Category: Water Stress

Newsletter: The Economic Costs of Wildfires

Posted on by Natalie Ambrosio

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature an analysis of the economic risks of wildfires, highlight a Moody's report on climate risk of US utilities and share recent action by central banks.
In Focus: Impacts of Australia's Bushfires

427 Analysis - What California's Wildfires May Foreshadow in Australia
As Australia’s bushfires rage on, questions arise on the long-term impacts on human health, biodiversity and the economy. Four Twenty Seven's newest analysis highlights lessons learned from the recovery from recent wildfires in California and how they may apply in Australia. While immediate economic impacts include emergency relief bills, business interruptions, costly loss of goods and reduction in tourism, the long-term impacts vary based on municipalities’ financial resources, economic make-up and preparedness.

The analysis discusses wide-ranging outcomes in real estate markets, ranging from Santa Rosa, CA's increasing housing costs and mini economic boom after the 2017 fires to Paradise, CA's transformation from a town of 26,000 to a town of 2,000 and nearby Chico's associated 20% population grown and real estate boom due to fire evacuees.

A municipality's ability to rebound after a fire is largely determined by insurance penetration, percent of housing stock lost and whether or not there was long-term emigration from the area. However, cities not themselves touched by flames are also affected, from evacuees to toxic smoke. Preparing for this new normal is challenging, with many considerations to balance. California's costly "Public Safety Power Shutoffs" in the Bay Area last fall highlight the progress that still needs to be made in developing effective preventative measures for wildfires. 
Read the Analysis
Utilities Exposed to Increasing Climate Risk

Moody's Investors Service Analysis - US Regulated Electric Utilities Face Varied Exposure to Climate Hazards
Moody's new analysis leverages Four Twenty Seven's physical climate risk data to explore the exposure of regulated electric utilities to climate hazards, finding that there is varying exposure to climate risk which may be mitigated by adaptation. Changing temperature and humidity trends can lead to drastic changes in energy demand, while higher temperatures can reduce production capacity. These hazards are particularly prevalent in the Midwest and in southern Florida. Water stress is typically credit-negative for electric utilities which depend on water for cooling. Utilities in California and the Colorado River region are particularly exposed to water stress. The report highlights the utilities most exposed to these and other hazards, discusses the implications for their credit and emphasizes the importance of resilience investments to mitigate these risks.
New Warnings on the Material Risks of Climate Change

Financial Actors and Corporate Leaders Urged to Take Climate Seriously
The World Economic Forum for the first time identified climate-related risks as the top five most likely business risks, and also cited these risks among the most impactful for 2020. Climate change was a key topic at the annual meeting of business leaders in Davos last week, underscoring the urgent need to prepare for its impacts. Meanwhile, the CEO of the world's largest asset manager, BlackRock, wrote to CEOs emphasizing the systemic threat posed by climate change and urging corporations to show they are prepared. Climate risk will be enormously disruptive to markets, with short-term price corrections and long-term reallocation of value. Better transparency will ensure risk is priced accurately, and will motivate investments in adaptation and resilience at the corporate and municipal level.

Climate Risk as a Credit Risk

While physical climate risks are expected to occur on a longer time frame than many credit maturities, recent extreme weather events have made banks and other financial actors increasingly aware of the need to factor physical climate risks into decision-making. In their article, "The Changing Climate of Credit Risk Management,"  Four Twenty Seven's Chief Development Officer, Frank Freitas and Moody's Head of Portfolio and Balance Sheet Research, Amnon Levy, also highlight that "as a rule, more than half a firm’s value can be attributed to cash flows beyond 20 or 30 years." This underscores the materiality of climate risks that become increasingly prominent in the next several years.
Central Banks Move on Climate Risk Analysis

Climate Change - The Green Swan
"Traditional backward-looking risk assessments and existing climate-economic models cannot anticipate accurately enough the form that climate-related risks will take. These include what we call 'green swan' risks: potentially extremely financially disruptive events that could be behind the next systemic financial crisis." The Bank for International Settlements in collaboration with the Banque de France, released a new book on climate change, financial stability & the role of central banks.

Bank of England Consultation Paper on Climate Risk Scenarios
The Bank of England announced plans to integrate transition and physical climate risk into its Biennial Exploratory Scenario exercise in 2021. Building on the climate risk stress test for insurers released last year, this exercise will apply to both banks and insurers in 2021. The Bank welcomes feedback on its approach by March 18, 2020.

The French Central Bank's Climate Risk Stress Tests
Earlier this month the Banque de France announced that it will release scenarios for climate risk stress tests for its banks and insurers in March and aggregated results will be shared in December. Governor François Villeroy de Galhau emphasized the goal of the stress tests is to identify the resilience of France's financial sector while also improving climate risk assessments.
Webinar: Climate Risk in Real Estate

Moody's Analytics REIS Network Webinar: Feb. 4 at 2pm EST. 
Join this live webinar to learn about the Moody’s REIS Network and Four Twenty Seven’s physical climate risk data for real estate. The REIS Network is an ecosystem of connected applications joining extensive real estate data sets with investment and risk assessment workflows. 
During this webinar, FourTwenty Seven Senior Analyst, Lindsay Ross, will provide a demo of Four Twenty Seven’s on-demand physical climate risk application. Register here.
Inside the Office at Four Twenty Seven

Meet Controller, Yang Jing
Four Twenty Seven welcomes Yang as Controller. Yang implements efficient processes and policies in compliance with US and international accounting standards and Moody’s accounting policies. She is a Senior Vice President in Accounting for Moody’s, where she works with business leaders to ensure compliance with SEC and international accounting regulations while providing near real-time financial data to enable executive decision-making. 

Join the Team! Four Twenty Seven is Hiring

There are several opportunities to join Four Twenty Seven's dynamic team in offices across the U.S. and Europe. See the open positions below and visit our Careers page for more information.
  • Climate Risk Analyst with expertise in translating applied climate change science for a wide range of stakeholders
  • Regional Sales Directors (North America and United Kingdom), with extensive experience selling and supporting data products and services for large commercial, financial and government institutions
Upcoming Events

Join the Four Twenty Seven team at these events:
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Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

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Moody’s: Utilities Exposed to Increasing Climate Risk

Posted on by Natalie Ambrosio

The increasing frequency and severity of extreme weather events and chronic stresses driven by climate change have particular implications for the utility sector. In it’s report, US Regulated Electric Utilities Face Varied Exposure to Climate Hazards, Moody’s Investors Service leverages Four Twenty Seven’s physical climate risk data to explore the exposure of regulated electric utilities to climate hazards, including heat stress, water stress, flooding and hurricanes.

The analysis found that heat stress will likely have the greatest impact on utilities in the Midwest and southern Florida, reducing power grids’ efficiency and increasing expenditures. The Western U.S., specifically the Rocky Mountain states and California, is the region most exposed to long-term water stress. Since many electric utilities depend on water for cooling, water stress is typically credit negative for utilities.

In other areas of the country utilities are exposed to  extreme rainfall and flooding, which are responsible for many power outages. However, regulation and flood insurance help to reduce the credit impacts of floods. Along the East Coast and the Gulf of Mexico’s coastal areas, increasingly severe hurricanes and storm surges will threaten key infrastructure assets such as transmissions substations and power plants. While hurricanes can lead to substantial costs and disruptions for utilities, the states in these regions often have credit-supportive regulation, allowing utilities to recoup costs after these events.

Utility companies across the U.S. are exposed to a variety of physical climate risks that threaten to damage or destroy utility infrastructure, increase operating expenses and affect their credit. These risks, however, can be mitigated with resilience investments by utility companies and by regulation and adaptation in jurisdictions in which they operate.

Moody’s subscribers can read the full report here.

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To learn more about Four Twenty Seven’s climate risk data, check out our solutions for investors, banks and corporations or read our report on Assessing Exposure to Climate Risk in U.S. Municipalities.

Newsletter: Scenario Analysis for Physical Climate Risks

Posted on by Natalie Ambrosio

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we feature a report on scenario analysis for physical climate risks, share technical elements of climate risk assessments and highlight new research on sea level rise.
In Focus: Scenario Analysis for
Physical Climate Risks

427 Report: Demystifying Scenario Analysis for Financial Stakeholders
Scenario analysis is an essential yet challenging component of understanding and preparing for the impacts of climate change on assets, markets and economies. Many climate impacts are already locked in to mid-century, so when focusing on the next few decades scenario analysis should focus on the scientific phenomenon driving uncertainty, rather than the climate policies which have a greater impact over the longer term. Four Twenty Seven's new report, Demystifying Climate Scenario Analysis for Financial Stakeholders, explores which impacts are already locked in, identifies how Representative Concentration Pathway (RCP) scenarios fit into the conversation, and describes an approach to setting up scenario analysis for near-term physical climate risks.
 
Our atmosphere will continue to warm for many decades even if we stop emitting carbon dioxide tomorrow.  The oceans will continue to rise, heat waves will become more severe and droughts will intensify. For example, the most water stressed areas  are anticipated to experience reductions in dry season rainfall equivalent to the two decades surrounding the American dust bowl. This report outlines an approach called percentile-based analysis, which allows users to explore the range of potential outcomes based on climate model outputs within a single RCP.
 
Read the Report
Technical Drivers of
Climate Risk Assessments

Leveraging the Cloud for Rapid Climate Risk Assessments
"Providing location-specific risk assessments requires accessing and processing the best climate data available. Climate data poses processing challenges due to the raw file size of climate model outputs, where a single file can be hundreds of megabytes or more, and an entire dataset can be anywhere from tens of terabytes to multiple petabytes." Four Twenty Seven Senior Data Analyst, Colin Gannon, writes about leveraging Amazon Web Services (AWS) for data storage and processing.

The Next Generation of Climate Models

Forty-nine modeling organizations are working on the next generation of climate models, known as Coupled Model Intercomparison Projects, or CMIP 6. Some of these models have already been released, but others are still forthcoming. CMIP 6 explores a larger range of potential futures and released models tend to project more warming than previous climate models. Although CMIP 6 is behind schedule, the Intergovernmental Panel on Climate Change's Sixth Assessment Report plans to incorporate these updated models into its analysis. 
Sea Level Rise - What's at Stake?

Global Vulnerability to Sea Level Rise Worse than Previously Understood
Many global coastlines are lower than previously known, meaning that hundreds of millions more people than expected are vulnerable to sea level rise, according to recent research by non-profit Climate Central. Leveraging a new digital elevation model, Climate Central found that by mid-century "land currently home to 300 million people will fall below the elevation of an average annual coastal flood." While scientists continue to explore the timing and implications around ice sheet collapse, this new research provides improved understanding of global coastal elevations and the potential for dire impacts on economies and communities. 

The space industry is particularly vulnerable to sea level rise. There is little redundancy built in to the industry and the Kennedy Space Center and Cape Canaveral Air Force Station are both exposed to significant coastal flooding. "Complex 39A is estimated to face a 14% annual risk of flooding next year and it’s projected to flood at least once a year on average during the 2060s unless additional measures are taken to protect it according to Climate Central's analysis. By 2100, parts of the launch site could experience near monthly flooding." NASA is building a 17ft high sand dune to protect the launchpads from the rising ocean, but experts wonder if this is a meaningful solution. 
Inside the Office at Four Twenty Seven

Meet Senior Software Engineer, Alix Herrmann 

Four Twenty Seven welcomes Alix, who leverages over 25 years of experience in software engineering to expand Four Twenty Seven’s climate risk scoring capabilities. Previously, Alix developed big data analytics for financial market trading at Instinet. She also has experience building neural network compilers, developing DSP-oriented mathematical libraries and creating ground-based radar signal processing pipelines.

Join the Team! Four Twenty Seven is Hiring

There are several opportunities to join Four Twenty Seven's dynamic team in offices across the U.S. and Europe. See the open positions below and visit our Careers page for more information.
  • Climate Risk Analyst with expertise in translating applied climate change science for a wide range of stakeholders
  • Regional Sales Directors (North America and United Kingdom), with extensive experience selling and supporting data products and services for large commercial, financial and government institutions
  • Director of Financial Data Systems with significant experience in the development and management of financial data processing, storage and retrieval
Upcoming Events

Join the Four Twenty Seven team at these events:

  • Dec 4 - 5 – RI New York 2019, New York, NY: Stop by Four Twenty Seven's booth to meet the team and hear Global Director of Client Services, Yoon Kim, speak about climate risk stress tests. Senior Analyst, Lindsay Ross, and Editor, Natalie Ambrosio, will host Four Twenty Seven's booth.
  • Dec 10 – Sustainatopia, Sunnyvale, CA: Natalie Ambrosio will speak on integrating physical climate risk into investment strategies.
  • Dec 9 - 12 – AGU Fall Meeting 2019, San Francisco, CA: Director of Analytics, Nik Steinberg, and Senior Data Analysts, Josh Turner and Colin Gannon, will attend.
  • Jan 6 - Jan 9 – NCSE 2020 Annual Conference, Washington, DC: Yoon Kim and Lindsay Ross will speak about cross-sector resilience-building and resilient infrastructure, respectively.
  • Jan 12 - Jan 16 – 2020 AMS Meeting, Boston, MA: Josh Turner will attend.
  • Jan 27 –  Cleantech Forum, San Francisco, CA: Natalie Ambrosio will speak.
  • Feb 10 - 12 – Americatalyst 2020: Entropy, Dallas, TX: Director of Analytics, Nik Steinberg, will speak.
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Copyright © 2019 Four Twenty Seven, All rights reserved.
Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

Our mailing address is:
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Demystifying Climate Scenario Analysis for Financial Stakeholders

Posted on by Natalie Ambrosio

December 4, 2019 – 427 REPORT. Scenario analysis is an essential yet challenging component of understanding and preparing for the impacts of climate change on assets, markets and economies. When focusing on the short term, the warming and related impacts we have already committed to calls for scenarios that are decoupled from economic and policy activities and instead focus on the impacts that are already locked in. This report explores which impacts are already locked in, identifies how Representative Concentration Pathway (RCP) scenarios fit into the conversation, and describes an approach to setting up scenario analysis for near-term physical climate risks.

Download the report.

As the effects of climate change increasingly threaten financial stability, investors and regulators are seeking to understand what impacts lie ahead, and calling for an increase in physical climate risk assessment and disclosure in line with the Task Force on Climate-related Financial Disclosures (TCFD). To assess the scale of financial risk posed by physical climate change it is important to quantify risks under different climate scenarios. How will changes in extreme weather patterns, longer droughts and rising seas differ under various scenarios? Answering these questions through scenario analysis helps uncover the range of risks, allowing investors to identify assets and markets that are more likely to become stranded over time and to begin developing forward-looking resilience strategies. However, science-driven, decision-useful scenario analysis poses many challenges for businesses and financial stakeholders today, due to complex feedback loops, varying timescales, and multiple interacting factors that ultimately determine how global climate change manifests.

 

Figure 2. Distribution of daily extreme temperature changes in 2030-2040, expressed as a percent change, relative to a baseline of 1975-2005 under RCP 8.5. This map shows statistically downscaled global climate models averaged together, for this time frame and scenario. NASA Earth Exchange Global Daily Downscaled Projections statistically downscales climate model outputs to a ~25 kilometer resolution (see full details here) White areas are excluded because they lack potential for significant economic activity.

This new report, Demystifying Climate Scenario Analysis for Financial Stakeholders, explores which physical impacts are already locked in, identifies how Representative Concentration Pathway (RCP) scenarios apply, and describes an approach to setting up scenario analysis for near-term physical climate risks. Scenario analysis is often approached from the perspective of transition risk, where policy developments and greenhouse gas (GHG) emission targets are the key drivers of risk pathways over the near-term, in the next 10 to 30 years. Physical risk, however, requires a different approach.  Impacts over the coming decades are largely locked in, making the emissions scenarios less relevant. Unlike transition risk, GHG emission pathways play a minimal role in the behavior of the near-term climate and GHG emission pathways only begin to meaningfully influence global temperatures near mid-century. The uncertainty in physical climate risks in the near-term is driven by uncertainty in physical processes, rather than in policy decisions.

For organizations looking to construct physical climate risk scenarios for risk management and strategy purposes, it is critical to understand the scientific phenomena driving our plausible climate futures. This report outlines an approach called percentile-based analysis, which allows users to explore the range of potential outcomes based on climate model outputs within a single RCP. This offers a flexible, data-driven approach, suitable for portfolio-level screenings, reporting, and in some cases, direct engagement with asset managers.

Key Takeaways:

  • Quantifying climate risks under different scenarios is a key element in understanding how physical climate risks pose financial risks.
  • Scenario analysis is often approached from the perspective of transition risk, where policy developments and greenhouse gas emission targets are the key drivers of risk pathways in the next 10 to 30 years. However, physical climate impacts over the coming decades are largely locked in, so physical risk requires a different approach.
  • Even if we stopped emitting carbon dioxide tomorrow, many physical climate impacts, such as increasing temperatures, more severe droughts, and rising sea levels, would already be locked in because of the time carbon dioxide stays in the atmosphere and the time it takes the atmosphere to respond.
  • The uncertainty in how physical climate risks may manifest in the next few decades is driven by model uncertainty, which should therefore be the focus of scenario analysis for physical climate risks in the near-term.
  • Percentile-based analysis offers a flexible, data-driven approach, suitable for portfolio-level screenings, reporting, and in some cases, direct engagement with asset managers.

Download the report.

Download the press release.

 

Newsletter: PG&E Bankruptcy Sparks Investor Concern

Posted on by Natalie Ambrosio

Four Twenty Seven's monthly newsletter highlights recent developments on climate risk and resilience. This month we explore climate risk in the S&P 500, discuss the impacts of climate change on credit risk and share the latest reports on climate risk disclosure. 
In Focus: Climate Risk in the S&P 500

Barron's: An Exclusive Look at the Companies Most Exposed
to Climate Change Risk - And What They're Doing About It
Barron's features Four Twenty Seven's equity risk scores to explore physical climate risk exposure in the S&P 500, finding Western Digital, NextEra Energy, Micron Technology and Merck to be among the most exposed corporations in the United States. Barron's compelling story shows how (some) corporations are preparing for these risks, highlighting the need for more substantial and standardized disclosures on risk and resilience. 

Bloomberg also reports on corporate climate reporting, highlighting the self-reported exposure of many U.S. companies in CDP, as well as reported opportunities from a changing climate, such as Home Depot's estimation that increasing disasters and higher temperatures will mean more sales, particularly of fans and cooling appliances.
PG&E Bankruptcy Sparks Investor Concerns
The bankruptcy of PG&E, California's largest utility, has become a symbol of the very material impacts climate change can have on corporations and financial markets. While credit ratings agencies like Moody's had downgraded PG&E's credit rating to junk status based on its tens of billions of dollars in wildfire liability in the weeks preceding the bankruptcy, the question for investors is how these risks can be detected and priced in earlier.

In a broad review of emerging practices for ESG, Credit Risk and Ratings, the UN Principles for Responsible Investment highlights the increased transparency by credit rating agencies and investors into their thinking on ESG integration, although these groups often have different goals for their ESG analysis.

Indeed, the world of credit ratings is slowly moving towards a better integration of ESG considerations at large, including some aspects of climate change risk, like transition risk. Trucost, of S&P Global recently released a report on integrating transition risk scenario analysis into credit rating instruments, while  Fitch Ratings introduced ESG relevance scores that provide industry-specific explanations of ESG factors. Systematic integration of physical climate risk in corporate ratings, however, remains the next frontier for financial markets.
EU Releases Recommendations for
Climate Risk Disclosures

EU Technical Expert Group Report on Climate-related Disclosures
As part of Europe's Action Plan on Financing Sustainable Growth, the Technical Expert Group on Sustainable Finance released their final recommendations to the European Commission on integrating climate change into the Non-Financial Reporting Directive (NFRD). The European Commission plans to adopt the directive in June, after a round of stakeholder consultation

The report integrates climate risks into the existing NFRD framework, which includes business model; policies and due diligence processes; outcomes; principal risks and their management; and key performance indicators. It maps this framework to TCFD recommendations and goes further, referencing the EBRD-GCECA report on metrics for physical climate risks and opportunities reporting. While many of the metrics identified in the recommendations are for transition risk, the authors do integrate physical climate risk throughout the report and also require disclosure of a company's impact on climate change.
Quantifying Climate Risk:
Stories from the Field

Dutch Central Bank Assesses Water Risk in the Financial Sector
The Dutch Central Bank broke new grounds in its effort to quantify environmental risk in financial markets. In its report Values at risk? Sustainability risks and goals in the Dutch financial sector, DNB assesses the exposure of the Dutch financial sector to water stress, biodiversity loss, resource scarcity and human rights controversies, leveraging Four Twenty Seven's analytics on water stress.

Building on the Base: TCFD Disclosure in Asia
This report surveys the uptake of TCFD recommendations by large companies in Asia, focusing on the financial services, agriculture, energy, materials, buildings, mining and transport sectors. The research found that insurance, transport and energy sectors scored the highest for both quality and coverage of TCFD reporting, while asset owners and managers had lower average scores. 

On Again: France Enters Third Year of Mandatory Disclosures
2019 marks the third reporting year under Art. 173 in France, which requires investors to disclose their exposure to both transition and physical risk.  Noteworthy reports from previous years' reporting include analysis by French sovereign wealth fund Fonds de Réserve pour les Retraites (FRR) and insurance company Allianz France, which both integrate physical risk analysis by Four Twenty Seven. Read more about our reporting and analytics solutions for investors and banks. 
Upcoming Events

Join the Four Twenty Seven team at these upcoming events:

  • March 20-22 – Climate Leadership Conference, Baltimore, MD: Emilie Mazzacurati will speak about the evolving landscape of climate risk disclosure.
  • April 10-12 – RI Asia Japan, Tokyo, Japan: Hear Chief Development Officer, Frank Freitas, present on climate analytics for investors and meet with Emilie Mazzacurati at Four Twenty Seven's booth.
  • April 13-16  – APA National Planning Conference, San Francisco, CA: Director of Advisory Services, Yoon Kim, and Director of Analytics, Nik Steinberg, will speak on a panel called, "Beyond Vulnerability: Innovative Adaptation Planning."
  • April 23-25 – National Adaptation Forum, Madison, WI: Editor, Natalie Ambrosio, will present on local adaptive capacity from a private sector perspective and Yoon Kim will also join the convening.
  • April 29 - May 1  – Ceres Conference 2019, San Francisco, CA: The Four Twenty Seven team will join investors and corporations at this annual gathering.
  • June 11 - 12 – RI Europe, London, UK: Hear Emilie Mazzacurati present on climate risk in financial markets and meet with Director, Europe, Nathalie Borgeaud, at Four Twenty Seven's booth.
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Copyright © 2019 Four Twenty Seven, All rights reserved.
Four Twenty Seven sends a newsletter focused on bringing climate intelligence into economic and financial decision-making for investors, corporations and governments. Fill in the form below to join our mailing list. As data controller, we collect your email address with your consent in order to send you our newsletter. Four Twenty Seven will never share your mailing information with anyone and you may unsubscribe at any moment. Please read our Terms and Conditions.
 

Our mailing address is:
Four Twenty Seven
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Berkeley, CA 94709

Assessing Local Adaptive Capacity to Understand Corporate and Financial Climate Risks

Posted on by Natalie Ambrosio

January 15, 2019 – 427 REPORT. Building resilient communities and financial systems requires an understanding of climate risk exposure, but also of how prepared communities are to manage that risk. Understanding  the adaptive capacity, or ability to prepare for change and leverage opportunities, of the surrounding area can help businesses and investors determine how exposure to climate risk is likely to impact their assets and what the most strategic responses may be. This report outlines Four Twenty Seven’s framework for creating location-specific actionable assessments of adaptive capacity to inform business and investment decisions and catalyze resilience-building. 

Every investment, from real assets to corporate initiatives, is inextricably connected to its surrounding community. From flooded or damaged public infrastructure hindering employee and customer commutes to competition for water resources threatening business operations and urban heat reducing public health, the impacts of climate change on a community will impact the businesses and real estate investors based in that community. Thus, evaluating how acute and chronic physical climate hazards will affect local communities and communities’ responses enables investors and corporations to assess the full extent of the risks they face.

This report, Assessing Local Adaptive Capacity to Understand Corporate and Financial Climate Risks, outlines Four Twenty Seven’s framework for capturing a city’s adaptive capacity in a way that’s actionable for corporations seeking to understand the risk and resilience of their own facilities and for investors assessing risk in their portfolios or screening potential investments. The framework focuses on three main pillars: 1) awareness, 2) economic and financial characteristics, and 3) the quality of adaptation planning and implementation. It is informed by social sciences research, recent work by credit rating agencies, and our experience working directly with cities and investors.

Figure 2. After New York City subways were flooded during Hurricane Sandy, the New York MTA issued a catastrophe bond to obtain $200 million in insurance coverage, providing an important financial safety net for the city. Image from Wikimedia, by Metropolitan Transportation Authority of the State of New York used with a Creative Commons Attribution 2.0 Generic license.

While a city’s adaptive capacity plays a key role in determining whether or not exposure to climate hazards will lead to damage and loss, cities are also likely to find that their resilience to climate impacts is an increasingly important factor in attracting business and financing, as adaptive capacity is more frequently integrated into credit ratings and screening processes. It is valuable for both cities to understand how investors are interpreting adaptive capacity and for investors to understand which factors of local adaptive capacity translate into increased resilience and reduced financial loss for their assets.

Key Takeaways

  • Corporate and real asset investments can be financially impacted by climate-driven weather events and chronic stresses, even with strong internal risk management systems in place, as climate events can affect the broader community and disrupt local infrastructure.
  • Adaptive capacity, the ability to adjust to potential damage and leverage opportunities, will influence how local jurisdictions and infrastructure are affected by climate-driven weather events.
  • Four Twenty Seven has developed a framework to assess the adaptive capacity of local jurisdictions to inform the private sector, examining a city’s awareness of climate impacts, economic characteristics, and adaptation planning efforts.
  • Understanding a local jurisdiction’s adaptive capacity provides opportunities to engage with decision-makers and relevant institutions to support local efforts to build resilience.

Download the report.

Newsletter: Japan’s Floods Halt Manufacturing

Posted on by Natalie Ambrosio

 

 

Four Twenty Seven’s monthly newsletter highlights recent developments in climate adaptation and resilience. This month, don’t miss our analysis of Japan’s recent flooding, a new report on economic climate risk in Australia, and context around other recent extreme weather events.

In Focus: Time and Tides – Flooding in Japan

Four Twenty Seven Analysis


Japan was the inundated by over 70 inches of rain in early July, resulting in significant loss of life and business disruptions. The clouds have since receded, leaving economic damage with long-term implications yet to be understood. However, estimates expect industry losses to be in the billions USD. Destruction was centered in Okayama and Hiroshima, driven by flooding and landslides. Japan’s floods were followed by a deadly heat wave, threatening those left without power after the storm and hindering recovery efforts.

Our latest analysis identifies companies affected by the event based on the location of vulnerable corporate facilities. We find several automobile manufacturers and electronic companies closed facilities during the flooding due to supply chain and labor disruptions. Understanding the ownership and operations of facilities in the damaged areas provides insight into what companies and industries may exhibit downturns in performance over the near term and be vulnerable to similar storms in the future.

Read our Analysis

Responding to Economic Climate Risk in Australia

New Four Twenty Seven report explores calls for increased climate risk disclosure in Australia


Our recent report, Responding to Economic Climate Risk in Australia, explores the connection between climate hazards and financial risks in Australia, sharing examples of corporate adaptation and investor engagement to build resilience.

Regulatory pressure and financial damage are necessitating an increase in physical climate risk disclosure in Australia. The nation’s predominant sectors are also the most exposed to drought and heat stress.

In exercising their own due diligence and assessing the exposure to physical climate risks in their portfolios, investors arm themselves with valuable information on corporate risk exposure which they can leverage to engage with companies around resilience.

Read the Report

Climate Change Contributes to Record Heat

Record-breaking heat around the world


Many areas around the world recently experienced their highest daytime temperatures and warmest lows. These records include Burlington, VT which had it’s warmest recorded low temperature of 80 degrees on July 2. Montreal had its highest recorded temperature of 97.9 degrees on July 2 when around 34 people died. Shannon Ireland set its all-time record of 89.6 degrees on June 28 and Quriyat Oman experienced the world’s warmest recorded low of 109 degrees on June 28.

Climate change threatens public health

Extreme heat threatens human health and economic productivity through impacts on the workforce, power grid and vulnerable populations. The Washington Post explains the connection between climate change and heat waves, and the social and economic challenges they bring. Strong and hot domes of high pressure have become more extreme as the climate warms, bringing heat waves. “While warm summer nights may seem less concerning than scorching afternoons” warmer nighttime lows are dangerous because the body has no respite, the New York Times reports.

Further Reading

Inside the Office at Four Twenty Seven

Four Twenty Seven in the Media

Upcoming Events

Join the Four Twenty Seven team in the field at these upcoming events:

  • July 18: Summer in the City CRS Investing Summit, New York, NY: Macroeconomic Risk Senior Analyst, Lindsay Ross, will speak on a panel about assessing physical climate risk in investment portfolios at this annual convening of the responsible investment community.
  • July 19: Webinar: Introduction to the California Heat Assessment Tool, 1:30-2:30pm PT: Director of Analytics, Nik Steinberg, will introduce the California Heat Assessment Tool (CHAT) to California public health officials during the CalBRACE webex meeting.
  • August 28-29: 3rd California Adaptation Forum, Sacramento, CA: Join Yoon Kim, Nik Steinberg, Kendall Starkman, Josh Turner, and Natalie Ambrosio at this biennial convening of adaptation professionals. Yoon will moderate a panel on the legal aspects of adaptation finance, Kendall will facilitate a panel on mobilizing climate adaptation through partnerships and Nik will present the California Heat Assessment Tool.
  • September 11: Building Transformational Community and Economic Resilience: San Francisco, CA: Four Twenty Seven will host a side event alongside the Global Climate Action Summit on Sept 11 to discuss the role of investors, businesses and governments in building climate resilience, both in California and abroad. Invite only.
  • September 12-14: PRI in Person, San Francisco, CA: Visit the Four Twenty Seven booth and meet with our team at this annual gathering of responsible investment industry leaders.
  • September 12-14: Global Climate Action Summit, San Francisco, CA: Join the Four Twenty Seven team at this convening of global climate adaptation experts meant to propel action around the Paris Agreement.

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Responding to Economic Climate Risk in Australia

Posted on by Natalie Ambrosio

June 25, 2018 – 427 REPORT. Regulatory pressure and financial damage are necessitating an increase in physical climate risk disclosure in Australia. In exercising their own due diligence and assessing the exposure to physical climate risks in their portfolios, investors arm themselves with valuable information on corporate risk exposure which they can leverage to engage with companies around resilience. This report explores the connection between climate hazards and financial risks and shares examples of corporate adaptation and investor engagement to build resilience.

The global tide of interest in the Task Force on Climate-related Financial Disclosures (TCFD) has hit the shores of Australian financial markets, steered by regulators concerned about the systemic risk climate change poses to the economy. In 2017 Australian Prudential Regulation Authority’s Geoff Summerhayes was the first Australian regulator to formally endorse the TCFD. “Some climate risks are distinctly ‘financial’ in nature. Many of these risks are foreseeable, material and actionable now,” he said. This sentiment was echoed by John Price of the Australian Securities and Investments Commission in 2018 and reflects growing regulatory concern over climate risk disclosure internationally, as shown by Article 173 of France’s Law on Energy Transition and Green Growth and the 2018 European Commission Action Plan.

This Four Twenty Seven Report, Responding to Economic Climate Risk in Australia, explores the drivers of financial risk in Australia and discusses approaches to addressing this risk. The nation’s dominant industries are particularly threatened by the prevalent climate hazards. For investors, understanding a company’s risk to climate change is an essential first step to mitigating portfolio risk, but must be followed by corporate engagement to build resilience. Institutional investors are increasingly leveraging shareholder resolutions and direct engagement to prompt companies to disclose their climate risks and adapt.

Key Findings

  • Australia’s “Angry Summer” of extreme weather in 2013 cost the economy $8 billion and was followed by another summer of extremes in 2016-2017.
  • Construction, mining and manufacturing constitute almost 20 percent of Australia’s economy and are highly vulnerable to heat stress and water stress, which threaten large swaths of the nation.
  • Boral Limited and Rio Tinto are both Materials companies exposed to water and heat stress in their operations, but they have different risk scores stemming from differing vulnerabilities in their markets and supply chains.
  • Engagement on climate is relatively new for Australian shareholders, but is gaining momentum, with institutional asset managers voting on several climate risk disclosure resolutions in 2018.
  • Investors can address physical climate risk by reviewing their asset allocations, disclosing their own risks, investing in new opportunities and engaging with corporations.

Download the report.

Engaging with Corporates to Build Adaptive Capacity

Posted on by Natalie Ambrosio

June 5, 2018 – 427 REPORT. Shareholder engagement is a critical tool to build resilience in investment portfolios. Investors can help raise awareness of rising risks from climate change, and encourage companies to invest in responsible corporate adaptation measures. We identify top targets for shareholder engagement on physical climate risks and provide data-driven strategies for choosing companies and approaching engagement. Our report includes sample questions as an entry point for investors’ conversations about climate risk and resilience with corporations.

Shareholder engagement on climate change has grown tremendously in recent years. Over 270 investors, managing almost $30 trillion collectively, have committed to engage with the largest greenhouse gas emitters through the Climate Action 100+. In addition to their ongoing efforts to engage and encourage companies to reduce emissions, investors are becoming aware of the financial risks from extreme weather and climate change. Climate change increases downside risks: a negative repricing of assets is already being seen where climate impacts are most obvious, such as coastal areas of Miami. As climate change can negatively impact company valuations, investors must strive to bolster governance and adaptive capacity to help companies build resilience.

This Four Twenty Seven report, From Risk to Resilience – Engaging with Corporates to Build Adaptive Capacity, explains the value of engagement, for both corporations and investors and describes data and case studies to drive engagement strategies. While news coverage of extreme weather events can clue investors in to which corporations may be experiencing climate-driven financial damage, new data can empower investors to identify systemic climate risk factors and proactively engage companies likely to experience impacts in the future. Reactive engagement strategies based on news stories can also use data to more thoroughly explore corporations highlighted in the news, by examining other hazards that may pose harm to their operations.

The report also identifies the Top 10 companies with the highest exposure to physical climate risk in the Climate Action 100+ and calls for investors to leverage their engagement on emissions to also address urgent issues around climate impacts and building resilience.

Once they identify companies, shareholders can use a variety of questions to gain a deeper understanding of companies’ vulnerability to climate hazards and their governance and planning processes, or adaptive capacity, to build resilience to such impacts. The report provides sample questions for different components of climate risk, including Operations Risk, Market Risk and Supply Chain Risk, as well as Adaptive Capacity.

Key Takeaways

• The impacts of a changing climate pose significant downside risk for companies; a risk bound to increase as the climate continues to degrade.
• At present, investors are likely to become aware of exposure to financial damages from extreme weather events only after they have occurred. Disclosure is limited but gaining traction.
• Corporate engagement is a tool to encourage companies to deploy capital and technical assistance to build resilience in their operations and supply chains.
• Investors can select target companies reactively based on prior incidents or pro-actively identify firms that would benefit from resilience plans.
• Investors should question companies on their exposure to physical climate risks via their operations, supply chain and market, as well as how they are building resilience to these risks through risk management and responsible corporate adaptation strategies.

Download the report.

Download the press release.

Every City Has its Hazards: 427 Interview

Posted on by Natalie Ambrosio

Chief Development Officer, Frank Freitas, discusses Four Twenty Seven’s report on Assessing Exposure to Climate Risk in U.S. Municipalities on the Midday Briefing. During this brief interview Frank describes Four Twenty Seven’s work as a data provider for investors, highlights the ubiquity of climate hazards across United States munies and explains the impact of both acute events like hurricanes and more subtlety destructive chronic stresses such as drought.