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

Audio Blog: The Changing Landscape of Climate Risk Disclosures

Market expectations on corporate climate risk disclosures are fast changing as corporations, investors, and regulators are attempting to increase efficiency and strengthen economic resilience through more transparency. This panel discussion, held at the 2017 Climate Leadership Conference on March 1, 2017, provides an overview of recent developments by US and EU regulators and Bloomberg’s Task Force on Climate-related Financial Disclosures. Panelists shared how they are responding to the new regulatory context, challenges and opportunities arising from understanding climate impacts on business and markets, and expectations for further developments.

Panelists:

  • Emilie Mazzacurati, Founder & CEO, Four Twenty Seven (moderator)
  • Laline Carvalho, Director of the Financial Services Ratings Group at S&P Global
  • Tim Dunn, Founder and Chief Investment Officer, Terra Alpha Investments LLC
  • Mardi McBrien, Managing Director, Climate Disclosure Standards Board
  • Richard Saines, Partner; Head of North American Climate Change & Environmental Markets Practice, Baker McKenzie

You can listen to a recording of the panel here. Note that due to a technical issue with the recorder, the introductions from Laline Carvalho and Tim Dunn were unfortunately not captured.

For more information about the Taskforce on Climate-related Financial Disclosures, read our blog posts:

You can also watch our webinar discussing TCFD next steps, and issues to consider for implementation.

Audio Blog: Private Sector Perspectives on Climate Resilience

The Inter-American Development Bank in partnership with Four Twenty Seven and the Global Adaptation and Resilience Investment (GARI) Working Group held a panel discussion, “Private Sector Perspectives on Climate Resilience”, on Monday, November 14th in Marrakesh, Morrocco as a side event to the proceedings at COP22. You can listen to a recording of the full discussion here.

 

Bringing together thought leaders from the private sector and international financial institutions, the panel examined challenges and opportunities facing private actors in the arena of climate resilience. The panelists provided insights into the latest developments in technology, finance and the entrepreneur community on how the private sector can turn climate risks into opportunities and contribute to greater social and economic resilience.

From left to right: James McMahon, Emilie Mazzacurati, Amal-Lee Amin, Jay Koh, Mari Yoshitaka discuss climate resilience

Panelists

  • Amal-Lee Amin, Chief Climate Change and Sustainability Division, IDB
  • Emilie Mazzacurati, Founder and CEO, Four Twenty Seven
  • Jay Koh, Founder & Chair, Global Adaptation & Resilience Investment Working Group (GARI)
  • James McMahon, CEO, The Collider
  • Mari Yoshitaka, Chief Consultant of Clean Energy Finance Division, Mitsubishi UFJ Morgan Stanley Securities

From Policy to Markets: the New Climate Agenda

The election of Donald Trump as President of the United States comes at a time where the world needs more engagement in climate policy, and threatens to derail the world’s efforts to keep global warning below 1.5oC. Financial markets’ interest in low-carbon and resilience finance can help counter-balance the expected scaling back of U.S. engagement.

Trump’s Climate Agenda

Myron Ebell, a well-known climate denier, is on Trump’s shortlist for nominees to the EPA.
Myron Ebell, a well-known climate denier, is on Trump’s shortlist for nominees to the EPA. Source: New York Times

While Donald Trump as a candidate did not expound much on his views on climate policy beyond calling climate change “a hoax” and promising to revive the coal industry in the U.S., the Republican agenda on climate change is well established. Trump’s short list of potential nominees for EPA and Dept. of Energy seems to confirm his alignment with the most conservative aisle of the Republican party on all things climate and environment. We expect the impact of the Trump administration on climate policy to be three-fold:

First, we anticipate a hard stop or slow down of U.S. efforts to reduce greenhouse gas (GHG) emissions, starting with the Clean Power Plan, mired in court since 2015, but also including other environmental regulations on air, water and land conservation. The incoming administration will likely face legal challenges since the Supreme Court mandated the EPA to regulate GHG emissions under the Clean Air Act, but these typically unfold over years and the EPA can also count on industry-led lawsuits to help bring down some existing or in progress regulations.

Second, we expect a sharp budget cut for the EPA, but also for development aid related to climate change (the U.S. is an important contributor to development finance institutions like the World Bank and the Inter-American Development Bank) and grants and subsidies to support local government. The Obama White House has been instrumental in providing concrete support and resources on adaptation and resilience, in particular with the Climate Data Initiative and the Climate Resilience Toolkit – the future of these programs is now called into question. Trump may also consider cutting funds for critical agencies like NOAA and NASA, which could impact long term climate data collection and analysis, similar to what was experienced in 2013 with the ‘sequester’.

Third, the U.S. will likely shift from being a driving force for a strong global climate agreement to becoming a negative influence, that may provide an excuse for other countries to slow down their own efforts. While the future of the Paris agreement is not called into question even if the U.S. withdraws, the effectiveness of multilateral efforts will be undermined by the absence of the second largest emitter in the world at the table. It is unclear at this point if the EU and China can and will jointly take over that leadership role, but together they could provide a stabilizing influence and governments in both regions take climate change very seriously.

Market Forces At Play

However, many analysts have noted that even without policy support going forward, the transition to the low-carbon economy is already well underway. Trump is unlikely to succeed at reviving the coal industry with low natural gas prices, and renewables and low-carbon technologies have largely reached the point where they compete effectively with fossil fuel sources. Financial markets are providing steady support for new renewable and energy efficiency projects, with over $65.5B worth of green bonds issued in 2016 YTD.

The world needs to step up adaptation finance by over 400 percent.
The world needs to step up adaptation finance by over 400 percent. Source: WRI

The private sector’s support is also going to be needed for adaptation and resilience. Disengaging from climate policy at a time where each year breaks new heat records, and 2016 is already locked into being the hottest year ever on record does not bode well for the future. Mercer estimates climate change will cause $1.5 trillion of potential impact of climate on returns for portfolios, asset classes and industry sectors, and impacts on communities and human welfare will be even more devastating.

UNEP estimates the financing needed for adaptation will be at least $100B a year, while current adaptation funding from multilateral organizations hovers around $25B a year. While there is a strong consensus over the need to bring more private capital into adaptation and resilience investments, meaningful flows are yet to materialize.

Mobilizing Private Capital for Adaptation

In this context, the discussion paper released today by the Global Adaptation and Resilience Investment (GARI) working group brings welcome insights into how investors see opportunities and barriers to adaptation investments. GARI was launched at Paris COP21, in conjunction with the UN Secretary General’s A2R Climate Resilience Initiative, to bring together private investors and other stakeholders to focus on the practical intersection of investment and climate adaptation and resilience. At COP22, GARI released Bridging the Adaptation Gap, a discussion paper that summarizes the discussions of over 150 private investors and other stakeholders in 2016.

The paper confirmed a high level of awareness among participants, with 70 percent of private investors surveyed declaring they see both risk and investment opportunity from the impact of climate change. Seventy-eight percent of respondents thought evaluating the physical risk from climate change was “very important,” and over 60 percent confirming that they were already, in fact, considering climate risk in their investment portfolio. The lack of a common approach to measuring climate risk, however, was identified as a critical barrier, with respondents calling for a transparent, practical approach to assess physical climate risk.

Where are the investment opportunities in adaptation? GARI maps the opportunities in key sectors. Source: Bridging the Adaptation Gap discussion paper.
Where are the investment opportunities in adaptation? GARI maps the opportunities in key sectors. Source: Bridging the Adaptation Gap discussion paper.

GARI also brought attention to investors’ interest in opportunities for investments in adaptation and resilience. Seventy percent of participants indicated they would consider making investments that supported adaptation to climate change or climate change resilience now. The paper catalogs various investment types, including existing infrastructure, corporate, and fixed asset investments that support adaptation and resilience to climate change. Over 60 percent of respondent investors are considering investments today in resilient infrastructure and in companies whose products address the impact of climate change on water, agriculture, healthcare, energy, and financial services.

Conclusion

The engagement shown by GARI participants, which includes some of the largest financial institutions in the world, opens the door to bringing private investors into a number of adaptation opportunities in need of funding, such as developing and deploying new and existing technologies to help deal with the effect of drought in agriculture, better flood prevention, resilient retrofits to infrastructure and cool, efficient housing.

Not all adaptation projects are suited to private sector investments however, and banks will not replace governments in investing in social capital, development projects and lifting the most vulnerable out of poverty. But leveraging and guiding financial flows towards projects that enhance economic and social resilience create a win-win opportunity and a powerful way to continue to make progress towards a low-carbon and resilient world in spite of political headwinds.

by Emilie Mazzacurati

Supply Chain Risk, on SustainabilityDefined

Supply Chain Risk on SustainabilityDefinedSustainabilityDefined is the podcast that seeks to define sustainability, one concept (and bad joke) at a time. Hosted by Jay Siegel and Scott Breen. Each episode focuses on a single topic that helps push sustainability forward. They explain each topic with the help of an experienced pro.

CEO Emilie Mazzacurati joins the show for Episode 14 to discuss supply chain risk, leading with the dire news that the world may run out of coffee and chocolate by 2050! How is that possible, you ask? Emilie helps Jay, Scott, and their listeners understand why supply chains are so critical to delivering the goods we love, and how understanding the effects of climate change could help us avert a world without coffee and chocolate. Click the audio player above to listen in!

Audio Blog: Engaging the Private Sector on Climate Resilience

Four Twenty Seven CEO Emilie Mazzacurati discusses how the private sector is responding to climate change risks and highlights opportunities for local governments to engage with local businesses on climate resilience in this audio recording from a panel on The Economic Impacts of Climate Change at the 2016 California Adaptation Forum.

Follow along with Emilie’s talk in the slides below.

Policy Brief: Climate Adaptation in the California Budget

California is a leader on climate resilience and adaptation efforts in the U.S. Yet translating adaptation policies into clear budget priorities can be a challenge. This Policy Brief provides a detailed analysis of the California budget for FY 2016-2017 with regard to adaptation and resilience spending, with an eye to lessons learned for other states and opportunities for improvement and clarification for future budgets.

California’s adaptation policy builds on a growing body of legislation – namely, SB246, AB1482, SB379, and Executive Order B-30-15 highlight California’s commitment to adaptation and resilience, as do numerous state and local programs. We found that these priorities are reflected in the 2016-2017 State budget, but somewhat disjointedly.

Governor Brown’s proposed budget, which the legislature passed on July 15, does not allocate specific amounts to programs labeled as adaptation- and resilience-focused. Rather, it supports programs related to drought resiliency, infrastructure upgrades, climate change, and other issues. Therefore, tracking resilience-specific finance is difficult; to overcome this challenge, we analyzed the 2016-2017 budget by looking at both specific sections of the budget and policies that relate to climate hazards. Within certain sections, we were able to compare allocations that support climate resilience to the total allocations for sector initiatives. Policies related to hazards include those designed to protect vulnerable populations and the overall strength of the state to respond to disasters.

In our view, California’s latest budget does not yet adequately address the state’s adaptation challenges, nor does it fully reflect the state’s priorities. However, with the final round of legislation passing before the close of the legislative year on August 31, 2016, the State set itself up for success by addressing gaps in allocations, prioritizing environmental justice and setting the stage to clarify cross-departmental standards for addressing climate change. It is now essential that the state move forward with the implementation of these initiatives in a clear, communicative way, in order to ensure that state funds engender climate resilience.

Download the full policy brief (PDF)

Four Twenty Seven Comments to the SEC

Comment Letter from Four Twenty Seven to Securities and Exchange Commission on Concept Release S7-06-16. (Download full letter here)

 

July 21, 2016

Dear Mr. Fields,

I write on behalf of Four Twenty Seven, Inc., a climate risk analytics and market intelligence firm. We submit this letter of comment for your consideration on SEC Concept Release S7-06-16: Business and Financial Disclosure Required by Regulation S-K.

We warmly welcome the SEC’s renewed engagement and consideration of climate change risk and sustainability issues in corporate risk disclosure. Providing guidance around climate risk disclosures is a critical step not only to help ensure financial markets will not be blindsided by predictable risks, but also to ensure that investors send the appropriate price signals to the decision-makers for the underlying assets – from corporate boards to public officials and real estate owners – thus providing an incentive to better prepare for and adapt to the physical impacts of climate change.

Our comments stem from years of working closely with Fortune 500 corporations to help them understand climate change impacts, quantify risk and monetize costs. The analysis we provide are used by these corporations to inform whether any climate-related risk they face may reach the materiality threshold, and to fulfill disclosure and reporting needs including 10-K filings, CDP reports and SASB metrics. We anticipate this type of analysis will need to become widespread for corporations to comply with the forthcoming guidance from the TCFD, and wanted to share our lessons learned from our past and current work.

Our comments, detailed below following the questionnaire structure, center around two key takeaways:

  1. The Guidance released in 2010 on climate change disclosure was a useful contribution to framing the breadth of issues to be considered around climate change impacts on corporate value and equity risk, but has not been used and applied by the industry as it should have. We recommend the SEC enforces systematically its requirement to disclose material risks, include those related to climate change.
  2. Corporations should be required to provide greater details on how they are incorporating climate data into decision-making processes and perform vulnerability assessments at the asset-level for both corporations and investors, even if the disclosure itself is consolidated. They should demonstrate that they are utilizing fully the wealth of climate data and projections that are available, and leverage sophisticated techniques and models to incorporate uncertainty into their decision processes. Climate risk analysis should rely on common standards, assumptions and scenarios to enable comparison across assets and across markets.

We hope our comments are of use and are available should you have any follow-up questions.

 

Download Four Twenty Seven’s Comment Letter (FourTwentySeven_SEC_ConceptRelease_CommentLetter) for our detailed comments on the SEC Concept Release.

Related comment letters from other stakeholders for the SEC Concept Release are also available for download for information:

Redefining Climate Risk

Comment Letter from Four Twenty Seven to Task Force on Climate-Related Financial Disclosures. (Download full letter here)

May 23, 2016

Dear Chairman Bloomberg,

Four Twenty Seven, Inc., a climate resilience research and advisory firm, is pleased to submit this letter of comment for your consideration and to help inform the work of the Task Force on Climate-Related Risk Disclosures (TCFD) during Phase II.

We commend you for the important work undertaken by the TCFD and your deliberate efforts to engage practitioners and stakeholders in providing input along the way. Providing guidance around climate risk disclosures is a critical step not only to help ensure financial markets will not be blindsided by predictable risks, but also to ensure that investors send the appropriate price signals to the decision-makers for the underlying assets – from corporate boards to public officials and real estate owners — thus providing an incentive to better prepare for and adapt to the physical impacts of climate change.

Our comments stem from years of working closely with Fortune 500 corporations to help them understand climate change impacts, quantify risk and monetize costs. We anticipate this type of analysis will need to become widespread for corporations to comply with the forthcoming guidance from the TCFD, and wanted to share our lessons learned from our past work.

Our comments, detailed below following the questionnaire structure, center around two key takeaways:

  1. The need to redefine climate risk to better account for direct and indirect risks related to the physical impacts of climate change. Regulatory, technology or transition risks are by no means confined to greenhouse gases, and focusing a disclosure framework only on extreme weather events and direct physical impacts would be deeply misguided. It is critical that corporations understand, address and disclosure their exposure to risks and opportunities related to transition risk due to:
  • Regulatory changes driven by climate change (e.g. changes in underground water regulation, permitting, zoning, etc.);
  • Costs and revenues associated with finding and deploying adaptive technologies to improve corporate resilience, mitigate risk exposure and promote more efficient resources use;
  • Costs associated with capital expenditure, retrofitting or moving facilities, infrastructure and other critical assets out of harm’s way.
  • Costs and revenues associated with increasing the company’s adaptive capacity, ranging from increased legal and insurance costs to investments in human capital, supply chain risk management, engagement with local governments to support climate adaptation efforts, and other public-private partnerships.
  • Macro-economic and financial risk for property owners, market risks for certain products, etc.

 

  1. The need to incorporate climate data into decision-making processes and provide vulnerability assessments at the asset-level for both corporations and investors.
  • Corporations need to utilize fully the wealth of climate data and projections that are available, and leverage sophisticated techniques and models to incorporate uncertainty into their decision processes.
  • Climate risk analysis must be performed at the asset-level, even if the final disclosures do not include all the asset-level data, and should rely on common standards, assumptions and scenarios to enable comparison across assets and across markets.
  • Risk assessments should be subject to third-party verification to ensure they are complete and cover all the material risks.

Download Four Twenty Seven’s Comment Letter (FourTwentySeven_PhaseI_CommentLetter) for our detailed analysis on climate risk reporting.

From Science to Action: Using Climate Science for Adaptation

We have all heard about the doomsday climate change can bring. Rising seas, blistering heat waves, and epic storms are but small samples from the chronicle of destruction possible due to climate risk.  When considering the doomsday scenarios, questions arise about where, when, and how these changes will take place.

Recent research from a team of climate scientist led by James Hansen posits that the timeframe in which we will begin to see the impacts from sea level rise and super storms, may be more severe and shorter than expected. The paper argues that the phenomenon of stratification (when melting freshwater from glacier melt disrupts the saline pumps of the deep ocean, causing warm water to collect at the bottom of the sea where it melts ice shelves) along with other feedback loops, have not been fully captured in previous climate models.

The Hansen Theory

Hansen and his team suggest that with the new math in place “ice mass loss from the most vulnerable ice, sufficient to raise sea level several meters, is better approximated as exponential than by a more linear response. Doubling times of 10, 20 or 40 years yield multi-meter sea level rise in about 50, 100 or 200 years.” In other words, ice melt that was previously thought to be occurring at a predictable rate is now potentially occurring at rate several times higher.

This is not the first time that the science has been updated and caught the eye of the media. As a result, climate scientists like James Hansen and Michael Mann have become well known in environmentalist circles.  In 2012, climate activist Bill McKibben became especially revered when his article in Rolling Stone Magazine: Climate Change’s Terrifying New Math gathered similar attention and reactions from the media as the Hansen report.

As suggested by the new research and steady stream of media updates, it is clear that climate science is a constantly evolving and improving practice. While it is true that the data points are becoming more robust, and new discoveries like stratification are being baked into the latest climate models, scientists will be the first to tell us that we still have a lot left to learn about how climate change is altering our earth’s systems.

Climate Scientist James Hansen stands by a 1000 ton boulder that is theorized to have been lifted by a super storm 120,000 years ago onto the cliffs of North Eleuthera in the Bahamas. At the time of the ancient storm, ocean temperature was only 1 degree C warmer than today.
Climate Scientist James Hansen stands by a 1000 ton boulder that is theorized to have been lifted by a super storm 120,000 years ago onto the cliffs of North Eleuthera in the Bahamas. At the time of the ancient storm, ocean temperature was only 1 degree C warmer than today.

Michael E. Mann, the scientist who popularized the classic hockey stick graph stated in response to the new report “Some of the claims in this paper are indeed extraordinary. They conflict with the mainstream understanding of climate change to the point where the standard of proof is quite high.”

Towards Climate Adaptation Science?

While the work climate scientists like Hansen and Michael Mann continues to advance the science, some members of the climate community are beginning to question the value of continuing to refine the accuracy of climate science. Suggesting instead that it may be time to refocus resources traditionally spent on increasing the degree of confidence towards adaptation science.

The argument is that after a certain point the ability for climate science to generate new insights is subject to diminishing returns. As such, it doesn’t matter as much to nail down exact predictions of when and where and by how much the impacts of climate change will hit, when we know they are already here and will continue to grow. With the climate science we have now, we are very good at projecting what 60 cm of sea level rise looks like, and how that sea level rise will impact our coasts. However, we are not great at knowing when that sea level rise will happen.

Those wanting to focus resources on adaption science argue that this distinction shouldn’t really matter. Think of the results of climate science like a high blood pressure reading, how bad the reading is doesn’t change the fact that you still have to go exercise and change your diet if you want to be healthier; and its better to hit the gym sooner rather than later.

Using Science for Decision-Support

This is not to say that advancements from Hansen and other climate scientists are irrelevant. On the contrary, it is extremely valuable work, but their findings provide information that should be used to spark interventions that buffer vulnerable regions from the worst of climate change.

At Four Twenty Seven we are picking up where the scientific reports stop. By translating the key warnings and lessons of climate science into strategies that can reduce financial, infrastructural, and social risk, we can prepare for the impacts of climate change regardless of when they occur. By analyzing, monitoring, and providing site specific insights into how climate change affects normal operations, we manage the complexities for stakeholders whose responsibilities cover a wide range of populations and global facilities.

“LIDAR data is often collected by air, such as with this NOAA survey aircraft (top) over Bixby Bridge in Big Sur, CA. Here, LIDAR data reveals a top-down (bottom left) and profile view of Bixby Bridge. NOAA scientists use LIDAR-generated products to examine both natural and manmade environments. LIDAR data supports activities such as inundation and storm surge modeling, hydrodynamic modeling, shoreline mapping, emergency response, hydrographic surveying, and coastal vulnerability analysis.” (source)
“LIDAR data is often collected by air, such as with this NOAA survey aircraft (top) over Bixby Bridge in Big Sur, CA. Here, LIDAR data reveals a top-down (bottom left) and profile view of Bixby Bridge. NOAA scientists use LIDAR-generated products to examine both natural and manmade environments. LIDAR data supports activities such as inundation and storm surge modeling, hydrodynamic modeling, shoreline mapping, emergency response, hydrographic surveying, and coastal vulnerability analysis.” (source)

Having reliable climate data and a robust understanding of the changes climate change has put in motion is a great starting point for determining risk factors. LIDAR data from NOAA and other hydrological data sets can be used to anticipate coastal vulnerability to climate charged changes like sea level rise.  NASA has its own set of valuable climate data, which has been used to map everything from melting ice in Greenland to diminishing wine grape harvests in France and Switzerland. Such robust and continuously updated datasets allow for meaningful vulnerability assessments that can inform effective adaptation plans.

Our team has been putting climate data like this to use for our clients. As part of our commitment to the White House Climate Data Initiative we created a dashboard tool of Heat and Social Inequity in the United States, designed to help health care providers understand the risks climate change poses to their community and hospital operations.  It’s through tools like this that we hope to help our clients prepare for the risks climate change presents to the businesses and communities they serve.

It is our hope that the science continues to advance, and new research like that presented by Hansen and his team continues to give us a better picture of the rate at which we can expect climate change to escalate. We also hope to use this information to advance the important work of adaptation. Solving climate change takes both good science and a roadmap forward.  A ‘climate doomsday’ becomes less scary when we realize the power is in our hands to be prepared regardless of when it happens.

Learn more about our work to prepare for the impacts of climate change.