Moody’s launches a new data platform, DataHub, providing data on corporates, real estate and macroeconomic variables, including climate, ESG and credit risk across asset classes. Read the press release from Moody’s:
NEW YORK–(BUSINESS WIRE)–Moody’s Corporation (NYSE:MCO) today announced the launch of Moody’s DataHub, a new cloud-based analytical platform that integrates data from across Moody’s, including its affiliates. Moody’s DataHub enables financial and risk decision-makers to explore, analyze and consume a wide range of relevant information seamlessly and efficiently.
“With Moody’s DataHub, we are bringing our vast assets together to support today’s data science and analytic needs,” said Stephen Tulenko, President of Moody’s Analytics. “Moody’s is helping customers seamlessly analyze financial and nonfinancial information, combining structured and unstructured data to support better decisions.”
Moody’s DataHub provides access to billions of data points to inform more holistic risk management and investment decisions. Coverage includes:
Moody’s DataHub delivers cross-referenced datasets in a centralized area with sophisticated analytical capabilities. The platform facilitates a holistic view of risks and opportunities related to credit, real estate investments, and climate, and provides essential inputs for Know Your Customer (KYC) onboarding and compliance screening, master data management, and entity resolution.
Easily accessible data previews, along with a readily available data dictionary and documentation, allow users to explore and efficiently interact with Moody’s datasets. Using Moody’s DataHub’s advanced tools, customers can discover and transform data while collaborating in secure environments, blending Moody’s data with their own to create engineered products and services.
“Moody’s DataHub gives customers transparency and control, and the platform was designed to facilitate rigorous data analysis while being straightforward to use,” said Mr. Tulenko. “We will continue to add datasets to the platform and will enhance its analytical capabilities in line with our commitment to deliver market-leading solutions for decision-makers.”
For more information on Moody’s DataHub and a full list of the datasets currently available through the platform, please visit the website.
This webinar on Climate Change, Real Estate and the Bottom Line features a discussion on the interactions between climate change and real estate investment, development and operations. It’s part of the webinar series The Path to Tomorrow, hosted by Goodwin and the MIT Center for Real Estate.
December 3, 2020 – Four Twenty Seven Report. More frequent and severe extreme events driven by climate change pose a significant threat to nations around the world and understanding who and what is exposed to climate hazards is essential to pricing this risk and preparing for its impacts. This new report and underlying analytics assess sovereign exposure to floods, heat stress, hurricanes and typhoons, sea level rise, wildfires, and water stress based on the only known global dataset matching physical climate risk exposure to locations of population, GDP (Purchasing Power Parity) and agricultural areas within countries.
Globally, increasingly severe climate conditions impose growing pressure on populations and economies. The implications on economic growth, welfare, production, labor, and productivity are large, with potential material impacts on sovereign credit risk. However, assessing sovereign climate risk presents significant challenges. While most approaches to quantifying future climate risk exposure for sovereigns measure the average exposure over the entire territory of a country, this doesn’t capture whether the populated or economically productive areas are exposed to extremes. Likewise, averages of exposures to several climate hazards can mask extreme exposure to a particular hazard in a certain area of a country.
We’ve mapped the co-occurrence of hazards and exposures, explicitly factoring in the spatial heterogeneity of both climate hazards and people and economic activities across a country. This new report, Measuring What Matters – A New Approach to Assessing Sovereign Climate Risk, provides an analysis of the data. We find that all nations face meaningful risks despite their variation in size and resources. Explore sovereign climate risk in the interactive map below, based on both total and percent of a nation’s population, GDP (PPP) and agricultural areas exposed to climate hazards in 2040.
*Erratum: In Table 1 of a previous version of this report the “Agriculture Area at High Risk” column was said to be in units of 1 billion hectares. However, it is in units of 100 million hectares.
The results from the U.S. presidential elections signal an impending radical shift in U.S. climate policy. President-elect Biden’s transition team identified climate change as one of four top priorities, promptly followed with the appointment of John Kerry as special envoy for climate. As part of his transition plan, Biden announced ten executive actions related to climate change that he intends to take on his first day in office. One of these measures is the requirement for public companies to disclose climate risks and greenhouse gas emissions in their operations and supply chains.
This disclosure requirement aligns with a global trend, following similar announcements in the UK and in New Zealand, with other financial regulators across Europe and the Asia-Pacific also actively considering such measures.
Disclosures are but one of many policy measures the new Administration may implement to address potential risks from climate change on financial markets and the economy. The report published by the US Commodity and Futures Trading Commission (CFTC) in September 2020 provided an extensive list of policy recommendations for financial regulatory agencies and the government at large to regulate climate risk.
A number of these policy recommendations overlapped with the September 2020 report from the Business Roundtable (BRT), where large corporations employing over 15 million in total and representing $7.5 trillion in assets(revenues) called on bold policy action to address the looming climate crisis.
Our analysis examines recommendation from the BRT and CFTC, alongside data on corporate risk disclosure, to provide an indication of how US firms are currently standing against the recommendations, and to provide a comparison to other markets.
We use the TCFD Climate Strategy Assessment dataset from V.E, an affiliate of Moody’s, which provides a granular view of how 2,855 companies report in line with the TCFD recommendations. This data is based on a comprehensive analysis of companies’ risk disclosures, across sectors and regions. For the purpose of this analysis, we grouped firms based on the region in which they’re listed, comparing the progress of firms in the US (498 companies), Canada (109), Japan (399) and the European Union (EU) (840). Each of these regions have different approaches to climate policy, with the EU leading the way in terms of regulatory developments for assessing and disclosing climate risk, while Japan expects markets to address financial risks from climate change through emerging best practices and market pressure. Comparing recommendations from the BRT and CFTC to companies’ risk disclosures, we grouped our analysis into two sections, first looking at recommendations around emissions reductions efforts and then discussing recommendations around risk management.
Both the CFTC and BRT recommend imposing a carbon price to develop a clear price signal associated with greenhouse gas (GHG) emissions. Firms sometimes use internal carbon pricing as a management tool, which suggests that they are more prepared to adjust to a nationwide carbon price.
We find that only 3% of assessed US firms report using an internal carbon price, which is fewer than Canada, the EU and Japan. Alongside Canada, US firms also have the highest average carbon footprint of the assessed regions, based on carbon footprint data from V.E. However, Canada shows the largest proportion of firms reporting an internal carbon price, at 19% of firms. The data shows that US firms are behind their peers and have not leveraged the use of an internal carbon price as a management tool to incentivize carbon reductions and price the externalities associated with carbon emissions.
However, we find that many firms that disclose internal carbon prices in the US are from the automobile, energy, mining and pharmaceutical sectors. These sectors are among those with the largest dependencies on energy consumption or fossil fuels, which are expected to be most exposed to transition risks. The overall low numbers are therefore balanced by the fact that the firms in these sectors that do use internal carbon prices are also those that most need to prepare for shifting climate policy.
Table 1. The percent of companies in each region disclosing each indicator.
The BRT emphasizes the significant opportunity for the U.S. to continue to lead in development and commercialization of energy efficiency and renewable energy to support the transition to a low-carbon economy. It underscores the need to invest in low-carbon and emissions reduction technology to allow us to capitalize on this opportunity.
In the US, 7% of assessed firms disclose the development of products that contribute to the transition to a low-carbon economy, which is less than firms of other regions. Japan and the EU lead the way with 19% and 18% of firms respectively reporting investments in low carbon technology. Only 1% of US firms report acquisition of businesses contributing to the transition; although all regions assessed show low uptake of this indicator. In the US, 35% of the companies in industrials, 33% in electrics and 30% in the automobile sector disclose development of products contributing to the energy transition. This demonstrates the opportunities for firms in sectors with high exposure to transition risk, such as electrics and automobiles, to invest in developing new products which would be in higher demand if climate policy increased.
The EU’s Sustainable Finance Taxonomy helps investors identify which activities contribute to climate adaptation and mitigation which in turn informs portfolio alignment with the Paris Agreement or other emissions reduction goals. The Taxonomy puts additional pressure and incentive for corporations to develop activities that directly contribute to the transition. This may explain why EU companies have made among the most progress to date, although it also may be an indication of further pressure growing outside of the EU as global investors aim to align with the taxonomy.
GHG Reduction Targets
The BRT recommends aligning policy and greenhouse gas reduction targets with scientific evidence around the need to reduce emissions. While few firms have disclosed divestment from or decommissioning of carbon intensive assets, those in the US and Japan show the least progress with only 1% of the assessed firms disclosing this indicator, while the EU shows the highest with 6%. Similar to the developments described above, as investors increasingly strive to align their portfolios with emissions reductions targets, companies will experience increased pressure to align their activities with such targets. While the US has experienced less regulatory activity to date in this regard than the other regions, this is likely to change going forward and companies prepared for those change are likely to be better positioned than others.
The CFTC recommends that financial firms define oversight responsibilities for climate risks for the board of directors. While this recommendation is particularly directed at financial firms, it also aligns directly with one of the TCFD recommendations, and as such will be increasingly relevant as companies are increasingly asked to disclose their climate risks and opportunities in line with the TCFD. The BRT also recommends voluntary and transparent climate risk disclosure by corporations in line with existing frameworks.
Only 8% of US firms disclose integration of climate risk into board oversight and Japan and Europe show similar progress. Canada stands out with 19% of firms disclosing processes used by the board to monitor and oversee climate progress.
Table 2. The percent of companies in each region disclosing each indicator.
Integration into Risk Management
The CFTC report recommends that financial firms integrate climate risk monitoring and management into their governance. However, only 10% of US firms disclose integration of climate risks into their enterprise risk management. While this is similar to progress in Japan, 17% and 20% of firms in the EU and Canada respectively report integration of climate risks into their management, indicating that they are likely more well prepared both for an increase in extreme events or transition risks and for regulations around assessing and disclosing risk.
The CFTC recommends that financial firms conduct scenario analysis aligned with international efforts, In the US, 11% of firms have disclosed use of scenario analysis, which is similar to Japan and the EU. Canada stands out with 20% disclosing use of scenario analysis. There has been a rapid uptick in both the pressure to conduct scenario analysis and stress tests, particularly for banks, as well as the resources available to support these assessments, such as the reference scenarios released by the Network for Greening the Financial system in June 2020.
Our analysis shows that the largest US corporations tend to be slightly behind in terms of disclosing key indicators compared to their international peers. However, among all assessed regions, only a small percentage of firms disclose the indicators highlighted in this analysis, which demonstrates that there is significant room for progress. Increasing firms’ capacity to assess and disclose climate risks in an informative manner remains a global challenge.
Our analysis focused on the largest publicly trading companies, which are the first that have to comply with upcoming regulations around climate risk disclosure. The picture of progress likely looks different for mid-market firms where integration of emerging best practices for ESG and climate risk is not yet as deep.
 Moody’s Corporation, Four Twenty Seven’s parent company, is a BRT member.
Moody’s Analytics received the Chartis RiskTech100® Climate Risk Award, highlighting its commitment to integrating climate risk analytics into its world-class credit models. As part of Moody’s ESG Solutions, Four Twenty Seven works closely with Moody’s Analytics, bringing data on granular, forward-looking physical climate risk exposure. Read the press release from Moody’s Analytics:
SAN FRANCISCO, November 23, 2020 – Moody’s Analytics has won the Climate Risk category in the 2021 Chartis RiskTech100®, the first year this category has appeared. It’s one of 10 awards for Moody’s Analytics to go along with the #2 overall ranking.
The Moody’s Analytics offering helps customers first identify whether they have exposure to climate risk in their portfolios and then quantify the impact of exposure to various climate risk factors.
“Expanding our climate risk capabilities is a top priority and one we have invested significantly in achieving,” said Dr. Jing Zhang, Managing Director and Global Head of Quantitative Research at Moody’s Analytics. “Severe climate events throughout 2020 underscore the importance and urgency for market participants to understand how climate change is already affecting—and will continue to affect—the risk and return of their portfolios.”
Measuring the physical risks associated with climate change is one piece of the climate risk management puzzle. Award-winning climate risk analytics from Moody’s ESG Solutions, powered by Moody’s affiliate Four Twenty Seven, a leading provider of physical climate risk data and V.E, a Moody’s affiliate with expertise in transition risk, ESG, and corporate disclosures, are being incorporated across Moody’s Analytics solutions. Moody’s climate solutions suite brings climate data into risk management tools, translating climate risk exposure into financial impact and credit risk across asset classes.
Our team recently conducted an AI-powered study of climate-related disclosures from roughly 12,000 companies, across industries and regions. Among the findings, which were presented to the Task Force on Climate-Related Financial Disclosures (TCFD) and are highlighted in the most recent status report on TCFD implementation: Only 17% of the companies examined had reported any climate-related information, and with significant variation in focus, content, and quality.
Capabilities from Moody’s ESG Solutions are also increasingly being leveraged by Moody’s Investors Service (the credit rating agency and sister company of Moody’s Analytics).
In this panel during AIST’s Superannuation Investment week, Founder & CEO, Emilie Mazzacurati, discusses the latest thinking on leveraging climate scenario analysis to inform investment decisions. She highlights the Network for Greening the Financial System’s climate scenarios and describes research underway to connect climate data to financial metrics such as probability of default.
This joint report provides a comprehensive analysis of the ways in which climate risks affect sovereign risk, demonstrating new empirical evidence of how climate risk and resilience influence the costs of capital. It also explores the implications for Southeast Asia in particular, where countries are highly exposed to climate change risks and their economic consequences. Lastly, the report outlines five policy recommendations based on these findings. The report was a collaboration between the Centre for Sustainable Finance at SOAS University of London, the Asian Development Bank Institute, the World Wide Fund for Nature Singapore and Four Twenty Seven.
“Climate Change and Sovereign Risk” outlines six transmission channels through which climate change affects sovereign risk and in turn the cost of capital, providing examples of each and explaining how they’re connected. It uses empirical analysis to demonstrate the significant impacts of climate risk exposure on the cost of capital. Using a sample of 40 developed and emerging economies, econometric analysis shows that higher climate risk vulnerability leads to significant rises in the cost of sovereign borrowing. Premia on sovereign bond yields amount to around 275 basis points for economies highly exposed to climate risk. This risk premium is estimated at 113 basis points for emerging market economies overall, and 155 basis points for Southeast Asian economies.
To further explore these channels, the report provides a closer look at Southeast Asia, a region with significant exposure to climate hazards such as storms, floods, sea level rise, heat waves and water stress. Physical risks are expected to considerably affect economic activity, international commerce, employment and public finances across Southeast Asian countries. Transition risks will be prominent as exports and economies become affected by international climate policies, technological change and shifting consumption patterns. The implications of climate change for macrofinancial stability and sovereign risk are likely to be material for most if not all countries in Southeast Asia.
The report highlights the need for governments to climate-proof their economies and public finances or potentially face an ever-worsening spiral of climate vulnerability and unsustainable debt burdens. It outlines five policy recommendations, emphasizing the importance for financial authorities to integrate climate risk into their risk management processes and for governments to prioritize comprehensive climate vulnerability assessments and work with the financial sector to promote investment in climate adaptation.
The report was originally posted by SOAS University of London.
September 24, 2020 – Vigeo Eiris and Four Twenty Seven Report. The TCFD recommendations helped to catalyze a global conversation on the need for increased climate risk assessment and disclosure. While there is much progress still to be made, there has recently been significant developments in the uptake and quality of TCFD-aligned climate risk disclosures. This report explains Vigeo Eiris’ new TCFD Climate Strategy Assessment dataset, sharing key findings of how firms’ disclosure align with each element of the TCFD framework and includes a case study on how companies’ risk reporting compare to their physical risk exposure.
Consistent climate risk disclosure is essential to improving market transparency and building a more resilient financial system. As devastating extreme events, regulatory developments and investor pressure have led to an increase in climate risk disclosure, the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations have become a global reference. Moody’s affiliate Vigeo Eiris’ new TCFD Climate Strategy Assessment dataset provides a granular view of how 2,855 companies report in line with TCFD recommendations.
This new Vigeo Eiris and Four Twenty Seven report, Measuring TCFD Disclosures, explores the key findings from this assessment, highlighting companies’ disclosures in governance, strategy and risk management. We find that while 30% of companies have identified at least one climate-related risk that may affect their business, only 3% have disclosed enhanced due diligence for projects and transactions. The report highlights examples from the three sectors of energy, electric & gas utilities and diversified banks to compare reporting for several indicators within each TCFD category. It includes a case study on the energy sector to review how companies’ physical risk exposure compares to their risk disclosure. Based on Four Twenty Seven’s data on physical climate risk, we find that there is still significant discrepancy between how companies are exposed to climate risk and what they disclose. This is essential for investors to understand when leveraging disclosures to assess their own risk exposure and when engaging with companies around improving climate risk assessment and disclosure.
Moody’s launches an ESG Solutions Group, offering data and analytics across ESG, climate risk and sustainable finance. Read the press release from Moody’s:
LONDON–(BUSINESS WIRE)– Moody’s Corporation (NYSE: MCO) announced today the formation of an Environmental, Social, and Governance (ESG) Solutions Group to serve the growing global demand for ESG insights. The group leverages Moody’s data and expertise across ESG, climate risk, and sustainable finance, and aligns with Moody’s Investors Service (MIS) and Moody’s Analytics (MA) to deliver a comprehensive, integrated suite of ESG customer solutions.
The ESG Solutions Group develops tools and analytics that identify, quantify, and report on the impact of ESG-related risks and opportunities. Moody’s ESG capabilities expanded following its investments in Vigeo Eiris (VE), a global pioneer in ESG assessments, data and tools, and sustainable finance, and Four Twenty Seven, a leader in climate risk analysis, in 2019. ESG and climate risk considerations are already integrated into credit ratings and research offered by Moody’s Investors Service, and will be integrated into a range of Moody’s Analytics risk management solutions, research, data and analytics platforms.
“Moody’s ESG Solutions Group brings together capabilities from across the company to help market participants advance strategic resilience, responsible capitalism, and the greening of the economy by identifying risks and opportunities and providing meaningful performance measurements and insights,” said Rob Fauber, Moody’s Chief Operating Officer.
The ESG Solutions Group is led by Andrea Blackman, who has over 30 years of experience in harnessing financial and technology innovation in leadership roles with banks, asset managers, and financial technology vendors. She previously managed Moody’s CreditView, growing it into the leading global research, data, and analytics platform for credit market professionals.
Including its affiliates, Moody’s ESG-related offerings now include:
VE and Four Twenty Seven will continue to offer market-leading stand-alone ESG and climate risk solutions given strong demand for their innovative products. VE recently launched enhanced Second Party Opinions for sustainability bonds that integrate aspects of the EU Taxonomy and Green Bond standard. Four Twenty Seven recently announced the addition of wildfire risk to their on-demand Real Asset Scoring Application for a property or facility’s projected exposure to climate change effects.
For more information visit Moody’s ESG & Climate Risk hub at www.moodys.com/esg