Four Twenty Seven, an affiliate of Moody's, sends a monthly newsletter highlighting recent developments in climate risk and resilience.
In Focus: Deadly Winter Storm in Texas
Devastating Extremes Highlight the Need for Equitable Resilience
In the massive disaster still unfolding in Texas after temperatures have returned to average, dozens were killed and many more are still suffering with lack of clean drinking water, home repairs from burst frozen pipes, and exorbitant energy bills, among other challenges. While scientists are still exploring the connection between a warming Arctic and frigid conditions spreading south, the scientific community agrees that climate change will bring more extreme conditions. The widespread power outages in Texas underscore the dire need to implement a diverse set of adaptation measures to prepare for a range of extreme events, including heat waves and storms. Weatherization of power plants and energy infrastructure, alongside improvements to home insulation can help prepare for extreme temperatures on either end of the spectrum.
This disaster also underscores the disproportionate impacts of extreme events on low-income residents and people of color, who are less likely to have backup generators or disposable income and more likely to lose critical wages from missing shifts during the storm. Likewise, in Texas, residents that shared energy circuits with critical facilities such as hospitals often kept their power during the storm, but these facilities are not usually in Black and Hispanic communities. These challenges aren't unique to Texas. In Louisiana, residents still homeless or suffering from two hurricanes last fall were also hit by extreme cold, facing yet another challenge to their survival, and there are similar stories after disasters across the country.
Ongoing Efforts to Address the Financial Risks of Climate Change
Central banks and financial regulators around the world continue to announce developments in their plans to address climate risk. This month the E.U. made additional progress, while the US began to make up for lost time. The UK also released a consultation on its updated draft climate risk disclosure legislation for pensions based on last fall's consultation responses.
Earlier this month the San Francisco Federal Reserve published an Economic Letter explaining its approaches to climate-related risks relating to supervision and regulation as well as financial stability. It outlined recent global efforts to address this risk and explained the Fed's own approach, emphasizing the value of scenario analysis for individual financial institutions and of stress tests as a tool for assessing potential climate impacts on the financial system more broadly. Meanwhile, Treasury Security Yellen has established a new Treasury climate "hub," and is currently seeking to find its leader. The likely candidate, Sarah Bloom Raskin, has served both as a deputy Treasury secretary and on the Federal Reserve Board.
Every Region Has its Climate Risks
The New York Times on Global Populations' Exposure to Climate Hazards, Featuring Four Twenty Seven Data
Every region has its own set of climate risk exposures and how this risk creates adverse impacts depends upon the population and economic activity exposed, as well as any climate adaptation measures in place. Based on Four Twenty Seven's data about 90% of the global population will be exposed to at least one climate hazard by 2040, and the New York Times' interactive story brings these findings to life, with additional context about each region.
Climate Risk by Community Type in the US
In the US there is a growing field of research exploring the overlay between community characteristics and their exposure to climate hazards. From demographics and resources to economic composition, many factors influence communities' vulnerability to climate hazards and their ability to prepare. The American Communities Project explores how climate hazards in the US correspond to different community types, leveraging Four Twenty Seven's data. The analysis highlights the significant exposure to sea level rise in "Military Posts," and exposure to extreme rainfall in "Working Class County" and "Middle Suburbs," as well as several other key findings and the potential implications of these exposure trends.
Climate Change & Sustainability Resources for Investors
Climate Opportunities and Risks in an Altered Investment Landscape
In this year's Megatrends report, Weathering Climate Change, PGIM provides a deep dive into the many ways climate risk can affect institutional investors, including a briefer on the climate science, an investor survey and a discussion of ways to integrate climate change into investment decision-making. It highlights risks and opportunities across asset classes, including fixed income, equities, real estate and infrastructure, and explores portfolio implications, with analysis from Four Twenty Seven.
Sustainable Bond Insights 2021
This year's Sustainable Bond Insights compiled by Environmental Finance, provides a review of 2020's green and sustainable bond issuance and looks forward to the year ahead. Moody's ESG Solutions and Moody's Investors Service contributed a chapter highlighting three trends to watch this year: increased issuance by governments and agencies; the rise of sustainability-linked financing; and climate risk and resilience in the bond market.
We're Hiring! Join Moody's ESG Solutions
There are several opportunities to join Moody's ESG Solutions dynamic team. See the open positions below and visit Moody's Careers page for more information.
Mar. 10 – Environmental Social Justice Webcast: Director, Communications, Natalie Ambrosio Preudhomme, will discuss opportunities to leverage climate risk analytics to build corporate and community resilience.
Mar. 22-25– Ceres 2021: Emilie Mazzacurati will speak on the panel "The New Materiality of Climate Science and What it Means for Investors and Companies."
Apr. 14-16– The Eurofi High Level Seminar: Emilie Mazzacurati will present on the panel "Climate Risk Implications for the EU Financial Sector."
Sept 22 – 2021 CARE Sustainability Conference: Natalie Ambrosio Preudhomme will present on financial climate risk analytics during the panel "Implementation Issues."
Four Twenty Seven, an affiliate of Moody's, sends a monthly newsletter highlighting recent developments in climate risk and resilience. This month we discuss the Biden Administration's climate policy, share new climate change records and include recent books on climate risk in the financial sector.
In Focus: Climate Risk a Priority in the US
First Week Signals Biden Administration's Commitment to Climate Action
The Biden Administration has named climate changes as one of four top priorities, alongside the COVID-19 pandemic, racial justice and the economic crisis. Beyond rejoining the Paris Agreement, several of Biden's executive orders in his first week in office relate directly to climate, while others have significant implications for the environment. For example, in an executive order on public health and the environmental, federal agencies are mandated to comply with Obama-era regulations prioritizing climate change adaptation and resilience rolled back by Trump. Further, one of his first executive orders stated that regulatory reviews should promote concerns such as public health, environmental stewardship, racial justice and the interests of future generations rather than focusing on a cost-benefit analysis, which typically fails to fully recognize non-economic benefits. There have been several key climate appointments and climate has emerged as a critical issue across many agencies, so this will remain a space to watch in the coming months.
The US Financial Regulators Begin to Move on Climate
On Monday the Senate approved Janet Yellen for treasury secretary, after she committed last Tuesday that the Treasury would examine the financial risks of climate change and appoint a senior official to lead climate initiatives. Meanwhile, this week the Federal Reserve announced a climate committee with a mission to "assess the implications of climate change for the financial system — including firms, infrastructure and markets in general." The central bank has slowly been increasing its participation in the dialogue on climate risk and this step signals that it may be starting to truly prioritize the issue.
There was a record 50 billion-dollar extreme weather events endured globally in 2020, with a total of $268 billion in total economic losses according to Aon. While the most costly disaster last year was the summer monsoon flooding in China, causing $35 billion in damage, the majority of the damage from extreme weather was in the US.
It's thus fitting that this past year also ties with 2016 for the hottest year on record, even during a La Niña event, which is a phase in the global climate cycle that typically leads to cooler years. The seven years we just experienced are the seven warmest years on record.
Four Twenty Seven Analysis: Over 25% of the world's population in 2040 could be exposed to severe heat stress and 57% of the economy could be exposed to flooding
More frequent and severe extreme events driven by climate change pose a significant threat to populations and economies around the world and understanding who and what is exposed to climate hazards is essential to pricing this risk and preparing for its impacts. Four Twenty Seven's report, Measuring What Matters: A New Approach to Assessing Sovereign Climate Risk, builds on new analytics assessing 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.
The Latest Books on Climate Risk & Sustainable Finance
Values at Work: Sustainable Investing and ESG Reporting,
This recent book highlights the latest research on sustainability topics of growing interest to investors, including climate change, pollution, diversity, governance, economic inequality and others. Four Twenty Seven wrote a chapter titled “Asset-Level Physical Climate Risk Disclosure.” The chapter discusses the need for consistent, comparable metrics for physical risk disclosure, using the pharmaceutical sector as a case study to examine climate risk disclosure versus climate risk exposure.
Carbon Risk and Green Finance
This new book provides a comprehensive primer on both physical and transition climate risks as financial risks. It covers the emergence of reporting frameworks and mandatory disclosure laws in recent years. The latter portion examines the datasets and approaches that can be leveraged to assess and report climate risk, including emerging topics such as climae stress testing and scenario analysis, citing Four Twenty Seven.
Climate Change, Real Estate and
the Bottom Line
Webinar Recording
How will climate hazards like sea level rise and flooding affect real estate and how is the industry preparing? In this webinar in the Goodwin and MIT Center for Real Estate series, The Path to Tomorrow, Global Head of Climate Solutions at Moody's and Founder & CEO of Four Twenty Seven, Emilie Mazzacurati, joins insurance and finance professionals to discuss climate risk for real estate developers, investors and owners.
Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we share new research on climate risk and sovereign risk, discuss the climate implications of the U.S. election and highlight new data on EU Taxonomy alignment and TCFD disclosures.
In Focus: Climate Change and Sovereign Risk
Report: Cost of Sovereign Capital is Affected by Climate Risk
New joint research provides a comprehensive analysis of the ways in which climate risks affect sovereign risk. Published by 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, the report, “Climate Change and Sovereign Risk,” outlines six transmission channels through which climate change affects sovereign risk and, in turn, the cost of borrowing. Using econometric analysis on a sample of 40 developed and emerging economies shows that higher climate risk vulnerability leads to significant rises in the cost of sovereign borrowing.
The report also provides a closer look at Southeast Asia, a region with significant exposure to physical climate risks such as storms, floods, sea level rise, heat waves and water stress, as well as transition risks. 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.
Lastly, the report highlights the need for governments to climate-proof their economies and public finances. 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.
Donald Trump and Joe Biden present significantly different approaches to climate change and environmental justice. Moody's Investors Service's report "Next administration will confront five policy challenges with wide-ranging credit impact," explores policy challenges the next administration will face, including environmental issues. The analysis writes that "Biden's economic plans include measures to address climate change. Trump's proposals do not prioritize addressing climate change or lowering carbon dependence."
Trump plans to continue his efforts to reduce regulation on fossil fuel emissions and pollution, supporting growth of the fossil fuel industry and completing the US withdrawal from the Paris Agreement. Meanwhile in addition to rejoining the Paris Agreement and planning for net-zero emissions by 2050, Biden would implement pollution regulation with a particular focus on environmental justice. Biden has also expressed his support for mandating that public companies disclose their climate risks and emissions. This National Geographic piece outlines Biden and Trump's respective records on climate change and environmental issues, as well as their future plans.
Handbook on Climate Risk Assessment
NGFS: Case Studies of Environmental Risk Analysis Methodologies
The Network for Greening the Financial System (NGFS) released a collection of case studies outlining methodologies for climate and environmental risk analysis for banks, asset managers and insurers. The compilation of approaches, written by academic researchers, financial practitioners and data providers highlights the latest developments in addressing data gaps, identifying how climate risk translates to financial risk, and leveraging climate data to build a resilient financial system.
Four Twenty Seven and Moody's Analytics contributed Chapter 2: "An Approach to Measuring Physical Climate Risk in Bank Loan Portfolios," and Moody's Investors Service wrote Chapter 27: "Moody's Approach to Incorporating ESG Risks into Credit Analysis."
New Data on Companies' Taxonomy Alignment & TCFD Disclosure
Vigeo Eiris Launches Taxonomy Alignment Screening & Request for Comment
The EU Taxonomy Regulation outlines criteria for activities contributing to six environmental objectives: climate mitigation; climate adaptation; protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity. It was formally adopted earlier this year, with criteria for climate change mitigation and adaptation; criteria for the other objectives are forthcoming.
To date, V.E has screened 1,587 European issuers based on their alignment with the taxonomy's three-part criteria: substantial contribution to one of the six environmental objectives, Do No Significant Harm and compliance with minimum social safeguards. Results show that many companies perform at least one of the 72 Taxonomy activities but few meet the technical criteria for the activities. This beta dataset is freely available upon request and the Request for Comment is open until November 1st, 2020.
How do Climate Risk Disclosures Align with TCFD Recommendations?
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. V.E's new TCFD Climate Strategy Assessment dataset provides a granular view of how 2,855 companies report in line with TCFD recommendations.
This new V.E and Four Twenty Seven report, Measuring TCFD Disclosures, explores the key findings from this assessment, highlighting companies’ disclosures in governance, strategy and risk management and providing a case study on how companies' risk disclosures compare to their exposure. 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.
In their latest report, the Urban Land Institute (ULI) and Heitman explore how real estate investors are integrating an understanding of market-level climate risk into their decision-making. The report highlights the progress made in assessing climate risk at the asset-level, citing Four Twenty Seven's climate risk analysis. It also discusses the increasing importance of understanding both market-level risk as well as regional resilience measures and how much risk these efforts may mitigate.
Meanwhile, new research on coastal real estate markets finds that a decrease in sales often foreshadows a decrease in prices, which is already taking place in Miami-Dade County, Florida and throughout the state. Many experts think that an increased awareness of the risks of sea level rise is contributing to this trend.
New Resilience Category in ULI Awards for Excellence
The ULI Awards for Excellence honor development projects that demonstrate the highest standards throughout their process, including but not limited to the architecture and design phases. This year one of the five categories is Resilient Development, with application questions including the topics of physical and community resilience. Submissions are open and the early application deadline for ULI Americas is December 18, 2020.
Webinar: Climate Change for Banks
Join Us at 8am PST / 11am ET / 2pm BST next Tuesday Oct. 27th
Join the Moody's Sustainable Finance webinar series for next week's webinar, Responsible Approaches to Climate Change for Banks. Hear from climate risk experts and bank practitioners on ways in which climate change affects banks and how they can respond. The webinar will explore the effects of climate change on banks’ activities and the role banks can play in supporting resilience. We will discuss the ways in which climate change poses material financial risks to banks, as well as opportunities. Practitioners will share case studies of how they leverage climate data for decision-making.
Speakers:
Yoon Kim, Managing Director, Global Client Services, Four Twenty Seven (Moderator)
Sara Faglia, Senior ESG Analyst - Financial Sector, Vigeo Eiris
Michael Denton, Director - Enterprise Risk Solutions, Moody's Analytics
Craig Davies, Head of Climate Resilience Investments, European Bank for Reconstruction and Development
Imène Ben Rejeb-Mzah, Group CSR Head of Methodologies and Data, BNP Paribas
Senior Climate Data Analyst, Research - Siraphob (Gain) Boonvanich
Four Twenty Seven welcomes Gain as a Senior Climate Data Analyst, Research. Gain optimizes cloud infrastructure and climate data processing to support the development of Four Twenty Seven's climate risk analytics. Previously, Gain worked at Weathernews Inc. where he helped transform cloud infrastructure and developed various weather research applications, including radar and satellite image processing, machine learning models and demand prediction.
Oct. 28 – Risk Australia Forum: Founder & CEO, Emilie Mazzacurati, will present.
Oct. 28-29– RI Digital: Japan: Director, Japan, Toshi Matsumae, will present.
Oct. 28-29– ACEC Fall Conference: Director, Global Client Services, Lindsay Ross will present.
Nov. 3-6– Las Inversiones Responsables Crean Entornos Económicos Sostenibles en el Tiempo, Virtual: Managing Director Research, Nik Steinberg, will present.
Nov. 4-6 – Risk Americas Virtual Convention: Emilie Mazzacurati, will present and Yoon Kim and Lindsay Ross will host Four Twenty Seven's virtual booth.
