Understanding Industry Relative Exposure to Physical Impacts of Climate Change

As banks and lenders increasingly aim to assess the climate risks in their portfolios, there is a growing need for an efficient way to screen thousands of companies on their exposure to climate risks. Likewise, as regulators develop new requirements for stress testing and disclosure, they’re looking to phase in requirements and understand what can be reasonably assessed and disclosed in the near term. Traditionally, a company’s sector is used as a basis for understanding its exposure to climate risk when more detailed information is not available. This approach is the foundation for transition risk approximations, as a company’s exposure to risks from the transition to a low-carbon economy is largely driven by its sector. However, a broader range of companies can face risks from physical climate hazards, based primarily on the location of their operations. Physical risks translate into business risks through damage and disruption at business manufacturing plants, data centers and other operating facilities, as well as through their supply chains.

Approach

One way to obtain a high-level view of a company’s exposure to physical risk is to understand the trends of risk exposure both in its sector and in the countries in which it operates. We leveraged our database of 5,000 global companies and their underlying 2 million global corporate facilities  scored on their forward-looking exposure to climate hazards to provide a view on relative risk exposure by industry. We use the framework in figure 1 to assess companies’ exposure to climate risk and aggregate the findings up to the sector and country level to provide a high-level view that’s informed by asset-level analysis.

Framework for assessing a company’s exposure to physical climate risk:

  • A company’s Operations Risk is based on its facility-level exposure floods, heat stress, hurricanes & typhoons, sea level rise, water stress and wildfires. The analysis also considers the sensitivity of different types of facilities. For example, manufacturing plants with their high energy demands are more sensitive to extreme heat than offices.
  • Supply Chain Risk is based on the risk in countries that export commodities that the company depends on and a company’s reliance on climate-sensitive resources such as water, land and energy, based on its industry.
  • Market Risk is based on where a company’s sales are generated and how its industry has historically been impacted by weather variability.

Figure 1. Framework for assessing companies’ exposure to physical climate risk.

Scores are normalized, with 0 being the least exposed and 100 being the most exposed. In line with considerations of relevant time horizons and of impacts being locked in over the climatic short term our company risk scores consider projected climate impacts in the 2030-2040 time period under a single RCP scenario, RCP 8.5 (the worst case scenario, also known as business as usual), but leverages several climate models.

 

Key Findings by Sector

In this analysis we share key findings on companies’ Operations Risk, which is based on their facilities’ exposure to each climate hazard. Understanding relative exposure by sector can inform high-level assessments of market-wide risk based  on the concentrations of certain industries in loan portfolios.

Manufacturing, construction and transportation/storage sectors have the highest Operations Risk scores (Figure 2). This is noteworthy because these are industries with particular vulnerabilities to disruption from extreme events such as floods, as well as vulnerability to chronic stresses like increasing temperatures which affects labor productivity and energy prices. Companies in the manufacturing sector are often part of global supply chains, such that disruptions at plants in one country can lead to shortages around the world. Construction and transportation, on the other hand, are often critical for local economies.

Figure 2. The average Operations Risk for companies within each sector. The size of the box represents the number of facilities assessed within each sector and the color of the box represents its relative risk to physical climate hazards. The number in the box shows the average Operations Risk for companies in that sector.

 

The next layer of detail provides an understanding of a sector’s relative risk by hazard, based on the average risk scores of companies in that sector. As risks and also relevant corporate resilience measures vary based on hazard, this detail can help inform risk management and engagement efforts.

Figure 3. The average hazard risk score for companies within the manufacturing sector.

 

Key Findings by Country

Within a sector there are significant differences in average exposure depending on the country, as physical climate risk varies by location. For example, in the construction sector the average Operations Risk scores are highest in the Philippines, Vietnam and Mexico, while the average scores are lowest in Finland, Bulgaria and Switzerland.

Different countries also have different risk exposure based on the hazard. For example, the Philippines, Indonesia and Mexico are countries with significant numbers of corporate facilities that also stand out with the highest Operations Risk scores. However, for wildfires, Indonesia, Mexico and Brazil stand out as countries with significant numbers of corporate facilities that are among the highest risk (Figure 4). Meanwhile, for water stress Kazakhstan, Morocco and  Australia are among the most exposed (Figure 5)

Figure 4. Facilities owned by transportation and storage companies, colored based on their exposure to wildfires.

Figure 5. Global corporate facilities owned by manufacturing companies, colored based on their exposure to water stress.

 

This dataset provides a multifaceted view on physical risk exposure by industry and country, which can be tailored to the needs of specific risk assessments and inform views on aggregate portfolio risk.

US Automotive Manufacturing Hubs Exposed to Climate Risk

Introduction: Growing Investment in US Manufacturing

Manufacturing stands out as a key part of President Biden’s America Jobs Plan and there is wide support for strengthening American manufacturing. Historically, manufacturing was a backbone of the domestic economy, contributing around 25% to national GDP, but that number fell to 11% in 2019.

The COVID-19 pandemic underscored the need for resilient and local supply chains, and provides an opportunity to transition to a low-carbon economy as part of the recovery. Investing in the domestic manufacturing industry offers a lifeline to new sectors, such as electric vehicles (EVs), which can introduce clean energy jobs nationwide. The American Jobs Plan offers “$52 billion to increase access to capital for domestic manufacturers, focusing on successful existing access programs and targeting rural manufacturing and clean energy” and “a $174 billion investment to win the EV market.” While it’s unclear if this exact proposal will pass, it is likely that there will be growing investment in domestic manufacturing. At the same time, increasingly frequent climate-driven extreme weather events demonstrate the need to build climate resilience into new manufacturing investments.

In this analysis, we explore municipal climate risk exposure in states with significant and growing automotive manufacturing industries. Understanding municipal climate risk is important because in addition to the direct physical threat to manufacturing plants, climate emergencies cause loss of life, hinder commutes and disrupt supply chains by closing roads, airports and other infrastructure. We leverage our county climate risk scores, which quantify population-weighted exposure to floods, heat stress, hurricanes & typhoons, sea level rise, water stress and wildfires, over the 2030-2040 horizon.

Automotive Manufacturing in Michigan & Tennessee

Both Michigan and Tennessee have seen “real manufacturing GDP grow by a compound annual growth rate (CAGR) of more than 3% between 2009 and 2019, about twice as high as the national rate.” Michigan automotive manufacturing generated around $225 billion and 712,000 jobs in 2019. Automotive manufacturing is Tennessee’s dominant manufacturing sector and the state’s employment in the  sector is 3.3 times higher than national average.

In addition to serving as hubs for traditional automotive manufacturing, Michigan and Tennessee are both seeing increasing investment in EVs, which provide a growing opportunity for these states to continue revitalizing their automobile manufacturing sectors while creating jobs and growing their economies. However, when making capital-intensive investments in new facilities and equipment it is important to consider the long-term risks these assets may face, to protect the company’s investment, and also to ensure that the regional economic benefits are seen.

Flood Risk

In addition to damaging equipment and products, floods can also cause upstream and downstream supply chain disruptions and impact manufacturing productivity if employees cannot get to work. Moreover, since manufacturing can serve as a regional anchor, employees living one or two counties over may be affected by floods that avoid the facility itself.

Figure 1. Michigan county-level exposure to flood risk.

Of Michigan’s 83 counties, 70% are exposed to high flood risk (Figure 1). In 2020, flood damage in Midland County was assessed at over $200 million as heavy rains broke dams and led to significant flooding. Further south,  Wayne County has long been a nexus for the automotive industry and is home to the headquarters of both General Motors and Ford. Ford pledged $850 million  and Fiat Chrysler is investing $4.5 billion to build assembly plants and expand operations there. The county also holds 23% of US automotive production and 76% of total automotive Research & Development. While Figure 1 shows that Wayne County is at a lower risk for flooding than the surrounding counties, all manufacturing in the area would be affected by delivery delays and commute disruptions if the regional transportation infrastructure is not prepared for increased floods.

Figure 2. Tennessee county-level exposure to floods.

In Tennessee, about 90% of the 95 counties are exposed to high flood risk (Figure 2). We find that most key manufacturing hubs are at high risk of flooding, while others are adjacent to highly exposed counties. Williamson County, where General Motors is planning a multi-billion dollar EV battery plant, neighbors Davidson County, the epicenter of catastrophic flooding, and multiple deaths in March 2021. This flood event ultimately led to a Federal Disaster Declaration which expanded to neighboring counties.  Rutherford County has high flood risk and is home of the US manufacturing facility for Nissan Leaf, which was 2016’s most productive automotive manufacturing facility.

Heat Stress 

Heat stress is also a significant threat to manufacturing. It can cause electricity shortages or outages due to increased use of air conditioning, which is already happening more frequently as heat waves increase in duration and severity. Increasing temperatures also present a public health hazard that increases the risk of cardiovascular and respiratory illness and lowers worker productivity. Research shows that temperatures above 90F for six or more days reduces weekly production by an average of 8% in US automotive manufacturing plants.

Figure 3. Michigan county-level exposure to heat stress.

Heat stress is less of statewide concern for Michigan, with only 12% of counties exposed (Figure 3), but it is a high risk for Wayne County, where most of the state’s automotive manufacturing is centered.  Ford, Fiat Chrysler and General Motors all reopened their North American manufacturing facilities on May 18th. This means facilities with high exposure to heat stress are coming back online right as summer is picking up, and the season is likely to be warmer than average, especially in southern Michigan.

Figure 4. Tennessee county-level exposure to heat stress.

Over 92% of Tennessee counties are exposed to heat stress (Figure 4), which represents significant risk for the industry and economies it underpins. The key counties housing the state’s automotive manufacturing facilities are all at high risk. New environmental commitments by General Motors signal growth in domestic EV manufacturing, as they plan a multi-billion dollar EV battery plant in Tennessee with LG Electronics. In a state largely exposed to increasing temperatures, planning for increasing energy costs will help increase the viability of these new facilities.

Mitigating Climate Risk

The revitalization of the US automotive manufacturing industry provides an opportunity for key regions to benefit from population growth, a growing tax base and increased economic activity. However, the success of these developments will rely on business resilience to increasing climate extremes. There are opportunities for municipalities to invest in climate resilience measures both to reduce risk to existing businesses and to attract more business. For example, New York City’s  report outlining ways in which industry can take innovative and cost effective approaches to implementing flood preparedness measures also highlights opportunities for the public sector to support these efforts, including through flexible zoning.

Companies would benefit from exploring a region’s climate risk carefully before developing new facilities and from pricing effective risk mitigations into plant development. For example, for heat stress, at the site level, companies can anticipate higher energy costs, improve insulation, build generators, leverage renewable energy and invest in monitoring and predictive systems to understand facility-level energy use. Nissan installed sub-metering in its Tennessee facilities to monitor energy use, identify unnecessary energy draws, and reschedule certain fabrication to when more energy is available.

Likewise, due to the automobile industry’s reliance on both reliable energy and onsite employees, there are opportunities for businesses to engage with the municipalities to help maintain the resilience of key regional infrastructure to relevant hazards like floods and heat waves. For example, companies can partner with the public sector on initiatives like investing in parks and other green infrastructure which can both help reduce the health impacts of heat waves and can also contribute to flood reduction. Companies such as General MotorsFord, and Nissan invest heavily in education and training for the communities where they are located, and there may be an opportunity to develop trainings around climate risk, which can contribute to increased resilience of the local community, including companies’ employees and customers.

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This post was updated on June 4th to omit data on company facility exposure due to data limitations.

Moody’s Launches Comprehensive Suite of Climate Solutions

Moody’s launches its new Climate Solutions Suite incorporating physical and transition climate risk data into Moody’s best-in-class risk management solutions and economic models. Read the press release from Moodys:

LONDON- (BUSINESS WIRE) – Moody’s ESG Solutions Group today announced the launch of Climate Solutions, a comprehensive product suite that provides market participants with enhanced risk measurement and evaluation tools to better understand, quantify and manage climate risks and opportunities. Climate Solutions incorporates physical and transition risk into Moody’s best-in-class risk management solutions and economic models to enable banks, insurers and investors to better assess climate risks and comply with the emerging regulatory requirements for stress testing and disclosures.

“Climate change has a profound impact on the world’s economies and societies,” said Mark Kaye, Chief Financial Officer and Executive Sponsor of Moody’s ESG Solutions Group. “Moody’s is committed to offering science-driven, objective analytics to advance strategic resilience and to help market participants navigate the transformation to a low-carbon, climate-resilient future.”

Powered by Moody’s affiliates Four Twenty Seven, a leader in climate risk data, and V.E, a leading global provider of ESG research, data and assessments, Moody’s Climate Solutions includes:

  • Forward-looking, physical and transition climate risk assessments for over 5,000 listed companies and more than 10 million real estate properties; dynamic, on-demand scoring for listed and unlisted companies, and SME support in risk identification, reporting and screening are also available;
  • Climate-adjusted Probability of Default (PD) for listed and unlisted companies that leverage Moody’s Analytics award-winning Expected Default Frequency (EDFTM) model to provide consistent, transparent and customizable analysis of the credit impact for physical and transition risk;
  • Macroeconomic Climate Risk Scenarios, based on Moody’s Analytics Global Macroeconomic Model and the Network for Greening the Financial System’s representative designations, for assessing physical and transition changes, including an 80-year forecast horizon to support stress testing and risk management needs;
  • Climate Pathway Scenarios to help power insurers’ and pension funds’ asset and liability projections with climate-aligned scenarios to facilitate customers’ efforts to align with Own Risk and Solvency Assessment (ORSA) and Task Force on Climate-related Financial Disclosures (TCFD) reporting practices; and
  • Powerful, but easy to use TCFD reporting solutions and analytics for banks, pension funds and insurance companies.

“Combining advanced climate know-how with proven models for credit risk and economic forecasts has enabled us to create a sophisticated set of climate risk analytics to support the systematic integration of climate change into investment and risk management decisions,” said Emilie Mazzacurati, Global Head of Moody’s Climate Solutions. “Our solutions support growing market needs for robust modelling of climate risks and their financial impacts.”

To learn more, visit Moody’s Climate Solutions.

Newsletter: The Impacts of “Global Weirding”

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.

Earlier this month the Federal Energy Regulatory Commission did announce plans to create a senior position focused on environmental justice and equity, which could be a small step toward including these critical issues in decision-making about national energy infrastructure. Meanwhile, the New York State Department of Financial Services took an important step by announcing plans to incentivize climate resilience investment in low-to-moderate income communities.
Financial Regulators Act on Climate

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.

The Eurosystem's 19 central banks, as well as the European Central Bank committed to releasing TCFD-aligned climate risk disclosures for their investment portfolios within the next two years. Meanwhile, the French Ministry of Economy, Finance and Growth consulted on updates to its landmark climate risk disclosure law, Article 173. The draft guidance provides more concrete recommendations around forward-looking disclosures for climate and biodiversity related risks including scenario analysis and financial metrics.

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.
Upcoming Events

Join the team online at these upcoming events and check our Events page for updates:

  • Mar. 4 –  Climate Change and Your Business: A Conversation with Emilie Mazzacurati: Global Head of Moody’s Climate Solutions and Founder & CEO of Four Twenty Seven, Emilie Mazzacurati, will present on the business risks of climate change.
  • 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."
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Moody’s Launches DataHub, Collating Billions of Data Points for Decision-Makers to Explore and Analyze

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:

  • Over 4.5 million active and historical ratings from Moody’s Investors Service
  • Default and recovery data dating back to 1920 covering more than 800,000 securities and 59,000 issuers
  • Probabilities of default for more than 60,000 publicly traded firms from Moody’s CreditEdge
  • Nearly 400 million private and public entities from Bureau van Dijk’s Orbis database
  • More than 5,000 ESG assessments from V.E, part of Moody’s ESG Solutions Group
  • Climate risk scores for over 5,000 companies and 200 sovereigns from Four Twenty Seven, part of Moody’s ESG Solutions Group
  • Over 40 million loans underlying US RMBS, CMBS, and CDO transactions
  • 30-year forecasts of more than 2,100 major macroeconomic variables from Moody’s Analytics U.S. Macro Forecast Database

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.

Moody’s Analytics Wins Climate Risk Award at Chartis RiskTech100®

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).

Moody’s ESG Solutions Group Appoints Global Head of Climate Solutions

Moody’s appoints Four Twenty Seven Founder & CEO, Emilie Mazzacurati, as Global Head of Moody’s Climate Solutions, with Moody’s ESG Solutions Group. Read the press release from Moody’s:

LONDON- (BUSINESS WIRE) – Moody’s announced today that it has appointed Emilie Mazzacurati as Global Head of Moody’s Climate Solutions. In this newly-established role, Ms. Mazzacurati will oversee the climate solutions suite within Moody’s ESG Solutions Group, a new business unit formed earlier this year to serve the growing global demand for ESG and climate analytics. Ms. Mazzacurati will report to Andrea Blackman, Global Head of Moody’s ESG Solutions. 

As global awareness and recognition of the financial risks posed by climate change increase, Moody’s is committed to meeting market needs for forward-looking, science-driven climate analytics that help advance a resilient financial system, responsible capitalism, and the greening of the economy,” said Ms. Blackman. “Emilie’s extensive climate expertise will be vital to our continued development of climate solutions and to ensuring that Moody’s is a leading voice in this important area.” 

As part of its climate solutions suite, Moody’s ESG Solutions provides risk measurement and evaluation tools to understand, quantify and manage climate risks for physical and transition risk, informing due diligence and risk disclosure in line with the recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD).  

Climate risk analytics from Moody’s ESG Solutions are also integrated into Moody’s Analytics risk management tools, translating climate risk exposure into financial impact and credit risk metrics for banks, insurers, and investorsSimilarly, the group’s climate data and insights are increasingly being leveraged in Moody’s Investors Service credit analysisBy offering data and analytics across asset classes, including listed and unlisted companies, real estate, infrastructure, sovereigns and municipalities, Moody’s ESG Solutions supports the integration of climate-related risks into financial decision-making and risk management. 

Moody’s ESG Solutions climate offerings build on the award-winning physical climate risk analytics from Four Twenty Seven, leading provider of climate risk data and market intelligencefounded by Ms. Mazzacurati in 2012. Moody’s acquired a majority stake in Four Twenty Seven in 2019 and recently took full ownership. Moody’s climate solutions suite also leverages data from V.E, a Moody’s affiliate with expertise in transition risk, ESG, and corporate disclosures. 

ABOUT MOODY’S ESG SOLUTIONS 

Moody’s ESG Solutions Group is a business unit of Moody’s Corporation serving the growing global demand for ESG and climate 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 and climate risk solutions including ESG scores, analytics, Sustainability Ratings and Sustainable Finance Reviewer/certifier services. 

For more information visit Moody’s ESG & Climate Risk hub at www.moodys.com/esg 

Panel Recording: Taming the Green Swan

In this keynote presentation during Risk Australia Virtual 2020, Founder & CEO, Emilie Mazzacurati, discusses “Taming the Green Swan: Incorporating Climate Risk into Risk Management.” She covers changes in the regulatory environment and how investors can use science to inform risk management and investment decisions. Emilie discusses progress made on climate risk disclosure to date, explains the latest thinking on conducting scenario analysis for climate risks and provides case studies of the economic impacts of climate risk in Asia and Australia.

Report: Measuring TCFD Disclosures

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.

Download the report.

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.

Key Findings:

  • Overall:
    • 30% of the companies have identified at least one climate-related risk that may affect their business and strategy over the short, medium and long term.
    • Physical risks are most frequently reported, followed by policy and legal risks.
  • Governance:
    • 15% of the companies report on having assigned climate-related responsibilities to management.
    • 16% have established processes to inform board members about climate change issues.
  • Strategy
    • 12% of all assessed companies report the development of products or services that contribute to the low-carbon economy, making it the most common Strategy disclosure.
    •  Only 8% of the European and 7% of the North American companies in the panel disclosed climate change as a material factor in their financial planning.
  •  Risk Management:
    •  30% of the assessed energy companies report using an internal carbon price.
    •  Enhanced due diligence for projects and transactions remains a minority practice, with only 3% of companies disclosing information on this specific recommendation.

Download the report.

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For more information on climate risk exposure and disclosure explore Vigeo Eiris’ transition risk data and Four Twenty Seven’s solutions for assessing physical risk exposure across asset classes.

Moody’s Launches Comprehensive ESG Solutions Group; Appoints Global Head

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:

  • 5,000+ company ESG assessments
  • Controversy screening for 7,900 companies
  • 1 million climate risk scores
  • 250+ sustainable bond and loan reviews
  • 70+ ESG specialty indices
  • Credit ratings that integrate ESG risk considerations
  • Risk management solutions integrating ESG and climate risk factors

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