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.

Newsletter: Climate Commitments

Four Twenty Seven, an affiliate of Moody's, sends a monthly newsletter highlighting recent developments in climate risk and resilience. 

In Focus: Climate Commitments

Climate Summit Commitments

The leaders of 40 nations and key private sector participants who joined Biden's Climate Summit last week, made new emissions reductions targets or recommitted to existing promises. The US, Canada, Brazil, Japan and other countries made ambitious new commitments. While change comes when commitments are followed by tangible action, these have the potential to accelerate the transition to a low-carbon economy, with implications for businesses and investors, including significant opportunities.


Financial Sector Action on Climate Change

Meanwhile, financial regulators around the world continue to issue guidance and expectations around climate risk. Last week the EU published the climate adaptation and mitigation portion of its Sustainable Finance Taxonomy and investors will be expected to disclose in line with the taxonomy starting next year. The EU also published a draft legislative proposal for a Corporate Sustainability Reporting Directive, which would replace the Non-Financial Reporting Directive and greatly expand the number of companies mandated to report on a range of environmental factors, including climate. New Zealand is considering passing a bill that would mandate climate risk disclosure for banks, insurers and investors by 2023. The Australian Prudential Regulation Authority issued a public consultation on its draft guidance for financial institutions to manage the risks of climate change.

Mark Carney, UN Special Envoy on Climate Action and Finance, announced the Glasgow Financial Alliance for Net Zero (GFANZ) last week, bringing together several industry-led net zero initiatives focused on supporting the transition to net zero emissions by 2050. Participating groups include the new Net Zero Banking Alliance, the Net Zero Asset Managers Initiative and the Net Zero Asset Owner Alliance. The Net Zero Insurance Alliance is expected to launch soon and will also join GFANZ. There are over 160 participating firms, which commit to science-based targets, addressing all emission scopes, issuing transparent disclosures and setting 2030 interim targets. 
 

The American Jobs Plan

Biden's $2 trillion infrastructure proposal places climate change and environmental justice in the center. The plan's wide-ranging elements include funding to grow the electric vehicle market in the US and to improve the nation's aging water and electricity infrastructure. There are provisions for affordable housing and a distinct focus on jobs training to support a just transition to a low-carbon economy. The plan aims to remove fossil fuel subsidies and mandate that the companies help pay to cleanup toxic sites. As crumbling infrastructure and polluting facilities are often in low-income communities and communities of color, these items would contribute to fostering environmental justice. Likewise, the plan allocates funding specifically to communities of color and frontline communities, and includes provisions to increase wages for in-home care workers who are often women of color, and for broadband internet development which is particularly needed in Black and Latino communities.

Moody's Analytics assessed the macroeconomic implications of the plan, saying it "provides a meaningful boost to the nation's long-term economic growth."
Banks and Climate Stress Tests

Moody's Webinar - Climate Stress Tests: What You Need to Know

As numbers of regulators begin to roll out climate stress tests and climate risks continue to grow, understanding how to undertake informative climate stress tests is becoming increasingly essential. Join us for a live, interactive panel discussion on climate scenarios and stress testing on Thursday May 6, at  3pm BST / 10am ET / 7am PT.

Key Discussion Points:
  • How are central banks incorporating climate stress testing into financial supervisory requirements?
  • What are the different types of scenarios needed for assessing climate risk?
  • What are the key building blocks for climate stress testing? How do they fit together?
Speakers:
  • Carmelo Salleo, Head of Division, Stress Test Modelling Division, European Central Bank
  • Emilie Mazzacurati, Global Head of Moody's Climate Solutions, Moody's ESG Solutions
  • Burcu Guner, Senior Director-Risk & Finance SME, Moody's Analytics
  • Rahul Ghosh, Managing Director-Outreach & Research, Moody's ESG Solutions (moderator)
Register Here

Moody's Investors Service: Climate Risk for Banks

Moody's Investors Service report, Climate change to force further business model transformation for banks, outlines ways in which carbon transition and physical climate risk will influence banks' risk assessment requirements and present new costs and credits risks for banks. The analysis covers the forthcoming stress testing requirements, discussing their credit implications. 
BIS Resources on Climate Risk for Banks
The Bank for International Settlements released two reports on climate risk, focusing on transmission channels of climate risk to banks and methodologies to measure climate-related financial risks. The report on transmission channels finds that climate risks affects banks through the traditional financial risk categories including market risk, liquidity risk and
operational risk. It underscores the ways in which the impacts of climate risk depend on geography, sector and the economic and financial system and emphasizes the need for more research on how climate risk translates into different types of financial risk. 

The report on measurement tools underscore the needs for granular, forward-looking data on climate-related financial risks, which includes new climate data tools in addition to improved information on counterparty locations. It discusses the early emphasis on risk assessment for near-term transition risk and the need to expand assessments and scenario analysis to include a range of physical climate hazards. The report highlights the increased research focus on translating climate risks into traditional financial risk metrics, noting that much progress to date has focused on credit risk, with market and liquidity risk at even earlier stages. 
Real Assets Exposed to Physical Climate Risk

Moody's Investors Service Adds Climate Data to RMBS Presale Reports

Moody's Investors Service presale and new issues reports for residential mortgage backed securitizations rated out of the US or Europe, now include Four Twenty Seven's physical climate risk scores as an appendix. "While these climate risk scores are not specifically incorporated in our ratings analysis, we believe these additional disclosures will be of great value to market participants," says London-based Moody's Investors Service Senior Vice President Anthony Parry in the press release.

Moody's Investors Service: Climate Hazards Threaten US Seaports

This Moody's Investors Service analysis, Intensifying climate events risk disruptions to seaport operations across the US, leverages Four Twenty Seven's physical climate risk data to assess the exposure of ports to climate hazards including floods, heat stress, hurricanes, sea level rise, water stress and wildfires. It highlights that landlord ports typically have more fixed revenues than port operators, which can reduce the short-term impacts of extreme events. In addition to significant exposure to storms and flooding, West Coast ports often face risks from wildfires, with implications for supply chains and transportation infrastructure. Similarly, while less damaging for the ports themselves, heat stress and water stress can affect agriculture exports, in turn affecting a port's business. Register for free to read the analysis.
Increasing Global Wildfire Potential 

Four Twenty Seven's Peer-Reviewed Research on Wildfire Potential Under Climate Change

2020 was a devastating wildfire year and this year is gearing up to just as hot and dry in many regions. This is a global trend exacerbated by climate change. Four Twenty Seven's article, A global assessment of wildfire potential under climate change utilizing Keetch-Byram drought index and land cover classifications, published in Environmental Research Communications, explores the effects of climate change on global wildfire potential. It shows that by 2040, regions like the American West, Australia and the Amazon will be drier and hotter for much longer than historical averages, experiencing more than 60 additional days of high wildfire potential per year.  

This article provides the detailed methodology behind Four Twenty Seven's publication, Climate Change and Wildfires: Projecting Future Wildfire Potential, which discusses key findings including regional trends and hotspots.

Current Drought & Wildfire Potential in the Western US

Drought contributes to conditions that are conducive to wildfires and also presents significant health and economic risks. In California, farmers are questioning the viability of their businesses and many families are facing depleted and contaminated wells. The snowpack in the Sierra Nevada is at 28% of normal, dry conditions are expected to persist through June and the summer is expected to have higher than average temperatures. This all suggests that a dangerous fire season is on the horizon. As the state continues to face these costly climate-driven events, California launched a Climate-Related Risk Disclosure Advisory Group earlier this month, to support the development of a climate risk disclosure standard.

Other Western states are also enduring damaging droughts, with North and South Dakota entirely in drought conditions and parts of Texas, Iowa and Colorado all experiencing drought impacts. Last week the White House launched an Interagency Working Group to focus on addressing the drought conditions in the West and their dire implications for farmers, Tribes and other communities.
Upcoming Events

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

  • May 6 Moody's Webinar on Climate Stress Tests: What You Need to Know: Founder & CEO and Global Head of Moody's Climate Solutions, Emilie Mazzacurati, will present on the drivers behind emerging stress testing requirements. See more details above.
  • May 25 Moody's Investors Service Emerging Markets Summit 2021: Associate Director, Research, John Naviaux, will present on sovereign physical climate risk.
  • Jun 2-4 Green Swan 2021: Emilie Mazzacurati will present during the session on climate-related risks data and accounting. Invitation only. 
  • Jun 22 – Ideas + Action 2021: Sustainability and Resilience: Emilie Mazzacurati will present on the economic implications of climate risk. 
  • Jul 23 – Environmental Business Council of New England Annual Climate Summit: Director, Global Client Services, Lindsay Ross, will present on physical climate risks.
  • Sept 22 2021 CARE Sustainability Conference: Director, Communications, Natalie Ambrosio Preudhomme will present on financial climate risk analytics during the panel "Implementation Issues."
Twitter
Twitter
LinkedIn
LinkedIn
YouTube
YouTube
Facebook
Facebook
Website
Website
Email
Email
Copyright © 2021 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
2000 Hearst Ave
Ste 304
Berkeley, CA 94709









Newsletter: The US prioritizes climate change

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.

The Federal Housing Finance Agency (FHFA), which regulates Fannie Mae, Freddie Mac and the Federal Home Loan Banks, issued a Request for Input on climate risk for its regulated entities. The consultation asks about identifying climate risks and about options to integrate climate risk management into the FHFA's regulatory framework. Respond by April 19.
Climate Records Broken Repeatedly
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.

Meanwhile, scientists continue to increase our understanding of glacier dynamics and the implications for global sea level rise. A paper published on Monday found that global sea ice, glaciers and ice sheets are melting 57% faster than they were three decades ago.
Physical Climate Risk for Sovereigns

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. 
Read the Analysis
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.
What the Recording
Upcoming Events

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

Twitter
Twitter
LinkedIn
LinkedIn
YouTube
YouTube
Facebook
Facebook
Website
Website
Email
Email
Copyright © 2021 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
2000 Hearst Ave
Ste 304
Berkeley, CA 94709









Measuring What Matters: A New Approach to Assessing Sovereign Climate Risk

December 3, 2020 – Four Twenty Seven Report.  More frequent and severe extreme events driven by climate change pose a significant threat to nations around the world and understanding who and what is exposed to climate hazards is essential to pricing this risk and preparing for its impacts. This new report and underlying analytics assess sovereign exposure to floods, heat stress, hurricanes and typhoons, sea level rise, wildfires, and water stress based on the only known global dataset matching physical climate risk exposure to locations of population, GDP (Purchasing Power Parity) and agricultural areas within countries. 

Read the full report.

Globally, increasingly severe climate conditions impose growing pressure on populations and economies. The implications on economic growth, welfare, production, labor, and productivity are large, with potential material impacts on sovereign credit risk. However, assessing sovereign climate risk presents significant challenges. While most approaches to quantifying future climate risk exposure for sovereigns measure the average exposure over the entire territory of a country, this doesn’t capture whether the populated or economically productive areas are exposed to extremes. Likewise, averages of exposures to several climate hazards can mask extreme exposure to a particular hazard in a certain area of a country.

We’ve mapped the co-occurrence of hazards and exposures, explicitly factoring in the spatial heterogeneity of both climate hazards and people and economic activities across a country. This new report, Measuring What Matters – A New Approach to Assessing Sovereign Climate Risk, provides an analysis of the data. We find that all nations face meaningful risks despite their variation in size and resources. Explore sovereign climate risk in the interactive map below, based on both total and percent of a nation’s population, GDP (PPP) and agricultural areas exposed to climate hazards in 2040.

 

Key Findings:

  • By 2040, we project the number of people exposed to damaging floods will rise from 2.2 billion to 3.6 billion people, or from 28% to 41% of the global population. Roughly $78 trillion, equivalent to about 57% of the world’s current GDP, will be exposed to flooding.
  • Over 25% of the world’s population in 2040 could be in areas where the frequency and severity of hot days far exceeds local historical extremes, with negative implications for human health, labor productivity, and agriculture. In some areas of Latin America, climate change will expose 80-100% of agriculture to increased heat stress in 2040
  • By 2040, we estimate over a third of today’s agricultural area will be subject to high water stress. In Africa, over 125 million people and over 35 million hectares of agriculture will be exposed to increased water stress, threatening regional food security.
  • By 2040, nearly a third of the world’s population may live in areas where the meteorological conditions and vegetative fuel availability would allow for wildfires to spread if ignited.
  • Over half of the population in the most exposed small island developing nations are exposed to either cyclones or coastal flooding amplified by sea level rise. In the United States and China alone, over $10 trillion worth of GDP (PPP) is exposed to hurricanes and typhoons.

Read the full report.

Read the press release.

Contact us to learn more about accessing this unique dataset or explore our other physical climate risk data for banks and investors.

 

*Erratum: In Table 1 of a previous version of this report the “Agriculture Area at High Risk” column was said to be in units of 1 billion hectares. However, it is in units of 100 million hectares. 

Moody’s: Climate Risk and Resilience at US Airports

Climate change will expose the airport sector to increased physical climate risks within the next two decades. In its report, US airports face growing climate risks, but business model and resiliency investments mitigate impact, Moody’s Investors Service leverages Four Twenty Seven’s physical climate risk data to explore potential damages from increased exposure of US airports to floods, heat stress, hurricanes, sea level rise and wildfires.

The report found that in 2004-2019, an average 37% of delayed flights annually resulted from climate-related extreme weather events. Airports along coastlines or rivers face particular risks as floods can damage crucial structures such as runways and terminals leading to significant costs or rendering the assets unusable. Likewise hurricanes can cause widespread damage including economic impacts on broader regions. Heat stress and wildfire smoke can both present challenges for planes taking off or landing, leading to delayed or canceled flights or adjusted cargo loads.

Airports often undertake long-term capital intensive projects and integrating resilience measures into planning these investments will be critical. Liquidity will also help absorb the effect of disruptive climate-related events.

Moody’s subscribers can read the full report here.

———————-

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.

Report: Climate Change and Sovereign Risk

This joint report provides a comprehensive analysis of the ways in which climate risks affect sovereign risk, demonstrating new empirical evidence of how climate risk and resilience influence the costs of capital. It also explores the implications for Southeast Asia in particular, where countries are highly exposed to climate change risks and their economic consequences. Lastly, the report outlines five policy recommendations based on these findings. The report was a collaboration between the Centre for Sustainable Finance at SOAS University of London, the Asian Development Bank Institute, the World Wide Fund for Nature Singapore and Four Twenty Seven.

Download the full report.

Download the Executive Summary.

Watch the launch event.

“Climate Change and Sovereign Risk” outlines six transmission channels through which climate change affects sovereign risk and in turn the cost of capital, providing examples of each and explaining how they’re connected. It uses empirical analysis to demonstrate the significant impacts of climate risk exposure on the cost of capital. Using a sample of 40 developed and emerging economies, econometric analysis shows that higher climate risk vulnerability leads to significant rises in the cost of sovereign borrowing. Premia on sovereign bond yields amount to around 275 basis points for economies highly exposed to climate risk. This risk premium is estimated at 113 basis points for emerging market economies overall, and 155 basis points for Southeast Asian economies.

To further explore these channels, the report provides a closer look at Southeast Asia, a region with significant exposure to climate hazards such as storms, floods, sea level rise, heat waves and water stress. Physical risks are expected to considerably affect economic activity, international commerce, employment and public finances across Southeast Asian countries. Transition risks will be prominent as exports and economies become affected by international climate policies, technological change and shifting consumption patterns. The implications of climate change for macrofinancial stability and sovereign risk are likely to be material for most if not all countries in Southeast Asia.

The report highlights the need for governments to climate-proof their economies and public finances or potentially face an ever-worsening spiral of climate vulnerability and unsustainable debt burdens. It outlines five policy recommendations, emphasizing the importance for financial authorities to integrate climate risk into their risk management processes and for governments to prioritize comprehensive climate vulnerability assessments and work with the financial sector to promote investment in climate adaptation.

The report was originally posted by SOAS University of London.

Newsletter: Wildfires, Storms and Their Impacts on Credit Risk

Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we discuss the costs of climate hazards, share updates on Moody's ESG and highlight recent developments in climate risk regulation.

In Focus: The Current Reality of the
Climate Crisis

Devastating Human & Economic Costs of Wildfires

As cities on the West Coast take turns with the worst air quality in the world, and cope with evacuations and loss of life and property from record-breaking wildfires, there is increasing evidence about the longer-term implications of these devastating events. After several years of catastrophic fires in California, exacerbated by hot and dry conditions driven by climate change, homes in exposed areas are likely to decline in value, which in turn can increase mortgage default rate, with severe market implications.

Likewise, as the COVID-19 pandemic limits firefighting resources and makes evacuations particularly challenging, new research continues to emerge about the devastating health impacts of wildfire smoke. For example, "Researchers from the University of Tasmania identified 417 extra deaths that occurred during 19 weeks of smoky air, and reported 3,100 more hospital admissions for respiratory and cardiac ailments and 1,300 extra emergency room visits for asthma" during Australia's bushfires last year.

This is not just a current concern in the U.S., but rather wildfire potential is increasing  globally, and regions such as Brazil and Portugal are also enduring fires. Four Twenty Seven's recent analysis on global wildfire potential assesses how conditions will become more conducive to wildfires in regions around the world.
Read Wildfire Analysis

Dire Records Foreshadow Worsening Extremes

As wildfires ravage the west, Hurricane Sally began to hit southeastern Mississippi and the western Florida Panhandle on Tuesday. The slow-moving storm is expected to continue to drop rain and lead to heavy wind as it moves to shore on Wednesday. This is the 18th named storm of the Atlantic hurricane season and the earliest S-named storm on record. Several more hurricanes have already formed in the Atlantic and these back-to-back storms present significant challenges; diminishing the window for search and rescue, increasing the duration of flooding and power outages and exacerbating COVID-19 challenges. Sea level rise driven by climate change worsens storm surge risk during hurricanes and warmer oceans can fuel stronger storms.

This comes as this year's first seven months were the second hottest on record and in the Northern Hemisphere July was the hottest on record, beating the previous record set just last year. This is increasingly evident in the Arctic, where satellite imagery shows that the region's largest remaining ice shelf lost a 110 square km portion and where Bering Sea ice was at a record low during 2018 and 2019. This affects ecosystems and Indigenous communities and contributes to feedback loops of warming in the region when reflective ice is replaced by dark water. Meanwhile, in Antarctica two glaciers that are already contributing to around 5% of global sea level rise were recently found to be less stable than previously understood.

Global Ports Exposed to Floods, Sea Level Rise

Sea ports handle 80% of global goods, so disruptions have significant wide-reaching consequences. This recent Economist article leverages Four Twenty Seven's data to explore risk exposure of about 340 of the world's largest ports. The analysis found that 55% of global trade goes through ports that are highly exposed to at least one hazard, such as floods, sea level rise, storms and wildfires and that 8% of trade passes through ports highly exposed to at least three hazards. This points to a need for risk assessment and resilience investment at ports, which requires capacity-building for port managers and an increase in adaptation finance.
Four Twenty Seven at Moody's:
Integration in Research and Ratings

Moody's Launches Comprehensive ESG Solutions Group

This week Moody’s Corporation announced 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 and Moody's Analytics to deliver a comprehensive, integrated suite of ESG customer solutions.

The ESG Solutions Group includes Four Twenty Seven and Vigeo Eiris, a global pioneer in ESG assessments, data and tools, and sustainable finance. Together, Moody's and its affiliates develop tools and analytics that identify, quantify and report on the impact of ESG and climate-related risks and opportunities. ESG and climate risk considerations are already integrated into credit ratings and research offered by Moody’s Investors Service (see below), and will be integrated into a range of Moody’s Analytics risk management solutions, research, data and analytics platforms, including stress testing solutions and climate-adjusted credit risk analytics for corporates, sovereigns and real estate.

Moody's Investors Service Announces Inclusion of Four Twenty Seven's Climate Risk Data in US CMBS and CRE CLOs

Reflecting the growing materiality of climate events for real estate, Moody's Investors Service now considers climate risk data and analytics from Four Twenty Seven in its research and ratings process for US commercial mortgage-backed securities (CMBS) and commercial real estate collateralized loan obligations (CRE CLOs). Presale reports include physical climate risk tables for the properties backing the loans in CMBS and CRE CLO transactions, including their forward-looking risk to floods, heat stress, hurricanes & typhoons, sea level rise, water stress and wildfires. 

Moody’s: U.S. Nuclear Operators Exposed to Physical Climate Risks

Physical climate hazards affect the operations and costs of nuclear plants due to their water needs and reliance on critical equipment. In its report, Nuclear Operators Face Growing Climate Risk but Resiliency Investments Mitigate Impact, Moody’s Investors Service leverages Four Twenty Seven’s physical climate risk data to explore the exposure of nuclear power plants to climate hazards, including heat stress, water stress, flooding and hurricanes. The analysis found that nuclear plant operators face physical and economic risks due to extreme events driven by climate change, and operators and owners will have to consider these risks and explore increased resilience options, as they approach license expiration and renewal processes between 2030 and 2050.
Developments in Climate Risk
Regulation & Assessment

U.S. CFTC Releases Report on Climate Risk

Last week the U.S. Commodity Futures Trading Commission released a report highlighting the economic risks of climate change and emphasizing the need for the financial system to address these risks. The first such report to be issued by a U.S. government entity, it covers both physical and transition climate risks and calls for a nationwide price on carbon. However, this comes two weeks after the U.S. Securities and Exchange Commission released updated disclosure requirements that don't include climate change.

UK Releases Consultation on Mandating TCFD Disclosure

The UK's Department for Work and Pensions released a public consultation on a proposal to mandate climate risk disclosure. The policy would require pension funds of at least £5 billion to assess and disclosure their climate risks and opportunities under several scenarios by October 2021 and would also apply to funds of at least £1 billion in 2022. Respond by October 7th.
Meanwhile, yesterday, New Zealand announced that it would mandate TCFD disclosure on a comply or explain basis by 2023.

Charting a New Climate: UNEP FI TCFD Banking Pilot Phase II Report

Last week the UNEP Finance Initiative released a report outlining phase II of its pilot project working with global banks to understand their approaches to assessing physical climate risks and opportunities and the tools and data that could best support these processes. It discusses climate risk vulnerability by sector, includes an exploration between the connection between loan performance and climate risk exposure and reviews several data providers, including Four Twenty Seven and our ongoing collaborations with Moody's Analytics.
Moody's ESG Summit: Climate Scenarios

Join Us During Climate Week NYC for a Half Day on Climate Risk

Hear from industry leaders on the latest market developments in climate change and discover new approaches to leveraging climate data and financial indicators to understand how physical and transition risks translate into credit risks. The session will include keynote presentations by Nick Anderson of IASM, Jane Ambachtsheer of BNP Paribas Asset Management and Sean Kidney of the Climate Bonds Initiative. The latter session will feature experts from Moody's, Four Twenty Seven and Vigeo Eiris, discussing new approaches to modeling climate risk and its financial impacts.

This event is hosted by Moody's in partnership with the Climate Bonds Initiative during Climate Week New York City. The session is on September 24th beginning at 9:15am EST.
Register for Free

Moody's Analytics' Launches ESG Risk Assessment Courses

Moody's Analytics' upcoming courses on ESG risk assessment include introductions to climate, environmental and social risks and their connection to credit analysis and portfolio management. These virtual, instructor-led courses will include case studies and discussions on how to assess and manage ESG risks. Topics include ESG KPIs, the Sustainable Development Goals, CO2 scope, climate risk analysis, proxy voting, climate risk disclosure and upcoming regulation.

Choose from three upcoming sessions, with options for time zones in the U.S., Europe and the Asia-Pacific regions and review the full course outline.
Inside the Office at Four Twenty Seven

Director, Sales - Jackie Willis

Four Twenty Seven welcomes Jackie Willis as Director, Sales in New York. Jackie leads Four Twenty Seven’s business development and growth strategy in the eastern United States. Jackie has spent the majority of her career in analytical and portfolio management roles in corporate and municipal finance, in the securities and banking industries at institutions such as Prudential Capital Management, TIAA-CREF, TD and Wachovia (now Wells Fargo). Most recently, she served as a Solution Specialist covering the commercial and industrial (C&I) and commercial real estate (CRE) credit risk models for Moody’s Analytics.

Join the team! 

Find open positions on our Careers page and visit Vigeo Eiris' and Moody's Careers pages for more opportunities in climate change and ESG.
Upcoming Events

Join the team online at these upcoming events and check our Events page for updates, including links to events not yet available:

Twitter
Twitter
LinkedIn
LinkedIn
YouTube
YouTube
Facebook
Facebook
Website
Website
Email
Email
Copyright © 2020 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
2000 Hearst Ave
Ste 304
Berkeley, CA 94709

Add us to your address book


Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list






This email was sent to *|EMAIL|*
why did I get this?    unsubscribe from this list    update subscription preferences
*|LIST:ADDRESSLINE|*









Webinar: Climate Change and Wildfires

How will climate change increase wildfire potential? This Four Twenty Seven webinar shares our methodology for assessing global wildfire potential and highlights key findings from our analysis.

Speakers

  • Natalie Ambrosio Preudhomme, Director, Communications, provides an introduction to the implications of wildfires for finance, business and government stakeholders.
  • Colin Gannon, Director, Research, explains Four Twenty Seven’s methodology for assessing wildfire potential.
  • Lindsay Ross, Director, Global Client Services, shares key findings from the analysis, highlighting regional hotspots and discussing actionable ways to leverage this data to inform investment in resilience.

For more information on Four Twenty Seven’s wildfire dataset read our report, Climate Change and Wildfires: Projecting Future Wildfire Potential.

Newsletter: How will climate change worsen wildfire exposure?

Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we share new data on wildfire potential, highlight the connection between racial justice and climate change and feature new reports on climate risk.

In Focus: Projecting Future Wildfire Potential

Four Twenty Seven Analysis - Days of High Wildfire Potential will Increase by Up to Three Months in Most Exposed Regions
 

Areas ranging from California and Australia to the Amazon, Spain and the Arctic have experienced unprecedented loss of life and damage from wildfires in the past several years. Climate change is already making wildfires more severe and Four Twenty Seven's latest analysis finds that it will lead to more days with high wildfire potential in areas already prone to wildfires, and create hotter and drier conditions that will expose entirely new areas. 

This analysis leverages Four Twenty Seven's new dataset, which provides the only known globally comparable assessment of future wildfire potential in a changing climate at a scale of approximately 25 kilometers by 25 kilometers. The data is built upon the two key factors of soil moisture deficit and wildfire fuel type and incorporates data from global climate models to provide a view of changing conditions by 2030-2040, capturing both absolute and relative change in frequency and severity. This new data is now available on-demand for our clients via Four Twenty Seven’s Physical Climate Risk Application for real assets.

Register for our webinar on August 20th at 8am PST / 11am ET / 16:00 BST to learn more about the methodology and findings.
Read the Report
Climate Change and Racial Justice

Exploring Environmental Justice and the Need for Equitable Adaptation

The relationship between race and climate change is too often ignored. The recent protests for racial justice and police reform call attention to the fact that racism is still deeply embedded in our institutions and public policies. In the United States, people of color are disproportionately affected by polluting industries and climate change, while at the same time often lacking the resources to prepare and being excluded from decision-making on adaptation investment.

As part of our commitment to help raise awareness of the nexus between racial justice and climate change, Four Twenty Seven published a two-part blog series on the nexus of racial justice and climate change. The first blog focuses on exposure, providing a brief overview of environmental injustice issues in the U.S., and shedding light on the disproportionate impacts of climate change on Black communities and people of color. One solution is to ensure that climate adaptation intentionally considers this disproportionate exposure, factoring racial equity into decision-making. The second blog on adaptation outlines the need to integrate equity into adaptation and highlights emerging best practices.

Read our analyses:

Webinar Recording

Last week Four Twenty Seven and Moody's hosted a webinar exploring these topics. Four Twenty Seven's Yoon Kim discussed disproportionate exposure of people of color to climate hazards, Moody's Investors Services' Ram Sri-Saravanapavaan presented on the implications of inequality on sovereign credit, Tulane's Jesse Keenan discussed climate justice in urban development and UC Irvine's Michael Méndez presented on racial equity in climate policy. Register here to watch the recording

Central Banks on Climate Risk

The Bank of England's Climate Risk Disclosure

Last month the Bank of England published its first TCFD-aligned climate risk disclosure, assessing the exposure of its own portfolios to physical and transition risks. The Bank underscores the importance of addressing climate change as a financial risk and states the importance of assessing and disclosing risks even as the best available resources continue to evolve. The risk assessment leverages Four Twenty Seven and Moody's Analytics analysis on physical risk exposure. Meanwhile, the Bank of England's Climate Financial Risk Forum published a guide for financial stakeholders to assess, manage and disclose climate risk.

Guide to Climate Scenario Analysis for Central Banks and Supervisors

The Network for Greening the Financial System released a four step approach for central banks and supervisors to implement scenario analysis for climate risk, accompanied by a detailed set of climate scenarios. The steps include identifying the scope of the assessment; identifying scenarios; assessing the best way to connect climate risk exposure to economic and financial impacts; and explaining the results and methodology.

Indebted to Nature - Exploring Biodiversity Risks for the Dutch Financial Sector

Last month the De Nederlandsche Bank (DNB) and PBL Netherlands Environmental Assessment Agency released this report outlining the ways in which biodiversity loss poses economic and financial risk and the role the financial sector plays in biodiversity loss. The report also assesses the Dutch financial sector's exposure to biodiversity risk leveraging Four Twenty Seven's database. The separate report, Methods for analyses in Indebted to nature, explains the full approach. 
Public Consultations on Climate Risk

EIOPA Discussion Paper on Methodological Principles of Insurance Stress Testing

The European Insurance and Occupational Pensions Authority's (EIOPA) recent discussion paper outlines an approach to climate risk stress testing for transition and physical risks, citing Four Twenty Seven's methodology. EIOPA has asked for feedback by October 2.

European Central Bank Consultation on Climate Risk Disclosure Guidance

The European Central Bank (ECB) published guidance asking banks to disclose their climate-related risks and integrate these risks into their risk management processes. Compliance will be expected when the guidelines are finalized at the end of the year. The ECB has solicited feedback through a public consultation open until September 25.
Four Twenty Seven Wins
WatersTechnology Asia Award

Four Twenty Seven Recognized as Best Alternative Data Provider

The WatersTechnology Asia Award 2020 for Best Alternative Data Provider recognizes Four Twenty Seven’s innovation, accuracy and high standard in curating and deploying data for financial stakeholders.
This regional award showcases vendors and end users with high quality solutions with global relevance that are also especially pertinent to Asia markets.This came as financial regulators across the Asia-Pacific region have increasingly contributed to the global call for increased measurement and disclosure of climate risks in investment portfolios, encouraging financial actors to step up. With an office in Tokyo and a partnership with Sydney based DB Funds Advisory, Four Twenty Seven is excited to bring our award-winning climate risk data to more financial stakeholders in these markets. 

Four Twenty Seven Recognized in Exeleon Magazine's Top Companies

Business and Tech Magazine Exeleon, includes Four Twenty Seven in its listing of the top 100 companies to watch in 2020. "While the past several years have seen an increase in awareness of the material risks of climate change, Four Twenty Seven was on the leading edge of analyzing many complex scientific datasets and translating them for financial and business stakeholders." Exeleon writes. "Emilie and her team publish deeply data-driven and location-specific analysis, based on the best available climate data and the specific need of financial stakeholders."
Four Twenty Seven Partners with Nova Group

Nova's Climate Resilience Assessment Leverages Four Twenty Seven's Physical Risk Data

Four Twenty Seven is pleased to announce a partnership with Nova Group, GBC, a leading environmental and engineering due diligence advisory firm. Four Twenty Seven's asset-level physical climate
risk data now informs Nova’s new Climate Resilience Assessment, providing resilience recommendations based on the risks and characteristics of the specific asset of interest.
Inside the Office at Four Twenty Seven

Associate Director, Research - Stephanie Auer

Four Twenty Seven welcomes Stephanie as Associate Director, Research. Stephanie develops and incorporates metrics of novel climate indices into Four Twenty Seven’s products and services. Stephanie’s background is in data science and conservation ecology. She has worked for NatureServe and the California Academy of Sciences in ecological forecasting, data visualization and mapping, with a focus on analysis and communication for climate change adaptation planning.

Join the team! Four Twenty Seven is Hiring

There are several opportunities to join Four Twenty Seven's dynamic team. See the open position below and visit our Careers page and Moody's Careers page for more information.
  • IAM Modeler with expertise in Integrated Assessment Models (IAMs) and in translating IAM outputs for a wide range of stakeholders
Upcoming Events

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

Twitter
Twitter
LinkedIn
LinkedIn
YouTube
YouTube
Facebook
Facebook
Website
Website
Email
Email
Copyright © 2020 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
2000 Hearst Ave
Ste 304
Berkeley, CA 94709

Add us to your address book


Want to change how you receive these emails?
You can update your preferences or unsubscribe from this list






This email was sent to *|EMAIL|*
why did I get this?    unsubscribe from this list    update subscription preferences
*|LIST:ADDRESSLINE|*









Climate Change and Wildfires: Projecting Future Wildfire Potential

August 6, 2020 – Four Twenty Seven Report. Wildfires are complex physical phenomena that come at extraordinary costs to human and natural systems. Climate change is already making wildfires more severe and this new research finds that it will lead to more days with high wildfire potential in areas already prone to wildfires, and create hotter and drier conditions that will expose entirely new areas. Understanding which areas are exposed to changing wildfire conditions will help leaders in government, finance and public health to mitigate catastrophic loss. This report explores Four Twenty Seven’s new methodology for assessing global wildfire potential, identifying regional trends and hot spots.

Read the full report.

The 2019-2020 Australian bushfires raged for seven months, killed more than 30 people, hospitalized thousands more,[1] and burned more than 10 million hectares of land.[2] While the full financial and ecological impact is still unknown, costs from those fires are likely to exceed $4.4 billion.[3] Meanwhile, ten of the largest wildfires in Arizona’s history occurred in the last eight years and nine of California’s largest wildfires occurred in just the last seven years.[4]

Beyond direct losses and disruption from damage to buildings and infrastructure, air pollution from wildfires has led to healthcare costs in excess of $100 billion in losses per year in the United States.[5] Leaders in government, finance, and public health need to understand how and where climate change will further heighten wildfire potential because of the serious threat wildfires pose to societies, economies, and natural systems.

This new report, Climate Change and Wildfires: Projecting Future Wildfire Potential, outlines Four Twenty Seven’s approach to quantifying global wildfire potential, capturing both absolute and relative changes in frequency and severity by 2030-2040.  Wildfire potential refers to meteorological conditions and vegetative fuel sources that are conducive to wildfires. Using a proprietary methodology submitted for peer review, our analytics link climate drivers such as changing temperature and precipitation patterns with the availability of vegetative fuels to assess wildfire potential in the future.

The analysis also explores key regions exposed to increasing wildfire potential and discusses the implications for financial stakeholders and communities. Our analytics affirm common understanding about locations exposed to wildfire, providing an indication of the increasing severity and frequency of wildfires in areas already prone to these events. The report also offers insight into areas that may have less obvious exposure, but are likely to have higher wildfire potential over time. Preparing for wildfires is a local, and often regional effort. The relatively high spatial granularity of our results (~25 kilometers) enables decision-makers to evaluate wildfire potential at a useful scale.

Key Findings:

  • Four Twenty Seven developed a first-of-its-kind global dataset projecting changes to wildfire potential under a changing climate, at a granularity of about 25 x 25 kilometers.
  • In areas already exposed to wildfires, by 2030-2040 climate change will prolong wildfire seasons, adding up to three months of days with high wildfire potential in Western Australia, over two months in regions of northern California and a month in European countries including Spain, Portugal and Greece.
  • New wildfire risks will emerge in historically wet and cool regions, such as Siberia, which is projected to have 20 more days of high wildfire potential in 2030-2040.
  • Globally, western portions of the Amazon and Southeast Asia will experience the largest relative increases in wildfire severity, further threatening crucial biodiversity hotspots and carbon sinks.
  • Confronting this new risk will take unprecedented resources and new approaches in regions not familiar with wildfires and worsening wildfire seasons will continue to threaten already limited resources in currently exposed areas.

Read the full report.

Download the press release.

[1] Cohen, Li, “Australian bushfire smoke killed more people than the fires did, study says,” CBS News, March 20, 2020, https://www.cbsnews.com/news/australia-fires-bushfire-smoke-killed-more-people-than-the-fires-did-study-says/.

[2] Rodway, Nick, “‘We are a ghost town’: Counting the cost of Australia’s bushfires,” Aljazeera, January 27, 2020, https://www.aljazeera.com/ajimpact/ghost-town-counting-cost-australias-bushfires-200127035021168.html.

[3] Ben Butler, “Economic Impact of Australia’s Bushfires Set to Exceed $4.4bn Cost of Black Saturday,” The Guardian, January 7, 2020, https://www.theguardian.com/australia-news/2020/jan/08/economic-impact-of-australias-bushfires-set-to-exceed-44bn-cost-of-black-saturday.

[4] Cappucci, Matthew and Freedman, Andrew, “Arizona wildfires grow as flames flicker throughout Desert Southwest and California,” The Washington Post, June 22, 2020, https://www.washingtonpost.com/weather/2020/06/22/arizona-wildfires-grow-flames-flicker-throughout-desert-southwest-california/

[5] Fann N., Alman B., Broome R. A., Morgan G. G., Johnston F. H., Pouliot G., & Rappold A. G., “The health impacts and economic value of wildland fire episodes in the U.S.: 2008-2012,” The Science of the Total Environment, 2018.