Engaging with Corporates to Build Adaptive Capacity

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

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

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

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

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

Key Takeaways

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

Download the report.

Download the press release.

Newsletter: Advancing TCFD Guidance on Physical Climate Risk & Opportunities

 

 

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss our update on upcoming EU regulations, our analysis on lessons learned from Art. 173 in France, and our conference calendar for the spring!

In Focus: Advancing TCFD Guidance on Physical Climate RIsk and Opportunities

An initiative from the European Bank for Reconstruction and Development and the Global Center for Excellence in Climate Adaptation

The European Bank for Reconstruction and Development (EBRD) and the Global Centre of Excellence on Climate Adaptation (GCECA) are hosting an event: “Advancing TCFD guidance on physical climate risk and opportunities,” which will be held on 31 May at the EBRD’s headquarters in London. This event will be a forum for senior representatives from the financial and business community to discuss and identify the way forward for the development of metrics for disclosing physical climate risk and opportunities, as well as pointers for integrating physical climate risk considerations in scenario-based decision making by businesses and financial institutions.

In preparation for this event, the EBRD has been hosting working groups focused on advancing and fleshing out the recommendations from the Task Force on Climate-related Financial Disclosure’s (TCFD) final recommendations released for the G20 summit last June. The TCFD recommended the inclusion of metrics on physical climate risk and opportunities in financial disclosures and called for further research and concrete guidance on what the appropriate metrics would be.

The conference will feature the findings from expert working groups that include representatives from Allianz, APG, AON, Bank of England, Barclays, BlackRock, Bloomberg, BNP Paribas, Citi, DNB, Deutsche Asset Management, Lightsmith Group, Lloyds, Meridiam Infrastructure, Moody’s, OECD, S&P Global, Shell, Siemens, Standard Chartered, USS and Zurich AM

Four Twenty Seven provides the technical secretariat for this initiative in partnership with Acclimatise. Learn more about the conference: “Advancing TCFD Guidance on Physical Climate Risk & Opportunities.” 

EU Moves Towards Regulation for Climate Risk Disclosure

EC Releases its Action Plan: Financing Sustainable Growth

Earlier this month 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 EC based the Action Plan on the High-Level Expert Group on Sustainable Finance’s (HLEG) final recommendations for actions to drive the transition to a sustainable financial system. The HLEG was created by the EC in December 2016 to determine how the regulatory landscape should transform to support efforts towards the goals of the Paris agreement and  promote the financing of a sustainable, resource-efficient economy. As the group’s report was eagerly awaited as a blueprint for market transformation in Europe, the EC’s Action Plan is expected to propel that transformation forward while prompting international conversation.

Read the Analysis

Lessons Learned from Article 173 Reporting

How are French investors reporting physical risk?
A Four Twenty Seven analysis

The first year of reporting under Art. 173 in France saw limited uptake of disclosures of physical risk and opportunities. We reviewed disclosures from 50 asset owners in France and found that only a quarter of respondents included substantial analysis and metrics on their exposure to physical impacts of climate change. We find insurance companies AXA and Generali provided the most detailed analysis for property portfolios, while FRR and ERAFP were the only pension funds to provide an initial assessment of physical risk exposure in their equity and fixed income portfolios.

Read the Analysis

More good reads on climate risk disclosures:

Extreme Weather Hurts Corporations

Weather Affects Company Performance

Whether it’s extreme heat diminishing worker productivity, winter storms damaging roads and power lines or one of countless other impacts, extreme weather causes harm to businesses’ facilities, their workers and supply chains, and leads to financial impacts. The World Resources Institute’s recent report, “Water Shortages Cost Indian Energy Companies Billions,” highlights findings that India’s thermal power is so reliant on water for cooling that the largest thermal utilities had to close at least once between 2013-2016 and lost about $1.4 billion in revenue. In the article “5 Things Companies Can Do to Grow in a Water-Stressed World,” Water Deeply describes ways that companies are mitigating their risk by proactively addressing water resource limitations.

Climate-related Risk for Telecommunications

Companies in different sectors will be affected differently by three types of climate risk. Novethic’s article “L’impact des risques climatiques sur les entreprises, le cas d’Orange,” provides direct examples of how physical climate risk, transition risk and reputation/legal risk directly threaten companies. In a discussion of Orange, a telecommunications provider, the article highlights the complex factors that companies must consider in addition to their impact on CO2 emissions. Such considerations include a company’s potential to promote innovations for resilience in society through programs ranging from apps that organize carpooling to smart metering.

Inside the Office at Four Twenty Seven

Meet Guest Researcher, Nora Pankratz

Four Twenty Seven is excited to welcome Nora Pankratz as a guest researcher. Nora is a Ph.D. candidate in Finance at the European Center for Corporate Engagement at Maastricht University in the Netherlands. Her research focuses on the impact of extreme temperatures on the financial performance of public firms. For the next several months Nora will be based in Berkeley, working with data collected by Four Twenty Seven to develop a research project on the translation of climate risks into financial risks.

Upcoming Events

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

  • March 19-21: ClimateCon, Asheville, NC: Katy Maher, is at this convening of science and businesses professionals focused on building climate resilience.
  • March 26-27: Financial Risks International Forum, Paris, France: Léonie Chatain, will attend this annual conference on emerging risks in the financial and insurance sectors.
  • April 2:  ICARP TAC Quarterly Meeting, San Francisco, CA: Natalie Ambrosio will participate in the Adaptation Vision Framework workshop hosted by the Governor’s Office of Planning and Research.
  • April 3-6: Sustainatopia, San Francisco, CA: COO Colin Shaw, will speak on a panel on ESG investing and a panel on climate risk at this annual convening of sustainability and financial experts.
  • April 9Financing Climate Change Adaptation, New York, NY: Founder and CEO Emilie Mazzacurati will participate in a private investor workshop on financing adaptation in US cities, organized by C40, NY City and GARI.
  • April 10-11:  Responsible Investors Asia, Tokyo, Japan: Meet with the Four Twenty Seven team to discuss physical climate risk in equities and infrastructure portfolios.
  • May 17: Sustainable Real Assets Conference, Washington, DC: Founder and CEO Emilie Mazzacurati will keynote GRESB’s annual conference on infrastructure resilience.
  • 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.
  • June 5-6: Responsible Investors Europe, London, UK: Meet with the Four Twenty Seven team to discuss ratings and engagement on physical climate risk in equities.
  • 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.
  • August 28-293rd 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.

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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.

Newsletter: How to disclose climate risk and opportunities?

 

 


Four Twenty Seven Climate Solutions

TCFD Releases Final Recommendations

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released their final recommendations in late July. The changes to the recommendations reflect the extensive feedback the Tasforce received from the stakeholder engagement process in the past six months. Key changes include:

  • Simplifying the recommended disclosure related to Strategy and scenarios to focus on the resiliency of an organization’s strategy to climate risk and opportunities
  • Establishing a threshold for organizations that should consider conducting more robust scenario analysis to assess the resilience of their strategies.
  • Clarifying that the recommended disclosures related to the strategy and metrics and targets recommendations depend on an assessment of materiality, whereas disclosures on governance and risk management are relevant for all organizations.
  • Updated conceptual map of climate-related risks and opportunities and associated financial impacts.


The recommendations were presented at the G20 summit in Hamburg, Germany last week, with hopes that the world leaders would formally endorse the guidelines. Climate change was high on the agenda for the summit, where all but the United States voiced a strong re-commitment to the goals of the Paris Agreement, and the G20 included by reference the TCFD recommendations in the Climate and Energy Action Plan for Growth.

CEOs Endorse TCFD recommendations

The TCFD final recommendations were endorsed by over 100 CEO’s from a wide range of companies, including large financial institutions like Barclays and Morgan Stanley as well as energy and manufacturing companies like Suez, DuPont, and Unilever. Reactions from a broad range of financial analysts was also positive, noting the need for improvements and wider adoption of climate risk disclosure practices.

A number of initiatives are already under way to think through and plan the implementation of the TCFD recommendations, such as the UNEP FI’s effort with major banks from around the world who have pledged to work towards adopting these recommendations, and put forth actions they see as needed for broader adoption of climate risk reporting.

Further readings:

  • The Economist Intelligence Unit’s  “The Road to Action” report finds that investors, asset managers, and banks are in urgent need of a way to identify and measure how the industry is responding to climate-related risks. It notes that their interviewees widely regard these recommendations as having the clearest mandate to providing possible solutions.
  • Aon’s white paper Financial Regulators Awaken: Prepare to Disclose Climate Risk notes that risk management and analytics is what differentiates the TCFD’s recommendations from many existing standards. “Risk management, including insurance and risk analytics, is given a key role in helping businesses understand and quantify climate risks. The recommendations provide a framework that can enhance risk management, empower corporate strategy, and improve resilience in a fast-changing world.”
  • The 2-Degree Investing Initiative takes a deep dive into corporate disclosures in its forthcoming report “Limited Visibility”, part of their Tragedy of the Horizon program. The report presents the current state of corporate disclosure on long-term risks and long-term forward looking data using analysis of MSCI World companies’ financial disclosures.

Climate Change in the Boardroom: Towards Climate-Competent Boards


What is a climate-competent board, and why does having one matter? Four Twenty Seven CEO Emilie Mazzacurati was invited to speak on exactly that during the Investing in the Age of Climate Change symposium at the University of Oregon. The symposium tackled issues around climate risk, their connection to investment decisions, and the need to understand how these risks can affect an organization’s business in the long-term. Emilie delved into the climate-competent board and presented on the opportunities they provide, and steps to implement climate-competency on a board. Watch the presentation, delivered via webcam.

How Much Will Climate Change Cost in the United States?

A new research article in Science magazine reveals that in the decades ahead, climate change will affect parts of the United States differently. The study found that areas in the Midwest and Southeast will likely suffer more economic harm from climate change with some areas possibly benefiting from the wild winters. The researchers hope to continue working on this study to further provide more specifics in individual areas to help local policymakers prepare for the incoming risks.

Join the Team!

Four Twenty Seven is hiring! We are looking for Business Development Managers (Europe and US), as well as talented analysts with a background in economics, econometrics, and data analysis. See the position descriptions.

Upcoming Events

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TCFD Releases Final Recommendations

Conceptual map of climate-related risks, opportunities, and financial impacts, from the final TCFD recommendations report

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released their final recommendations in late June. The changes to the recommendations reflect the extensive feedback the Taskforce received from the stakeholder engagement process in the past six months. Some key changes include:

  • Simplifying the recommended disclosure related to Strategy and scenarios to focus on the resiliency of an organization’s strategy to climate risk and opportunities
  • Establishing a threshold for organizations that should consider conducting more robust scenario analysis to assess the resilience of their strategies.
  • Clarifying that the recommended disclosures related to the strategy and metrics and targets recommendations depend on an assessment of materiality, whereas disclosures on governance and risk management are relevant for all organizations.
  • Updated conceptual map of climate-related risks and opportunities and associated financial impacts.

TCFD Recommendations at G20

The recommendations were presented at the G20 summit in Hamburg, Germany, with hopes that the world leaders would formally endorse the guidelines. Climate change was high on the agenda for the summit, where all but the United States voiced a strong recommitment to the goals of the Paris Agreement, and the G20 included by reference, the TCFD recommendations in their Climate and Energy Action Plan for Growth.

CEOs Endorse the Recommendations

The TCFD final recommendations were endorsed by over 100 CEO’s from a wide range of companies, including large financial institutions like Barclays and Morgan Stanley as well as energy and manufacturing companies like Suez, DuPont, and Unilever. Reactions from a broad range of financial analysts were also positive, noting the need for improvements and wider adoption of climate risk disclosure practices.

A number of initiatives are already under way to think through and plan the implementation of the TCFD recommendations, such as the UNEP FI’s effort with major banks from around the world who have pledged to work towards adopting these recommendations, and put forth actions they see as needed for broader adoption of climate risk reporting.

Further Readings

  • The Economist Intelligence Unit’s  “The Road to Action” report finds that investors, asset managers, and banks are in urgent need of a way to identify and measure how the industry is responding to climate-related risks. It notes that their interviewees widely regard the TCFD’s recommendations as having the clearest mandate to providing possible solutions.
  • Aon’s white paper Financial Regulators Awaken: Prepare to Disclose Climate Risk notes that risk management and analytics is what differentiates the TCFD’s recommendations from many existing standards. “Risk management, including insurance and risk analytics, is given a key role in helping businesses understand and quantify climate risks. The recommendations provide a framework that can enhance risk management, empower corporate strategy, and improve resilience in a fast-changing world.”
  • The 2-Degree Investing Initiative takes a deep dive into corporate disclosures in its forthcoming report “Limited Visibility”, part of their Tragedy of the Horizon program. The report presents the current state of corporate disclosure on long-term risks and long-term forward looking data using analysis of MSCI World companies’ financial disclosures.

Four Twenty Seven helps investors, Fortune 500 companies, and government institutions understand how to quantify and monetize climate change impacts on operations and asset portfolios. 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.

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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Developing Climate-Competent Boards: Climate Risk and Opportunities

Four Twenty Seven’s founder and CEO Emilie Mazzacurati was invited to speak during the Investing in the Age of Climate Change symposium on April 28, 2017, at the University of Oregon. Emilie presented through a video call and talked about Four Twenty Seven’s work, but mainly discussed climate-competent boards. She delved into what a climate-competent board is, the opportunities they provide, and steps to implement climate-competency on a board. She also discussed economic impacts from climate change, the TCFD climate risk disclosure recommendations, the Paris Agreement, and how these topics relate to climate-competent boards.

Investing in the Age of Climate Change was sponsored by the University of Oregon’s Office of the President and the Office of Sustainability. The symposium tackled issues around climate risk, their connection to investment decisions, and the need to understand how these risks can affect an organization’s business in the long-term.

Video: Emilie Mazzacurati speaking at Investing in the Age of Climate Change

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.

Newsletter: A Market Imperative

 

 

TCFD releases recommendations on climate risk disclosures


Four Twenty Seven Climate Solutions

From the Desk of Emilie Mazzacurati

Climate risk disclosures are more important than ever. In the context of the Trump Presidency and the latest round of cabinet appointments, it may be tempting to dismiss the risk associated with the “Energy Transition” — the rapid transition to a low-carbon economy. It may be tempting to ignore the need to disclose risks from the physical impacts of climate change in a context that promises fewer regulations and a dismissal of climate policy.

Yet, there’s no escaping the science and the reality of climate change, and the Trump administration’s stance on climate change gives even more urgency to both transition and physical risks of climate change.

Climate change and its impacts are not going away, and will likely worsen at an increasing rate if we continue to ignore them. Looking out a few years, these same physical impacts from climate change will eventually force us to transition rapidly away from fossil fuels to stop further degradation of the climate, leading to a ripple effect across the economy as entire value chains relying on fossil fuels, including major energy and transportation systems, will need to adapt – potentially at a high cost. The only question is how fast, and how expensive.

Markets have a chance to avoid being blindsided by a predictable risk. The TCFD offers a market solution, by the market, for the market. Mark Carney and Mike Bloomberg point out in an Op-Ed in The Guardian that “early disclosure rules allowed 20th-century financial markets to grow our economies by pricing risks more accurately.” This is our chance to repeat a good deed.

Disclosures are a small step that can help set in motions much larger changes through market forces, by pricing risk accurately, rewarding companies that take appropriate steps to prepare and adapt, and unlocking finance for resilience. Climate risk disclosures are an opportunity and a necessity for markets to both accelerate the energy transition and prepare for growing climate impacts.


Emilie Mazzacurati, Founder and CEO
Four Twenty Seven

TCFD Risk Disclosure Recommendations

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released a comprehensive set of recommendations on December 14. The TCFD provided detailed guidance for companies on how and what to integrate in their financial disclosures related to climate change, including both transition and physical risks. The TCFD recommends companies disclose how they address climate risk and opportunities across governance, strategy and risk management, and what metrics and targets they use to measure ambition and progress. The recommendations also encourage companies to consider opportunities to be found in climate-related efforts such as cost savings through improved resource efficiency or supply chain resilience. The Task Force’s recommends the use of scenario analysis to disclose an organization’s planning under future scenarios, most notably one with in a 2°C scenario.

The TCFD will take comments on the draft recommendations until February 12, 2017.

Read the TCFD Recommendations

Four Twenty Seven hosts webinar on TCFD Recommendations Jan 12.

How will the disclosure recommendations developed by the Task Force on Climate-related Financial Disclosures be put into action? Four Twenty Seven, in partnership with Crowell & Moring LLP, will host a webinar on January 12th at 9:00am PST to present present key recommendations from TCFD and discuss feasibility, next steps, and issues to consider for implementation.

Speakers:

Save the date for this event and email events@427mt.com to express interest and ensure you receive registration information.

Register

Climate Risk Portfolio Screening: the Right Tool for the Job

Scanning large portfolios of assets for exposure to physical impacts of climate change raises a number of challenges – from accessing raw climate data to selecting appropriate indicators and time frame, and interpreting the output while accounting for climate data’s unique complexity and sources of uncertainties.

To support corporations and investors looking to identify hotspots and quantify value at risk in their portfolio of assets, facilities or across their supply chain, Four Twenty Seven has developed a suite of enterprise applications that provide rapid, cost-effective screening across portfolios of 10,000+ assets.

Learn more about CREST, our Climate Resilience Support Tool for corporate climate risk management, and our climate data analytics services for financial institutions.

Growing Regulatory Momentum in Europe

Responsible investing received a big boost in Europe, as the European Parliament voted to confirm a law that will require pension fund managers in the EU to account for climate-related risks in their investment strategies. The law introduces new requirements for risk management and reporting. The law echoes Art. 173 in France‘s Law on the Energy and Ecology Transition (Loi TEE), which requires asset owners and asset managers to disclose financial climate risks ranging from carbon and energy risks to physical impacts of climate change.

Report: the Energy Transition Risk Toolbox

2 Degree Investment Initiative launched this week a new report entitled “Transition Risk Toolbox: Scenarios, Data and Models.” This report was published as part of the Energy Transition Risks project funded by the European Commission.

The toolbox is designed as a guide for relevant stakeholders seeking to define the ‘tools’ -scenarios, data needs, and models – required for transition risk modelling. It seeks to map these inputs, how they have been used to date, and the missing pieces requiring further research and analysis.The Energy Transition Risks & Opportunities (ET Risk) research consortium seeks to provide research and tools to assess the financial risk associated with the energy transition. The Consortium is funded by the European Commission and brings together academic researchers (University of Oxford, think tanks (Carbon Tracker Initiative, Institute for Climate Economics, and 2°Investing Initiative), industry experts (The COFirm), and financial institutions (Kepler Cheuvreux, S&P Global). A summary of the initiative can be found here.

Panel on Disclosures at 2017 Climate Leadership Conference

Join the 2017 Climate Leadership Conference in Chicago on March 1-3 for a panel on”The Changing Landscape of Climate Risk Disclosures”. Four Twenty Seven CEO Emilie Mazzacurati will be joined by Rick Saines, partner at Baker & McKenzie, and other market stakeholders, to discuss the future of climate risk disclosures.

Upcoming Events

Join the Four Twenty Seven team in the field at these upcoming events:
  • December 12-15: AGU 2016 Fall Meeting, San Francisco, CA: Director of Analytics Nik Steinberg, Director of Finance Colin Shaw, and Climate Data Analyst Colin Gannon each will be presenting on tools for evaluating and preparing for extreme heat events.
  • January 12: Webinar on climate risk disclosures co-hosted by Four Twenty Seven and Crowell & Moring
  • January 22-26American Meteorological Society Annual Meeting, Seattle, WA: Nik Steinberg will present on a decision-support tool for adapting to extreme heat.
  • January 24-26: NCSE 2017, Arlington, VA: Director of Advisory Services Yoon Kim will moderate a panel, “Climate Data and Public Health: Mobilizing Adaptation Action”
  • January 25-26: California Climate Change Symposium, Sacramento, CA: Meet Climate Adaptation Senior Analyst Kendall Starkman at this event focused on practical applications of California climate science.
  • March 1-3 Climate Leadership Conference, in Chicago. Emilie Mazzacurati will join a panel on climate risk disclosures on March 1st.

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TCFD: Climate Risk Disclosures Gaining Momentum

The Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) released a comprehensive set of recommendations on December 14. The recommendations provide detailed guidance for companies on how and what to integrate in their financial disclosures related to climate change. The TCFD’s definition of climate risk encompasses both transition and physical risk (see chart below) and recommends companies address climate risk across governance, strategy and risk management, with a set of metrics and targets to show ambition and progress.

How climate risk disclosures and opportunities affect financial impact
Source: Recommendations of the Task Force on Climate-related Financial Disclosures

The recommendations also encourage companies to consider opportunities to be found in climate-related efforts such as cost savings through improved resource efficiency or supply chain resilience. The Task Force recommends the use of scenario analysis to disclose an organization’s planning under future scenarios, most notably one with in a 2°C scenario.

Growing Regulatory Momentum in Europe

With these recommendations, companies will be guided to producing long term outlooks on their value and risk management strategies for financial markets. The recommendations for disclosures of climate-related information are voluntary, but offer transparency that is increasingly being demanded by investors and resonate with recent regulatory efforts in France and the UK to require such disclosures. Indeed, responsible investing received a big boost in Europe, as the European Parliament voted to confirm a law that will require pension fund managers in the EU to account for climate-related risks in their investment strategies. The law introduces new requirements for risk management and reporting.

The law echoes Art. 173 in France‘s Law on the Energy and Ecology Transition (Loi TEE), which requires asset owners and asset managers to disclose financial climate risks ranging from carbon and energy risks to physical impacts of climate change.

A Market Imperative

Climate risk disclosures are more important than ever. In the context of the Trump Presidency and the latest round of cabinet appointments, it may be tempting to dismiss the risk associated with the “Energy Transition” – the rapid transition to a low-carbon economy. It may be tempting to ignore the need to disclose risks from the physical impacts of climate change in a context that promises fewer regulations and a dismissal of climate policy.

Yet, there’s no escaping the science and the reality of climate change, and the Trump administration’s stance on climate change gives even more urgency to both transition and physical risks of climate change.

Climate change and its impacts are not going away, and will likely worsen at an increasing rate if we continue to ignore them. Looking out a few years, these same physical impacts from climate change will eventually force us to transition rapidly away from fossil fuels to stop further degradation of the climate, leading to a ripple effect across the economy as entire value chains relying on fossil fuels, including major energy and transportation systems, will need to adapt – potentially at a high cost. The only question is how fast, and how expensive.

Markets have a chance to avoid being blindsided by a predictable risk. The TCFD offers a market solution, by the market, for the market. Mark Carney and Mike Bloomberg point out in an Op-Ed in The Guardian that “early disclosure rules allowed 20th-century financial markets to grow our economies by pricing risks more accurately.”

Disclosures are a small step that can help set in motions much larger changes through market forces, by pricing risk accurately, rewarding companies that take appropriate steps to prepare and adapt, and unlocking finance for resilience. Climate risk disclosures are an opportunity and a necessity for markets to both accelerate the energy transition and prepare for growing climate impacts.

Tools for Identifying Risk

Climate Risk Portfolio Screening: the Right Tool for the JobThough the TCFD recommendations do offer guidance to disclosing climate risk, the process of scanning assets for exposure raises a number of challenges — from accessing raw climate data to selecting appropriate indicators and time frame, and interpreting the output while accounting for climate data’s unique complexity and sources of uncertainties.

To support corporations and investors looking to identify hotspots and quantify value at risk in their portfolio of assets, facilities or across their supply chain, Four Twenty Seven has developed a suite of enterprise applications that provide rapid, cost-effective screening across portfolios of 10,000+ assets.

Learn more about CREST, our Climate Resilience Support Tool for corporate climate risk management, and our climate data analytics services for financial institutions.

 


 

Four Twenty Seven in partnership Crowell & Moring LLP hosted a webinar on January 12th to present key recommendations from TCFD and discuss feasibility, next steps, and issues to consider for implementation. View the webinar recording.