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

 

 

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

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

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


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

Read the Report

Advancing TCFD Guidance on Physical Climate Risk and Opportunities

EBRD and GCECA Conference on May 31

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

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

TCFD Knowledge Hub

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

Helping Banks Build Climate Resilience

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

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

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

Wed, May 23, 2018 11:00AM – 12PM PT 

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

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

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

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

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

Register Here

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

Register Here

The Third California Adaptation Forum

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

Upcoming Events

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

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

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Newsletter: Fintech Meets Climate Data

 

 

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss a discussion with our new Chief Development Officer, our report on using climate data and cool new innovations in climate science!

In Focus: Fintech Meets Climate Data

Meet Chief Development Officer, Frank Freitas

We chatted with our new Chief Development Officer, Frank Freitas, about his motivations to join Four Twenty Seven after almost 30 years in finance and fintech, and his vision for new products and markets in climate analytics. Having spent his career developing award-winning solutions for global institutional investors, Frank is a seasoned veteran of product management and strategic planning.

He founded and sold Pluribus Labs, a research and analytics firm focused on the translation of unstructured data into investable signals. Before that, he served as Chief Operating Officer and Head of Product Strategy at Instinet, a leading technology-levered agency broker. He started his career in Product Management, designing and leading the delivery of quantitative risk solutions at Barra (now MSCI). “The acceleration of climate’s influence on corporate performance is upon us, and investors are rapidly awakening to the risks that climate change brings to financial markets,” Frank says. “Four Twenty Seven’s sophisticated climate data analytics are at the forefront of identifying most exposed corporations and assets globally, and we will continue to build on our expertise to provide best-in-class analytics of climate risk for our clients globally.”

 

Inside Market Data covers Frank’s transition to Four Twenty Seven and highlights the company’s goals for this year, including a focus on incorporating new types of data to add nuance to our risk analyses.

Read the Interview

Using Climate Data for Investment Decisions

Using Climate Data: A Four Twenty Seven Report


In this new Four Twenty Seven report, we demystify climate data with a clear breakdown of what it is, where it comes from and the nuances to consider when choosing which data products to use. Understanding the risks posed by climate change for facilities or infrastructure assets starts with conducting a risk assessment, which requires an understanding of the physical impacts of climate change. However, for unfamiliar users, climate data is hard to integrate into enterprise risk management, financial risk modelling processes and risk analysis.This climate data primer serves as an introduction for financial, corporate and government stakeholders striving to understand their exposure to physical climate change.

Read the Report

Innovations in Climate Science

Solar-Powered “Saildrones”

Two solar-powered sail boats are returning to California this month after debuting their ocean monitoring capacity on a trip through the Pacific. These drones are part of a collaboration between NOAA and Alameda-based startup, Saildrone, and they may be able to replace the costly bouy system that scientists currently use to obtain ocean circulation data. The boats collect temperature, wind and solar radiation data, while also measuring ocean circulation currents and gas exchange. These data are more precise than data collected by satellites or buoys and have the potential to provide powerful insights into studies of climate’s impact on ocean circulation.

Autonomous Ice Robots

A squad of “Seaglider” robots have been programmed with navigational algorithms for their year-long journey under Pine Island Glacier in Western Antarctica. Some may sink or get lost in ice caves, but the rest will collect data on salinity, temperature and oxygen content to inform scientific understanding of the rate of ice loss with climate change and implications for sea-level rise, floating to the surface to transmit their data.

Science Funding in the Federal Budget

The omnibus bill passed by Congress and signed by the President last month, did not include the funding cuts to critical climate research that many feared. NOAA received $5.9 billion, which is $234 million above its FY 2017 amount. NOAA has many resources for adaptation professionals and others striving to better understand how the natural world affects their lives and businesses, ranging from its satellite system and weather data to its integrated science programs and US Climate Resilience toolkit. This alphabetized list highlights over 20 such resources.

CRA Webinar: What You Need to Know About TCFD and 2018 Reporting Cycles

Thu, May 10, 2018 1:00 PM – 2:00 PM EDT 
Climate change has become a growing concern for corporations, investors, and financial regulators alike. Corporations need to understand how the impacts of a changing climate may affect company operations or their broader value chain and assess how such impacts should be included in corporate disclosures and sustainability reports.

Emilie Mazzacurati will present an overview of how corporations can identify material risks, provide an update on rising regulatory requirements and changes to voluntary reporting frameworks to align with TCFD recommendations, and highlight opportunities to build resilience and adapt to new market conditions.

This programming is provided exclusively for Corporate Responsibility Association members and invited guests. To RSVP email Jen Boynton at jboynton@3blmedia.com.

Inside the Office at Four Twenty Seven

Four Twenty Seven Website Features New Insights Page

 

Our blog page has been revamped with featured articles at the top and an interactive filter feature that allows users to sort by author, client, media type and theme or to search for keywords.

Our most read publications this month include:

Upcoming Events

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

  • April 30 – May 1: 2018 Local Solutions Eastern Climate Preparedness Conference, Manchester, NH: Advisory Services Manager, Katy Maher, will discuss strategies to build local resilience with this convening of government stakeholders.
  • May 1: TCFD US Scenario Analysis Conference, New York, NY: Founder and CEO Emilie Mazzacurati and Chief Development Officer, Frank Freitas, will join this discussion about using scenario analysis in climate-related risk disclosure and resources to help corporations do so.
  • May 10: What You Need to Know About Climate Related Financial Disclosures (TCFD), CRA Webinar: Emilie Mazzacurati is the presenter on this webinar about corporate climate risk disclosure. CRA members only.
  • May 17: GRESB’s Sustainable Real Assets Conference, Washington, DC: Emilie Mazzacurati will keynote GRESB’s annual conference on infrastructure resilience and Chief Development Officer, Frank Freitas will join the convening.
  • May 23: Four Twenty Seven Webinar, 11am-12pm PST: Save the date for a webinar on city level physical climate risks and opportunities to access climate adaptation and resilience financing. Registration details forthcoming.
  • May 31: Advancing TCFD Guidance on Physical Climate Risk and Opportunities, London, UK: Four Twenty Seven is a strategic partner for this event hosted by EBRD and GCECA to discuss emerging guidance on metrics for physical climate risk disclosures and scenario analysis and Emilie Mazzacurati will moderate a panel presenting findings on physical risk metrics.
  • June 5-6: Responsible Investors Europe, London, UK: Hear Emilie Mazzacurati speak on a panel on corporate engagement and also meet with Frank Freitas and Senior Risk Analyst, Léonie Chatain, to discuss ratings and engagement on physical climate risk in equities.
  • June 12-14: VERGE Hawaii, Honolulu, HI: Advisory Services Manager, Kendall Starkman, will join this convening of corporate, government and NGO stakeholders committed to building resilient cities and economies.
  • June 18-21: Adaptation Futures 2018, Cape Town, South Africa: Director of Advisory Services, Yoon Kim, will facilitate a session exploring integrating climate risks into infrastructure investment decisions.
  • June 26: GRESB’s Sustainable Real Assets Conference, Sydney, Australia: Meet with  Frank Freitas at GRESB’s annual conference on resilient infrastructure investments.
  • August 28-29: 3rd California Adaptation Forum, Sacramento, CA: Save the date for this opportunity to join over 600 climate leaders in workshops, sessions and networking around adaptation action in California.
  • September 12-14PRI in Person, San Francisco, CA: Join the Four Twenty Seven team at this annual convening of responsible investment industry leaders.
  • September 12-14: Global Climate Action Summit, San Francisco, CA: Join the Four Twenty Seven team at this convening of global climate adaptation experts meant to propel action around the Paris Agreement.

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

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

Why did you decide to join Four Twenty Seven?

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

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

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

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

How is technology spurring innovation in research around financial risk?

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

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

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

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

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

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

EU Moves Towards Regulation for Climate Risk Disclosure

From Recommendations to Action 

March 15, 2018 – 427 ANALYSIS. The EU laid out a clear plan to move towards mandatory climate risk disclosure as part of a new set of regulations to finance sustainable growth and support the transition to a low-carbon economy. The European Commission’s Action Plan lays out a two year timeline for implementation, with a goal to create a taxonomy for climate adaptation finance by the end of 2019. These regulations from the EU will drive change into financial markets globally and set standards on reporting, disclosures and infrastructure resilience that will likely set the bar for the rest of the world.

The European Commission recently released its Action Plan: Financing Sustainable Growth to establish a regulatory framework that supports the goals of the Paris agreement. The Action Plan calls for transformation of the whole financial system and  to enable the financing a sustainable, resource-efficient economy.

The Action Plan builds on the recommendation from a high profile expert group, the High-Level Expert Group on Sustainable Finance (HLEG), which was created by the European Commission in December 2016.   The group included experts from banking, insurance, asset management and stock exchanges. Its final recommendations to the Commission, released in January  acknowledged the responsibility of the financial system to drive change towards “enduring and inclusive economic prosperity”. HLEG recommendations aimed to both promote sustainable investments, so that capital reaches sustainable projects and also to ensure that the financial system itself addresses risk and builds resilience.

Incorporating many of the  recommendations of the HLEG, the Commission’s Action Plan lays out ten specific actions, setting deadlines within the next two years, with a number of thematic sub-actions that willbe pursued simultaneously.  Action 1  lays the groundwork for many of the following actions as it will establish a Technical Expert Group on Sustainable Finance, with the responsibility of drafting a standardized EU sustainability taxonomy , including climate mitigation by Q1 2019 and adaptation by Q3. This effort will be supported by legislation this year that mandates the creation of the taxonomy.

The 10 actions are summarized in this infographic from the European Commission:

Mandating Disclosure

Of most immediate importance to investors is Action 7, which calls for the proposal by Q2 2018 of legislation mandating investors to explicitly consider sustainability factors in their investment decisions and disclose their methodology of doing so. This effort is particularly focused on improving the consistency and transparency of climate risk considerations by investors.

Likewise, Action 9 is focused on improving the methodologies and practice of corporate risk disclosure. The Commission will publish a report on current reporting legislation by Q2 this year, which will inform a revision of corporate reporting guidelines to help them align with the TCFD recommendations, by Q2 2019. Later this year the Commission will develop a European Corporate Reporting Lab, under the European Financial Reporting Advisory Group, to help develop best practices for corporate reporting. The goals of Action 10 will support these actions by supporting a shift in corporate governance. It aims to improve transparency and combat long-termism, by engaging with stakeholders around corporate governance starting by Q2 next year.

Revamping Credit Ratings

The Commission also commits to revamping the ways in which credit ratings incorporate sustainability metrics into their scoring. Through Action 6, the European Securities Markets Authority (ESMA) will examine the credit ratings’ current practices around this topic by Q2 2019 and the Commission will pursue comprehensive research on reporting standards, exploring the potential of mandating agencies to integrate specific sustainability metrics into their standards.

Client Clarity

To improve consumers ability to identify sustainable investments, Action 2 calls for the technical expert group to publish a report exploring green bond standards by Q2 2019 and the Commission will consider expanding the EU Ecolabel to include financial products, initially focusing on retail investments. Likewise, Action 4 says that by Q2 2018, the MiFID II and IDD rules will be updated to ensure that sustainability preferences are considered when banks, investment firms and insurers offer accounts to clients and by the end of the year the ESMA will include these provisions in their guidelines. Through Action 5 the Commission will adopt acts that improve the transparency of sustainability benchmarks by Q2 2018.

 Comprehensive Sustainability Support

The Commission identifies a lack of technical expertise as a challenge to pursuing sustainable infrastructure projects and aims to confront this by to increasing the technical support available to investors.  It will run a pilot project offering tools for sustainable infrastructure projects, from 2019-2023 through Action 3.

Action 8 states that the Commission will consider including sustainability frameworks in prudential requirements, looping in the European Insurance and Occupational Pensions Authority (EIOPA).

“A Blueprint” for Change

While the HLEG emphasized that its report is only the beginning of an enduring effort to create a resilient financial system that supports a sustainable society, the Commission’s resulting Action Plan clearly defines the next steps. And as HLEG also emphasized its report’s relevance for financial sectors worldwide, the Commission’s Action Plan states that a “coordinated, global effort is crucial.”  As “the HLEG hopes to stimulate a wide public debate that helps shift Europe’s financial system from post-crisis stabilization to supporting long-term growth,” that same widespread conversation is essential to driving global change. These regulations from the EU, as is often the case, will drive change into financial markets globally by setting new standards global financial institutions must meet.

Download the HLEG Recommendations.

Download the EC Action Plan

For more resources on building a sustainable financial sector, read about Four Twenty Seven’s work providing the technical secretariat for an EBRD and GCECA initiative to build a resilient financial sector and download the GARI Investor Guide to Physical Climate Risk and Resilience.

EU High-Level Expert Group on Sustainable Finance

Reaching the goals of the Paris agreement, and financing a sustainable, resource-efficient economy, requires a transformation of the whole financial system. Understanding that private-sector investments must be joined by a transformation of the regulatory landscape, the European Commission created the High-Level Expert Group on Sustainable Finance (HLEG) in December 2016. As the need for reform spans across all facets of the sector, HLEG members include experts from banking, insurance, asset management, stock exchanges and others. The group acknowledges that a sustainable society depends upon enduring and inclusive economic prosperity and that the financial system has a responsibility to drive change towards this sustainability. Thus, the HLEG aims to both promote sustainable investments, so that capital reaches sustainable projects and also to ensure that the financial system itself addresses risk and builds resilience.

After releasing an interim report and soliciting public feedback in July, the HLEG released its final recommendations for actions  to facilitate this financial system reform. The report describes a set of priority recommendations and a set of “cross-cutting recommendations.” The former include developing an EU sustainability taxonomy, pushing investors to focus on ESG factors and consider broader time horizons,  creating European sustainability standards for green bonds and other financing options, identifying investment needs by focusing first on climate mitigation, providing sustainable finance options for retail investors, and integrating sustainability into both the governance and financial oversight of financial institutions. The “cross-cutting” recommendations include embracing long-term vision, empowering citizens to shape a sustainable financial sector, monitoring sustainable investment and delivery, integrating a “Think Sustainability First” outlook throughout EU policy, and promoting global sustainable finance.

HLEG acknowledges that there are other social and environmental issues that must be addressed alongside climate change.  Emphasizing that this report is only the beginning of an enduring effort to create a resilient financial system that supports a sustainable society, HLEG also states the report’s relevance for financial sectors worldwide. As “the HLEG hopes to stimulate a wide public debate that helps shift Europe’s financial system from post-crisis stabilization to supporting long-term growth,” that same widespread conversation is essential to driving global change.

Download the Recommendations.

For more resources on building a sustainable financial sector, read about Four Twenty Seven’s work providing the technical secretariat for an EBRD and GCECA initiative to build a resilient financial sector and download the GARI Investor Guide to Physical Climate Risk and Resilience.

Newsletter: Climate Implications of Trump, Extreme Heat and the TCFD

 

 

TCFD to Release Final Report This Week

The FSB Task force on Climate-related Financial Disclosures (TCFD) will release its final report this week, on Thursday June 29. The report will be presented to the G20 in Italy on July 7-8. While it is uncertain whether the G20 will formally endorse the report given the Trump administration’s stance on climate change, the ripples from the report in transforming how financial markets view and think about climate risk are already being felt, and with or without further formal regulations, we expect investors will continue their call for greater transparency on climate risk and concrete strategies on decarbonization and adaptation. The public consultation conducted this spring showed the draft recommendations were generally well received by corporations and financial institutions alike. An average 75% of respondents found the recommendations useful, but non-financial corporations were unconvinced of the need for scenario planning whereas financial institutions were very supportive. Respondents were unanimous in calling for more detailed guidance and tools for the implementation of the recommendations, and the TCFD has now announced its work was extended through September 2018 to help support the implementation and dissemination of the recommendations.

More information on the TCFD, its recommendations and implications for corporations and investors:

Why BlackRock is Worried about Climate Change: Investors and Systemic Risk to the Financial System http://bit.ly/2s7plig

The Health Costs of Extreme Heat

Record-setting temperatures and deadly heat waves have dominated the news these past weeks. Earlier this month came reports of a historic heat wave covering Asia, the Middle East, and Europe with Turbat, Pakistan experiencing record temperatures of 128.3°F (53.5°C), marking it as the hottest temperature ever recorded in May as well as one of Earth’s top-five temperatures on record for any month.

A study released last week found that 30% of Earth’s population is experiencing deadly heat for more than 20 days a year, and unless actions are taken to reduce emissions of greenhouse gases, climate change will result to close to 75% of the population exposed to deadly heat every year. Further proof comes from a new mapping tool released by Climate Impact Lab which takes data from NASA’s climate models to estimate how frequently a country will experience days of 95°F+ temperatures if emissions continue to rise through 2100. NOAA’s Climate Resilience Toolkit contains a wealth of information and tools on how to prepare for heat waves and health impacts of climate change in the U.S., including Four Twenty Seven’s Heat and Social Equity Tool, which combine projections from global climate models with socioeconomic indicators of heat vulnerability to compare the complex components of heat risk and resilience by county in the U.S. We also offer a tool to understand the impacts of extreme heat in India as part of the India Heat Impact Project.

The true risk of climate change is the inability to adapt to the changes it brings. Prepare for heat waves: http://arcg.is/2gLss9a by @427climaterisk

Trump and Paris: What Impacts on Climate?

The loss of the United States’ participation in the Paris Agreement is a blow to international climate efforts, though not fatal. In the wake of President Trump’s announcement to withdraw from the agreement, uncertainty has grown in the climate science and adaptation fields. Both domestically and internationally, leaders have reached out to form new coalitions for U.S. states, cities, and businesses to take the lead and continue pursuing what the nation had committed to as a whole. Read our analysis: Trump and Paris: What Impact on Climate?

Trump and Paris: What Impacts on Climate? http://bit.ly/2scv7e0 via @427climaterisk

Audio Blog: Latest Innovations in ESG Investing

Investors are increasingly aware of options to invest responsibly, yet the myth persists that ESG investing sacrifices financial returns. At this year’s Sustainatopia conference held in San Francisco, Four Twenty Seven’s Director of Finance Colin Shaw joined a panel aiming to tackle the issue and present new ideas and tools for helping investors. Colin presented on measuring climate risk in financial portfolios, and the need for more climate data in order to better provide guidance to businesses for their risk management planning. Listen to the panel to learn new ways to steer investment towards sustainable solutions.

Meet the Team: Yvonne Burgess

Yvonne BurgessFour Twenty Seven is proud to welcome Yvonne Burgess to our team as Chief Systems Architect. Yvonne has extensive experience in information systems, project management, and software project management. As a Chief Systems Architect, Yvonne is leading the development of our data architecture, modeling and product road-map for a new generation of climate risk analytics products. Yvonne’s experience spans across startups, Fortune 500 corporations, and federal contracting work, blending deep technical expertise with strategic planning and thought leadership. Yvonne holds a Master of Science in Systems Management in organization development and information technology from the University of Southern California, as well as a Bachelor of Business Administration.

Upcoming Events

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

  • July 26: GARI meeting, New York: Four Twenty Seven CEO Emilie Mazzacurati will join the Global Adaptation and Resilience Investment working group to discuss their forthcoming publication on climate risk in the financial sector.
  • August 24-25: California Climate Action Planning Conference, San Luis Obispo, CA: Climate Adaptation Senior Analyst, Kendall Starkman will discuss local and regional climate adaptation/mitigation planning.
  • September 18-24: Climate Week NYC 2017, New York, NY: Four Twenty Seven – details to be announced.
  • September 25-27: PRI in Person 2017, Berlin, Germany: Founder and CEO, Emilie Mazzacurati will present Four Twenty Seven’s work on financial climate risk and analytics to build resilient portfolios.


Four Twenty Seven Climate Solutions

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Audio Blog: Latest Innovations in ESG Investing

Colin Shaw at Sustainatopia discussing ESG investing
From left to right: Colin Shaw, Jason Escamilla, Catharine Banat, Megan Fielding, and Andrew Olig

Four Twenty Seven’s Director of Finance, Colin Shaw, was recently invited to be a part of a panel titled “Latest Innovations in ESG” at Sustainatopia on May 8th, 2017.

The panelists discussed the increasing awareness of investors in their options to invest responsibly, and breaking down the preconception that ESG investing sacrifices financial returns. Colin presented on the tools to used measure climate risk in financial portfolios, and the need that Four Twenty Seven sees for more climate data in order to better provide guidance to businesses for their risk management and adaptation planning. The other panelists included:

  • Andrew Olig, Regional Vice President of Calvert Mutual Funds
  • Megan Fielding, Senior Director, Responsible Investment at TIAA Investments
  • Catherine Banat, Impact Investing at RBC Global Asset Management
  • Jason Escamilla, CEO of Impact Labs

Listen to the entire engaging panel recording below.

Why BlackRock is Worried About Climate Change

This article was first published on the Huffington Post.

Why BlackRock is Worried About Climate Change

Climate Change: A Material Risk for Investors

While the Trump administration is trying to roll back climate policy in the U.S., concerns over climate change are mounting on financial markets. In September 2016, the largest asset management firm in the world, BlackRock, with $5 trillion under management, released a report where it stated climate change is a material risk and “climate-proofing portfolios is a key consideration for all asset owners.” A few weeks back, BlackRock doubled down in announcing that it expected companies in its portfolio to disclose their exposure to climate risk. BlackRock is not the only investor that has publicly voiced concern over climate risk in its portfolio.

State Street Corp, which manages $2.5 trillion worth of assets, sent a letter in January to the boards of corporations it invests in, asking the companies to disclose their plans to account for climate change and other social issues. Over the long-term, these issues can have a material impact on a company’s ability to generate returns,” State Street said in the letter. “Corporate scandals of the last few years around automotive emissions, food safety or labor issues have emphasized the need for companies to assess the impact of Environmental, Social and Governance (ESG) risks.”

The call for disclosures is rising from individual fund managers as well. Canadian pension manager OPTrust released details of its approach to climate considerations when investing, and asking for more standardized measures for disclosing these risks.

Why are investors concerned over climate risk, and how do they expect these risks to materialize in their portfolios?

Economic and Financial Impacts from Climate Change

Climate change is expected to have impacts on the natural environment, but also on human systems and global and local economies. From decreased crop yields to physical impacts on built infrastructure and labor productivity, impacts are predicted to be uneven but ubiquitous. Business leaders are well aware of this risk, and over the past years, failure to adapt to climate change has consistently been listed among the top five risks for economies in impact and likelihood in the World Economic Forum’s Global Risk Report.

These impacts on the economy at large, on industry sectors, on infrastructure and on physical assets like manufacturing plants, corporate campuses or supply chains can in turn create financial risk for the investors who own equity or have loaned capital to these companies. Researchers from Cambridge and Oxford University estimate in a plausible worst-case climate change scenario (a 4°C-increase outcome), the value at risk of an equity portfolio in 2030 may be between 5% and 20% versus a no-warming scenario.

Regulatory Pressures

Financial regulators have also been raising the alarm, most famously Mark Carney, the Governor of the Bank of England and Chair of the Financial Stability Board (FSB), who referred to the phenomenon as the “Tragedy of the Horizon,” citing outcomes like the impact of rising seas on the world’s coastlines and infrastructure as one of the largest risks to financial stability around the world. The FSB, under the authority of the G20, created last year a special Taskforce on Climate-related Financial Disclosures (TCFD), which recently released its recommendations for investors and corporations on better assessing and disclosing climate risk.

Also in the fall 2015, France became the first country to pass a law introducing mandatory extensive climate change-related reporting for asset owners and asset managers, the Energy Transition Law and its Article 173. The European Union also passed a directive late 2016 requiring pension funds in Europe to assess and disclose climate risk. Financial markets are global, and regulations in Europe very much affect U.S. investors.

These recent regulatory efforts typically break down climate risk into two distinct categories: energy transition risk, and physical climate risk.

Energy Transition Risk

The Energy Transition risk refers to the potential large-scale impacts of rapidly decarbonizing our economies and energy systems—as might happen, for example, if policymakers decided to take climate science seriously. The sectors most exposed are, of course, the energy sector, in particularly fossil fuels, but also energy intensive industries like steel, cement, and chemistry. The entire value chain of the transportation sector, from airlines to car companies, could see their financial performance altered dramatically depending not only on their emissions, but also on how they have prepared and manage this transition.

To measure and compare the energy transition risks, a few methodologies have emerged. The 2 Degree Investment Initiative(2dii) released its methodology as well as a “Transition Risk Toolbox” on how to integrate energy transition risk into scenario analysis for corporations, and is continuing to explore in depth the implications for financial markets. CDP, a central player in the world of corporate climate disclosures, has also developed a pilot methodology on Assessing the Low Carbon Transition (ACT), in partnership with ADEME, the French Environment and Energy Agency.

Physical Climate Risk

Physical climate risk includes both shocks and stresses from climate impacts: shocks refer to extreme weather events, ranging from storms to drought, cold snaps, extreme precipitation and windstorms. Stresses encompasses physical conditions that change over time and can affect anything from agriculture to retail sales or real estate property values, such as a shift in season—as observed most recently on the East Coast, with an unseasonably warm, spring-like weather, changes in precipitation patterns, gradual increase in temperatures, depletion of water, as well as sea level rise.

A few research institutions have started developing methodologies to quantify the linkage between climate hazards and economic indicators, including most notably the Risky Business Project on the economic risk of climate change in the United States, and Norwegian think tank CICERO’s recent report on Shades of Climate Risk. However, as shown in the Global Adaptation and Resilience Investment working group (GARI) report published at COP 22 in November 2016, investors are concerned over lack of data and tools to better measure risk in a financial portfolio, and benefits of investing in resilience.

What Can Investors Do to Reduce Climate Risk Exposure?

Despite the lack of established tools and methodologies, investors and portfolio managers can significantly hedge climate-related risks by assessing exposure of their asset portfolio, rebalancing exposure across assets, sectors and geographies, and developing targeted engagement strategies.

1. Assessing Exposure in their Asset Portfolio

Climate impacts can be felt across all asset classes. Real assets (infrastructure, real estate) represent the most direct risk for asset owners, but also the easiest to understand and manage. Investors typically know the exact geographic location for these assets, which enables a direct exposure hotspot analysis, as well as direct engagement with asset operators on climate risk and potential risk mitigation measures. Equity and credit portfolios are more complex to screen for and assess physical climate risk. Specialized providers like Four Twenty Seven provide screening tools, benchmarked equity scores, as well as custom portfolio risk assessments focused on physical climate impacts.

2. Developing Targeted Engagement Strategy

Investors have a critical role to play in ensuring climate risk management and disclosures become the norm rather than the exception. Especially in the U.S., in a context of regulatory pull back from financial regulations and climate policy, market forces must impose the transparency and responsibility needed to price assets accurately. This engagement can take many forms, from supporting proxy motions from activist investors like As You Sow to engaging with working groups like the Investor Network on Climate Risk (INCR) at Ceres, or direct engagement with portfolio companies.

Companies are also encouraged to develop climate competency in the boardroom so that at least one of the corporate directors has a technical understanding and direct responsibility for bringing climate science and climate change considerations to the Board during strategic and risk management discussions. This pressure was heeded by ExxonMobil, after an extensive campaign to demonstrate that ExxonMobil was not accurately accounting for climate change science in its asset and reserve valuation: the company’s board recently added Susan Avery, a physicist and atmospheric scientist, to its board of directors.

Change will be slow, but the growing recognition that climate change is an economic and financial issue is our best hope to drive meaningful, long-term policy change, as well as to increase resilience and our society’s ability to adapt to climate change. Contrarian climate policy in the U.S. may slow down the adoption of new standards, but it won’t slow down climate change, and the need to address its social and economic impacts.

New EU Directive Requires Pension Funds to Assess Climate-related Risks

EU FlagOn December 8th, 2016 the EU adopted a new regulation regarding Pension Funds, the IORP II Directive — the successor of the Institutions for Occupational Retirement Provision Directive adopted in 2003. The directive’s main objectives are to enhance pension funds’ governance, risk management and supervision, and to facilitate cross-border activities.

A key feature of the directive is the consideration of environmental, social and governance (ESG) factors as part of pension providers’ investment. In particular, pension providers are now required to carry out their own risk assessment, including climate change-related risks, as well as risks caused by the use of resources and regulatory changes.

Moreover, the Directive explicitly allows pension funds to take into account ESG factors in investment decision-making, within the ‘prudent person’ rule. This comes as an important clarification as fiduciary duty is often cited by investors as a reason they cannot pay more attention to ESG issues in investment processes.

The implementation of the Directive

IORP II applies to all the 14,358 registered EU pension funds, among which 160 have cross-border activities.

Member States (EU countries) have until January 13, 2019 to transpose IORP II into their national law, which was published early January in the Official Journal of the European Union. According to current projections, the implementation deadline should therefore fall before Brexit, an important fact considering that the UK accounts for 50 percent of the EU occupational pension fund sector, followed by the Netherlands (33 percent).

A new risk assessment covering climate-related physical risks

The risk assessment is to be carried out every three years or after any significant change in the risk profile of the pension funds “in a manner that is proportionate to their size and internal organization, as well as to the size, nature, scale and complexity of their activities”.

The assessment must cover “new or emerging” risks, “including risks related to climate change, use of resources and the environment, social risks and risks related to the depreciation of assets due to regulatory change”.

The Directive’s preamble invites EU member states to use the Principles for Responsible Investment (PRI) as a reference for ESG and climate change-related reporting requirements and states that “the relevance and materiality of environmental, social and governance factors to a scheme’s investments and how they are taken into account should be part of the information provided by the scheme under this directive”.

While physical impacts of climate change are not mentioned in these terms, the inclusion of risks related to climate change, use of resources and social risks clearly point to the inclusion of physical impacts, in addition to regulatory and energy transition risks. National transpositions might provide more explicit guidance.

Beyond compliance considerations, pension funds are particularly exposed to climate risks given their long-term investment profile. The longer an asset manager’s time horizon, the more climate-related risks increase. As pension funds also tend to be particularly risk-averse, taking into account climate-related risks is crucial for effective risk mitigation. In 2015, the Economist Intelligence Unit valued the average expected loss as a result of climate change across scenarios as $4.2tn in financial assets.

Considering that EU pension funds now manage more than €2.5 trillion ($2.65 trillion) in combined assets, the assessment of physical climate risks will require considerable effort to access raw climate data at asset level, select appropriate indicators, and interpret the output.

Climate-related regulatory efforts gaining momentum

The adoption of this new climate risks mandatory disclosure at EU-level follows the adoption of an pioneering climate risk reporting law for asset managers and asset owners in France, discussed in a previous post, and occurs almost concomitantly with the release of the Task Force on Climate-related Financial Disclosures (TCFD) Phase II Report discussed  in a policy brief and a webinar.

European central banks and financial regulators are increasingly aware of the threat to financial stability of sudden market adjustments caused by climate-related risks. The concern is that the scale of impacts would pose a systemic risk to the financial system as a whole. A growing number of public institutions are paying attention to this issue including De Nederlandsche Bank; the Bank of England; Finansinspektionen; the SEC and the ESRB.


Four Twenty Seven helps investorsFortune 500 companies and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain. Our clients rely on Four Twenty Seven’s tools and models to factor into financial and operational planning processes. Learn more about how we are helping our clients assess and adapt to climate risks.

 


You can find the full text here and the impact assessment made by the European Commission here

A handbook by Lane, Clark & Peacock on the IORP II

 

Art. 173: France’s Groundbreaking Climate Risk Reporting Law

National Assembly, Paris, FranceIn the fall 2015, in the run up to COP21, France became the first country to pass a law introducing mandatory extensive climate change-related reporting for asset owners and asset managers, the Energy Transition Law and its now famous Article 173.

The reporting obligations set out under Article 173 and its implementing decree have potentially far-reaching implications, requiring institutional investors to report on the integration of both physical risks and ‘transition’ risks caused by climate change on their activities and assets.

Whom Does Article 173 Apply To?

Article 173 addresses publicly traded companies, banks and credit providers, asset managers and institutional investors, the latter being listed as insurers, pension or mutual funds and sovereign wealth funds, with differentiated reporting obligations depending on their size and nature.

The law applies to French companies, meaning that French subsidiaries of large financial groups are potentially subject to requirements that do not apply to their parent companies.

What Must the Climate Change-Related Reporting Include?

A comply or explain approach

The law provides investors with broad flexibility in choosing the best way to fulfil the objectives, based on a comply or explain approach. It does not impose any specific method, giving leeway to find the reporting methodology suiting best the investment portfolio, for example reflecting specific asset classes or subsidiaries. However, investors must provide information and justification on the methodology used. They are encouraged to draw from current best practices. An assessment of the implementation will be carried out after two years, at the end of 2018, and the best-in-class approaches will be promoted.

Differentiated requirements

Banks and credit providers will be subject to regular stress tests including a climate change component.

Publicly traded companies’ annual reports must disclose the financial risks related to the effects of climate change, the measures adopted by the company to reduce them and the environmental impact of the company’s activities and of the use of goods and services it produces.

Asset managers managing funds below 500 M€ and institutional investors with balance sheets below 500 M€ must report on the implementation of their ESG policies.

Asset managers managing funds above 500 M€ and institutional investors with balance sheets above 500 M€ are subject to extended climate change-related reporting obligations (besides their ESG policies). Those obligations are two-fold:

  1. Assessment of the portfolio’s exposure to climate change-related risks, including both physical risks (physical impact of climate change) and transition risks (impact of the transition to a low-carbon economy).
  2. Assessment of the investor’s contribution to meeting the international and national low-carbon goals, including the low-carbon targets set by the the investor itself and the actions taken to achieve these targets.

While Asset management companies have to report separately on each of the above 500 M€ funds they manage, institutional investors must provide a consolidated reporting on their assets.

Note that institutional investors may have a commercial relationship with asset management companies via dedicated funds and/or management mandates. Therefore, asset management companies may be directly or indirectly affected by Article 173, via their institutional investor clients. The terms and conditions of access to ESG information required by institutional clients to meet their own Article 173 reporting obligations are to be defined in the contractual relations between them and the asset management companies involved.

Though investors are free to choose which exact data to report, the implementing decree suggests including the following information:

  • The consequences of climate change and extreme weather events on the assets
  • Changes in the availability and price of natural resources
  • Policy risks related to the implementation of national and international climate targets
  • Measures of past, current or future emissions of GHG (both direct and indirect)

As mentioned above, all assessments must come with an explanation and justification of the methodology used.

As of now, 60 institutional investors are subject to the latter reporting requirements.

The Assessment of Climate Change-Related Physical Risks

What really makes Article 173 groundbreaking is the reporting obligation on climate change-related physical risks. The inclusion of physical impacts of climate change in a financial risk analysis is in line with the industry-led Task Force on Climate-related Financial Disclosures (TCFD) recommendations report, released on December 2016 and discussed in a policy brief and a webinar.

While traditional climate-related reporting focuses mainly (if not exclusively) on the impact of the organization’s activities on climate change, the French Energy Transition Law is truly pioneering as it also emphasizes the impact of climate change on the organization’s activities and assets. This new focus meets the demand of investors for enhancing financial risks assessment through taking better account of climate-related risks.

A Ripple Effect

The French government is hoping for a ripple effect, both internationally and on a national level, across the investment value chain. The service providers of eligible investors are already considering how to enhance their ESG and climate reporting practices in order to meet their clients’ demands and comply with the law.

Moreover, climate-related regulatory efforts are gaining momentum. Article 173 is expected to be the first of a series of national equivalent regulatory frameworks among the G20 countries. The TCFD was established shortly after the Law passed, at the December 2015 G20 summit, and explicitly offers its guidance for compliance with Art. 173.

In March 2016, the Dutch central bank DNB announced it was taking steps to monitor and mitigate climate risk. Last November, the European Union has issued a directive requiring all EU-based pension funds to assess for climate change risk.


Four Twenty Seven helps investorsFortune 500 companies and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain. Our clients rely on Four Twenty Seven’s tools and models to factor into financial and operational planning processes. Learn more about how we are helping our clients assess and adapt to climate risks.


Documents
A handbook on Article 173 published by the French SIF

By Delphine Ly, Climate Analyst at Four Twenty Seven