the report.

Newsletter: Towards Adaptation Standards

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

In Focus: Assessing Local Adaptive Capacity 

427 Report: Helping Corporations and Investors Understand
Local Adaptive Capacity 

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

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

EU Technical Expert Group on Sustainable Finance  

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

Expert Group on Resilient Bond Standards

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

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

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

Plugging the Climate Adaptation Gap with High Resilience Benefit Investments

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

Financing Climate Futures: Rethinking Infrastructure

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

Money for Resilient Infrastructure

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

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

Upcoming Events

Join the Four Twenty Seven team at these upcoming events:

  • January 23 – From Sciences Po to the Economic Risk of Climate Change, San Francisco, CA: Hear Founder & CEO, Emilie Mazzacurati, speak at this Sciences Po American Foundation event at 6:30pm. Use discount code 427 for a $10 ticket.
  • February 12 – Investing for Impact, New York, NY: Emilie Mazzacurati will present on adaptation as an impact investment opportunity at this annual convening hosted by The Economist.
  • March 20-22 – Climate Leadership Conference, Baltimore, MD: Emilie Mazzacurati will speak about the evolving landscape of climate risk disclosure.
  • April 10-12 – RI Asia Japan, Tokyo, Japan: Chief Development Officer, Frank Freitas, will present on climate analytics for investors and Emilie Mazzacurati will also join this convening.
  • April 13-16  – APA National Planning Conference, San Francisco, CA: Director of Advisory Services, Yoon Kim, and Director of Analytics, Nik Steinberg, will speak on a panel called, "Beyond Vulnerability: Innovative Adaptation Planning."
  • April 23-25 – National Adaptation Forum, Madison, WI: Editor, Natalie Ambrosio, will present on local adaptive capacity from a private sector perspective. 
  • April 29 - May 1  – Ceres Conference 2019, San Francisco, CA: The Four Twenty Seven team will join investors and corporations at this annual gathering.
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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

Assessing Local Adaptive Capacity to Understand Corporate and Financial Climate Risks

January 15, 2019 – 427 REPORT. Building resilient communities and financial systems requires an understanding of climate risk exposure, but also of how prepared communities are to manage that risk. Understanding  the adaptive capacity, or ability to prepare for change and leverage opportunities, of the surrounding area can help businesses and investors determine how exposure to climate risk is likely to impact their assets and what the most strategic responses may be. This report outlines Four Twenty Seven’s framework for creating location-specific actionable assessments of adaptive capacity to inform business and investment decisions and catalyze resilience-building. 

Every investment, from real assets to corporate initiatives, is inextricably connected to its surrounding community. From flooded or damaged public infrastructure hindering employee and customer commutes to competition for water resources threatening business operations and urban heat reducing public health, the impacts of climate change on a community will impact the businesses and real estate investors based in that community. Thus, evaluating how acute and chronic physical climate hazards will affect local communities and communities’ responses enables investors and corporations to assess the full extent of the risks they face.

This report, Assessing Local Adaptive Capacity to Understand Corporate and Financial Climate Risks, outlines Four Twenty Seven’s framework for capturing a city’s adaptive capacity in a way that’s actionable for corporations seeking to understand the risk and resilience of their own facilities and for investors assessing risk in their portfolios or screening potential investments. The framework focuses on three main pillars: 1) awareness, 2) economic and financial characteristics, and 3) the quality of adaptation planning and implementation. It is informed by social sciences research, recent work by credit rating agencies, and our experience working directly with cities and investors.

Figure 2. After New York City subways were flooded during Hurricane Sandy, the New York MTA issued a catastrophe bond to obtain $200 million in insurance coverage, providing an important financial safety net for the city. Image from Wikimedia, by Metropolitan Transportation Authority of the State of New York used with a Creative Commons Attribution 2.0 Generic license.

While a city’s adaptive capacity plays a key role in determining whether or not exposure to climate hazards will lead to damage and loss, cities are also likely to find that their resilience to climate impacts is an increasingly important factor in attracting business and financing, as adaptive capacity is more frequently integrated into credit ratings and screening processes. It is valuable for both cities to understand how investors are interpreting adaptive capacity and for investors to understand which factors of local adaptive capacity translate into increased resilience and reduced financial loss for their assets.

Key Takeaways

  • Corporate and real asset investments can be financially impacted by climate-driven weather events and chronic stresses, even with strong internal risk management systems in place, as climate events can affect the broader community and disrupt local infrastructure.
  • Adaptive capacity, the ability to adjust to potential damage and leverage opportunities, will influence how local jurisdictions and infrastructure are affected by climate-driven weather events.
  • Four Twenty Seven has developed a framework to assess the adaptive capacity of local jurisdictions to inform the private sector, examining a city’s awareness of climate impacts, economic characteristics, and adaptation planning efforts.
  • Understanding a local jurisdiction’s adaptive capacity provides opportunities to engage with decision-makers and relevant institutions to support local efforts to build resilience.

Download the report.

Newsletter: California’s Fourth Climate Change Assessment

Four Twenty Seven's monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don't miss the new California Heat Assessment Tool, funding opportunities for risk mitigation and a preview of resilience events at upcoming conferences!

In Focus: Health-based Heat Projections

Four Twenty Seven tool developed under California’s Fourth Climate Change Assessment identifies regions most vulnerable to extreme heat

The California Heat Assessment Tool helps identify neighborhoods with populations vulnerable to heat and overlays projections for heat events likely to cause health impacts. This new research establishes local, health-based thresholds for extreme heat that help public officials, health professionals and residents understand what changing conditions mean for them. The tool can be searched by city, county or zip code and provides data at the census tract level.

Four Twenty Seven developed the tool with funding from the California Natural Resources Agency, in partnership with Argos Analytics, the Public Health Institute and Habitat Seve, and  technical support from the California Department of Public Health.

Access the Tool
California Releases Fourth Climate Change Assessment 

“In California, facts and science still matter,” said Governor Edmund G. Brown Jr. “These findings are profoundly serious and will continue to guide us as we confront the apocalyptic threat of irreversible climate change.”

Released yesterday, California's Fourth Climate Change Assessment includes 44 projects advancing actionable science to serve the growing needs of state and local-level decision-makers from a variety of sectors. Explore all technical reports and outputs at www.ClimateAssessment.ca.gov

"State energy officials said the assessment underscores the urgent need not only for swift global reductions in greenhouse gas emissions but also local actions to protect California from warming that’s already threatening people, natural resources and infrastructure." The Los Angeles Times reports.

“We’re seeing that in the fire situation, we’re seeing that in sea level rise, we’re seeing that in heat spells, in declining snowpack,” said California Energy Commission Chairman Robert Weisenmiller. “The climate is changing now so we need to be adapting our communities.”

Four Twenty Seven at GCAS and PRI

Join our GCAS side event on Sept. 11 in San Francisco

Safeguarding local infrastructure, businesses and the economies they support requires an understanding of the interconnected nature of the climate vulnerabilities of communities, businesses and financial institutions.

This affiliate side event, hosted by Four Twenty Seven, will feature investor, business and government thought leaders to discuss cutting edge projects and collaboration to build community and economic resilience. From 8:30-11:30am on Sept. 11 at Arup. 

This is a free invite-only event with limited capacity. Please express interest to be added to the list and we will review and confirm your registration shortly.
Express Interest

Join Four Twenty Seven at other side events on climate resilience

 
Looking for other applicable events? We've compiled a list of resilience-related side events that are pertinent for investors, corporations and communities. Browse our Google Doc, updated on an ongoing basis, to spot the most interesting side events on climate risk and climate science. Email nambrosio@427mt.com if you'd like your event to be included in our curated list.
More Events
Four Twenty Seven at CAF This Week

Join as at the California Adaptation Forum today and tomorrow! Visit our booth and meet with the team at the following panels:

  • Today from 1:05-1:25pm: Senior Data Analyst, Josh Turner, will demo the California Heat Assessment Tool at the Tools Salon.
  • Today from 2:55-4:10pm: Director of Advisory Services, Yoon Kim, will moderate a panel on "Heat Resilient Transit and Cool Streets." 
  • Today from 4:25-5:50pm: Yoon will moderate a panel, "Who Pays? The Implications of Liability, Insurance, And Credit Ratings on Adaptation Finance."
  • Wednesday from 9:30-10:45am: Manager, Advisory Services, Kendall Starkman will moderate a panel, "From Idea to Action: Mobilizing Adaptation Implementation Through Partnerships."
  • Wednesday at 1:30pm: Kendall will speak at the event, "ASAP Members Lead the Transfer of Adaptation Takeaways to GCAS tomorrow at 1:30pm. Editor, Natalie Ambrosio, will speak at the annual in-person ASAP meeting during the second half of this session.
Funding Opportunities to Build Resilience

Several funding opportunities for hazard mitigation projects in California

  • PDM and FMA Funding Opportunities:There is $235,200,000 nationwide for the PDM Program and $160,000,000 nationwide for the FMA Program, which provide funding for the development of local hazard mitigation plans (LHMPs) and implementation of hazard mitigation projects.The Notice of Interest for both grants is due by September 4, 2018. For more information visit Cal OES or email PDFM@caloes.ca.gov. 
  • Hazard Mitigation Grant Program (HMGP) – DR-4382 funding opportunity: HMGP funding is available statewide for any eligible mitigation activity.  Eligible activities also include Climate Resilient Mitigation Actions (CRMAs), such as actions supporting aquifer storage and recovery, flood diversion and storage, floodplain and stream restoration, and green infrastructure methods.  More info forthcoming on Cal OES. Or contact HMGP@caloes.ca.gov for more information. 
Upcoming Events

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

  • September 11 - Building Community and Economic Resilience: San Francisco, CA: Four Twenty Seven will host a side event alongside the Global Climate Action Summit on Sept 11 to discuss the role of investors, businesses and governments in contributing to climate-resilient cities and infrastructure. Express interest.
  • September 12-14 – PRI in Person, San Francisco, CA: Visit the Four Twenty Seven booth and meet with our team at this annual gathering of responsible investment industry leaders. More details above.
  • September 12-14 – Global Climate Action Summit, San Francisco, CA: CEO Emilie Mazzacurati to speak at a session on resilience in this convening of global leaders meant to propel action around the Paris Agreement. More details above.
  • September 24-26 – 2018 Great Lakes Adaptation Forum, Ann Arbor, MI: Director of Advisory Services, Yoon Kim, will join this gathering of practitioners and scholars dedicated to building regional resilience.
  • September 24-30Climate Week NYC, New York, NY: Senior Analyst, Lindsay Ross, will join discussions around physical climate risk and resilience at this annual event. 
  • October 4 – Japan Electronic Trading Conference 2018, Tokyo, Japan: CEO Emilie Mazzacurati will speak about how physical climate risk affects investing strategies at this gathering of the FIX Trading Community. 
  • October 8-11 – ULI Fall Meeting, Boston, MA: Founder & CEO, Emilie Mazzacurati to join a panel on assessing climate risk in the real estate industry.
  • October 8-12 – Paris InfraWeek, Paris, France: Director, Europe, Nathalie Borgeaud, will join this discussion of recent developments in infrastructure finance.
  • October 15 - Deutsche Bank ESG Summit, Boston, MA. COO Colin Shaw will join a panel on climate risk in equities. Invitation-only.
  • October 16-18 – Verge 18, Oakland, CA: Yoon Kim will join this convening focused on developing a resilient, green economy.
  • October 23-26 – SOCAP18, San Francisco, CA: Members of the Four Twenty Seven team will participate in the annual Social Capital Markets conference.
  • November 13-15 – International Summit at Greenbuild Conference and Expo, Chicago, IL: Emilie Mazzacurati will provide the luncheon plenary address, "Climate Intelligence: Decision-making in the Age of Climate Change," on Tues Nov. 13.
  • November 16 – Methodologies and Tools to Evaluate the Financial Impact of Climate-related Risks and Opportunities, Milan, Italy: Nathalie Borgeaud will present Four Twenty Seven's methodology to assess physical climate risk in financial portfolios during this workshop.
  • November 26-28 – UNEP FI Global Roundtable & Climate Finance Day, Paris, France: Emilie Mazzacurati and Nathalie Borgeaud will participate in these two evens dedicated to mobilizing the financial sector to create a sustainable financial system.
  • December 3-14 – COP24, Katowice, Poland: Nathalie Borgeaud and Yoon Kim will attend the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change and participate in side events.
  • December 5-6 – RI Americas, New York, NY: Emilie Mazzacurati to join a panel on climate risk in real estate markets. Visit the Four Twenty Seven booth.
  • December 10-14 – AGU Fall Meeting, Washington, DC: Director of Analytics, Nik Steinberg, Senior Data Analyst, Josh Turner and Lindsay Ross will join this annual convening of the Earth and space sciences community. 
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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for financial institutions, corporations, and government institutions.

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The California Heat Assessment Tool

As California’s climate warms, residents increasingly endure extreme heat events that adversely impact public health. This exacerbates existing risks and will bring new challenges for different regions in the state, threatening the efficacy of traditional intervention strategies. Current thresholds for heat alerts are based on temperatures that exceed historical statistical thresholds, rather than temperatures that cause public health impacts. These ‘health-neutral’ thresholds may underestimate the health risks for the most sensitive populations. The new California Heat Assessment Tool (CHAT) is based on research that establishes local, health-based thresholds for extreme heat that help public officials, health professionals and residents understand what changing conditions mean for them. CHAT is part of California’s Fourth Climate Change Assessment, a state-mandated research program to assess climate change impacts in California, and was developed by Four Twenty Seven, Argos Analytics, the Public Health Institute and Habitat 7 with technical support from the California Department of Public Health.

Explore CHAT at cal-heat.org.  This online tool advances the understanding of what types of heat waves pose public health risks and examines how the frequency and severity of local heat waves are expected to change over time due to climate change.

Read a brief report, The California Heat Assessment Tool: Planning for the Health Impacts of Extreme Heat, that shares key findings from the research and summarizes the data analysis visualized in the tool.

Access the technical report detailing technical methodology and view other projects funded by the California Fourth Climate Change Assessment.

Access the users needs assessment for a detailed explanation of the literature review and interview process that defines the data gap the research team addressed.

Download the full press release.

Key Takeaways

  • Current climate change projections show that a typical California summer in 2100 may be 4-5° F warmer than today. Heat waves are also lasting longer, occurring later into the summer season and in areas less accustomed to heat waves.
  • Elderly or very young people, outdoor workers and individuals with preexisting health conditions or limited resources are most sensitive to the impacts of extreme heat and may be disproportionately affected. Some of these sensitive, or frontline, populations may experience adverse health impacts at temperatures 6-8° F lower than the general population.
  • Current thresholds for heat alerts are based on temperatures that exceed certain statistical thresholds, rather than temperatures that cause public health impacts. These health-neutral thresholds may underestimate the health risks for the most sensitive populations.
  • The online California Heat Assessment Tool (cal-heat.org) allows users to visualize projected changes in heat events that cause adverse health impacts, while also exploring data on social, health and environmental factors that contribute to heat vulnerability.

Weathering Wildfires: 427 Interview

Director of Analytics, Nik Steinberg, discusses wildfire risk, impacts and prevention efforts, on the Midday Briefing. Nik explains implications of increasingly frequent and severe wildfires for the insurance industry and homeowners and shares several ideas for adapting to these risks. While fires have always occurred, climate change is changing the landscape of the wildland-urban interface and residents and policy-makers must understand their wildfire risks and implement preventative strategies. The economic implications are huge for utilities, shareholders and communities, but with intentional planning businesses, governments and residents have the opportunity to mitigate loss.