Four Twenty Seven, an affiliate of Moody's, sends a monthly newsletter highlighting recent developments in climate risk and resilience.
In Focus: Climate Commitments
Climate Summit Commitments
The leaders of 40 nations and key private sector participants who joined Biden's Climate Summit last week, made new emissions reductions targets or recommitted to existing promises. The US, Canada, Brazil, Japan and other countries made ambitious new commitments. While change comes when commitments are followed by tangible action, these have the potential to accelerate the transition to a low-carbon economy, with implications for businesses and investors, including significant opportunities.
Mark Carney, UN Special Envoy on Climate Action and Finance, announced the Glasgow Financial Alliance for Net Zero (GFANZ) last week, bringing together several industry-led net zero initiatives focused on supporting the transition to net zero emissions by 2050. Participating groups include the new Net Zero Banking Alliance, the Net Zero Asset Managers Initiative and the Net Zero Asset Owner Alliance. The Net Zero Insurance Alliance is expected to launch soon and will also join GFANZ. There are over 160 participating firms, which commit to science-based targets, addressing all emission scopes, issuing transparent disclosures and setting 2030 interim targets.
Moody's Investors Service report, Climate change to force further business model transformation for banks, outlines ways in which carbon transition and physical climate risk will influence banks' risk assessment requirements and present new costs and credits risks for banks. The analysis covers the forthcoming stress testing requirements, discussing their credit implications.
operational risk. It underscores the ways in which the impacts of climate risk depend on geography, sector and the economic and financial system and emphasizes the need for more research on how climate risk translates into different types of financial risk.
The report on measurement tools underscore the needs for granular, forward-looking data on climate-related financial risks, which includes new climate data tools in addition to improved information on counterparty locations. It discusses the early emphasis on risk assessment for near-term transition risk and the need to expand assessments and scenario analysis to include a range of physical climate hazards. The report highlights the increased research focus on translating climate risks into traditional financial risk metrics, noting that much progress to date has focused on credit risk, with market and liquidity risk at even earlier stages.
Real Assets Exposed to Physical Climate Risk
Moody's Investors Service Adds Climate Data to RMBS Presale Reports
Moody's Investors Service presale and new issues reports for residential mortgage backed securitizations rated out of the US or Europe, now include Four Twenty Seven's physical climate risk scores as an appendix. "While these climate risk scores are not specifically incorporated in our ratings analysis, we believe these additional disclosures will be of great value to market participants," says London-based Moody's Investors Service Senior Vice President Anthony Parry in the press release.
Moody's Investors Service: Climate Hazards Threaten US Seaports
This Moody's Investors Service analysis, Intensifying climate events risk disruptions to seaport operations across the US, leverages Four Twenty Seven's physical climate risk data to assess the exposure of ports to climate hazards including floods, heat stress, hurricanes, sea level rise, water stress and wildfires. It highlights that landlord ports typically have more fixed revenues than port operators, which can reduce the short-term impacts of extreme events. In addition to significant exposure to storms and flooding, West Coast ports often face risks from wildfires, with implications for supply chains and transportation infrastructure. Similarly, while less damaging for the ports themselves, heat stress and water stress can affect agriculture exports, in turn affecting a port's business. Register for free to read the analysis.
Increasing Global Wildfire Potential
Four Twenty Seven's Peer-Reviewed Research on Wildfire Potential Under Climate Change
2020 was a devastating wildfire year and this year is gearing up to just as hot and dry in many regions. This is a global trend exacerbated by climate change. Four Twenty Seven's article,A global assessment of wildfire potential under climate change utilizing Keetch-Byram drought index and land cover classifications, published in Environmental Research Communications, explores the effects of climate change on global wildfire potential. It shows that by 2040, regions like the American West, Australia and the Amazon will be drier and hotter for much longer than historical averages, experiencing more than 60 additional days of high wildfire potential per year.
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