Four Twenty Seven, an affiliate of Moody's, sends a monthly newsletter highlighting recent developments in climate risk and resilience.
In Focus: Deadly Winter Storm in Texas
Devastating Extremes Highlight the Need for Equitable Resilience
In the massive disaster still unfolding in Texas after temperatures have returned to average, dozens were killed and many more are still suffering with lack of clean drinking water, home repairs from burst frozen pipes, and exorbitant energy bills, among other challenges. While scientists are still exploring the connection between a warming Arctic and frigid conditions spreading south, the scientific community agrees that climate change will bring more extreme conditions. The widespread power outages in Texas underscore the dire need to implement a diverse set of adaptation measures to prepare for a range of extreme events, including heat waves and storms. Weatherization of power plants and energy infrastructure, alongside improvements to home insulation can help prepare for extreme temperatures on either end of the spectrum.
This disaster also underscores the disproportionate impacts of extreme events on low-income residents and people of color, who are less likely to have backup generators or disposable income and more likely to lose critical wages from missing shifts during the storm. Likewise, in Texas, residents that shared energy circuits with critical facilities such as hospitals often kept their power during the storm, but these facilities are not usually in Black and Hispanic communities. These challenges aren't unique to Texas. In Louisiana, residents still homeless or suffering from two hurricanes last fall were also hit by extreme cold, facing yet another challenge to their survival, and there are similar stories after disasters across the country.
Ongoing Efforts to Address the Financial Risks of Climate Change
Central banks and financial regulators around the world continue to announce developments in their plans to address climate risk. This month the E.U. made additional progress, while the US began to make up for lost time. The UK also released a consultation on its updated draft climate risk disclosure legislation for pensions based on last fall's consultation responses.
Earlier this month the San Francisco Federal Reserve published an Economic Letter explaining its approaches to climate-related risks relating to supervision and regulation as well as financial stability. It outlined recent global efforts to address this risk and explained the Fed's own approach, emphasizing the value of scenario analysis for individual financial institutions and of stress tests as a tool for assessing potential climate impacts on the financial system more broadly. Meanwhile, Treasury Security Yellen has established a new Treasury climate "hub," and is currently seeking to find its leader. The likely candidate, Sarah Bloom Raskin, has served both as a deputy Treasury secretary and on the Federal Reserve Board.
Every Region Has its Climate Risks
The New York Times on Global Populations' Exposure to Climate Hazards, Featuring Four Twenty Seven Data
Every region has its own set of climate risk exposures and how this risk creates adverse impacts depends upon the population and economic activity exposed, as well as any climate adaptation measures in place. Based on Four Twenty Seven's data about 90% of the global population will be exposed to at least one climate hazard by 2040, and the New York Times' interactive story brings these findings to life, with additional context about each region.
Climate Risk by Community Type in the US
In the US there is a growing field of research exploring the overlay between community characteristics and their exposure to climate hazards. From demographics and resources to economic composition, many factors influence communities' vulnerability to climate hazards and their ability to prepare. The American Communities Project explores how climate hazards in the US correspond to different community types, leveraging Four Twenty Seven's data. The analysis highlights the significant exposure to sea level rise in "Military Posts," and exposure to extreme rainfall in "Working Class County" and "Middle Suburbs," as well as several other key findings and the potential implications of these exposure trends.
Climate Change & Sustainability Resources for Investors
Climate Opportunities and Risks in an Altered Investment Landscape
In this year's Megatrends report, Weathering Climate Change, PGIM provides a deep dive into the many ways climate risk can affect institutional investors, including a briefer on the climate science, an investor survey and a discussion of ways to integrate climate change into investment decision-making. It highlights risks and opportunities across asset classes, including fixed income, equities, real estate and infrastructure, and explores portfolio implications, with analysis from Four Twenty Seven.
Sustainable Bond Insights 2021
This year's Sustainable Bond Insights compiled by Environmental Finance, provides a review of 2020's green and sustainable bond issuance and looks forward to the year ahead. Moody's ESG Solutions and Moody's Investors Service contributed a chapter highlighting three trends to watch this year: increased issuance by governments and agencies; the rise of sustainability-linked financing; and climate risk and resilience in the bond market.
We're Hiring! Join Moody's ESG Solutions
There are several opportunities to join Moody's ESG Solutions dynamic team. See the open positions below and visit Moody's Careers page for more information.
Mar. 10 – Environmental Social Justice Webcast: Director, Communications, Natalie Ambrosio Preudhomme, will discuss opportunities to leverage climate risk analytics to build corporate and community resilience.
Mar. 22-25– Ceres 2021: Emilie Mazzacurati will speak on the panel "The New Materiality of Climate Science and What it Means for Investors and Companies."
Apr. 14-16– The Eurofi High Level Seminar: Emilie Mazzacurati will present on the panel "Climate Risk Implications for the EU Financial Sector."
Sept 22 – 2021 CARE Sustainability Conference: Natalie Ambrosio Preudhomme will present on financial climate risk analytics during the panel "Implementation Issues."
Four Twenty Seven, an affiliate of Moody's, sends a monthly newsletter highlighting recent developments in climate risk and resilience. This month we discuss the Biden Administration's climate policy, share new climate change records and include recent books on climate risk in the financial sector.
In Focus: Climate Risk a Priority in the US
First Week Signals Biden Administration's Commitment to Climate Action
The Biden Administration has named climate changes as one of four top priorities, alongside the COVID-19 pandemic, racial justice and the economic crisis. Beyond rejoining the Paris Agreement, several of Biden's executive orders in his first week in office relate directly to climate, while others have significant implications for the environment. For example, in an executive order on public health and the environmental, federal agencies are mandated to comply with Obama-era regulations prioritizing climate change adaptation and resilience rolled back by Trump. Further, one of his first executive orders stated that regulatory reviews should promote concerns such as public health, environmental stewardship, racial justice and the interests of future generations rather than focusing on a cost-benefit analysis, which typically fails to fully recognize non-economic benefits. There have been several key climate appointments and climate has emerged as a critical issue across many agencies, so this will remain a space to watch in the coming months.
The US Financial Regulators Begin to Move on Climate
On Monday the Senate approved Janet Yellen for treasury secretary, after she committed last Tuesday that the Treasury would examine the financial risks of climate change and appoint a senior official to lead climate initiatives. Meanwhile, this week the Federal Reserve announced a climate committee with a mission to "assess the implications of climate change for the financial system — including firms, infrastructure and markets in general." The central bank has slowly been increasing its participation in the dialogue on climate risk and this step signals that it may be starting to truly prioritize the issue.
There was a record 50 billion-dollar extreme weather events endured globally in 2020, with a total of $268 billion in total economic losses according to Aon. While the most costly disaster last year was the summer monsoon flooding in China, causing $35 billion in damage, the majority of the damage from extreme weather was in the US.
It's thus fitting that this past year also ties with 2016 for the hottest year on record, even during a La Niña event, which is a phase in the global climate cycle that typically leads to cooler years. The seven years we just experienced are the seven warmest years on record.
Four Twenty Seven Analysis: Over 25% of the world's population in 2040 could be exposed to severe heat stress and 57% of the economy could be exposed to flooding
More frequent and severe extreme events driven by climate change pose a significant threat to populations and economies around the world and understanding who and what is exposed to climate hazards is essential to pricing this risk and preparing for its impacts. Four Twenty Seven's report, Measuring What Matters: A New Approach to Assessing Sovereign Climate Risk, builds on new analytics assessing sovereign exposure to floods, heat stress, hurricanes and typhoons, sea level rise, wildfires, and water stress based on the only known global dataset matching physical climate risk exposure to locations of population, GDP (Purchasing Power Parity) and agricultural areas within countries.
The Latest Books on Climate Risk & Sustainable Finance
Values at Work: Sustainable Investing and ESG Reporting,
This recent book highlights the latest research on sustainability topics of growing interest to investors, including climate change, pollution, diversity, governance, economic inequality and others. Four Twenty Seven wrote a chapter titled “Asset-Level Physical Climate Risk Disclosure.” The chapter discusses the need for consistent, comparable metrics for physical risk disclosure, using the pharmaceutical sector as a case study to examine climate risk disclosure versus climate risk exposure.
Carbon Risk and Green Finance
This new book provides a comprehensive primer on both physical and transition climate risks as financial risks. It covers the emergence of reporting frameworks and mandatory disclosure laws in recent years. The latter portion examines the datasets and approaches that can be leveraged to assess and report climate risk, including emerging topics such as climae stress testing and scenario analysis, citing Four Twenty Seven.
Climate Change, Real Estate and
the Bottom Line
Webinar Recording
How will climate hazards like sea level rise and flooding affect real estate and how is the industry preparing? In this webinar in the Goodwin and MIT Center for Real Estate series, The Path to Tomorrow, Global Head of Climate Solutions at Moody's and Founder & CEO of Four Twenty Seven, Emilie Mazzacurati, joins insurance and finance professionals to discuss climate risk for real estate developers, investors and owners.
Four Twenty Seven's monthly newsletter highlights recent developments in climate risk and resilience. This month we feature an analysis on US climate risk disclosure, highlight developments at Moody's ESG Solutions and share recordings of recent climate risk events.
In Focus: Are U.S. Corporates Ready for Climate Risk Disclosures?
Analysis: The State of Climate Risk Disclosure in the US
The results from the U.S. presidential elections signal an impending radical shift in U.S. climate policy. President-elect Biden’s transition team identified climate change as one of four top priorities, promptly followed with the appointment of John Kerry as special envoy for climate. As part of his transition plan, Biden announced ten executive actions related to climate change that he intends to take on his first day in office. One of these measures is the requirement for public companies to disclose climate risks and greenhouse gas emissions in their operations and supply chains. This disclosure requirement aligns with a global trend, following similar announcements in the UK and in New Zealand.
We find that the largest US corporations tend to be slightly behind in terms of disclosing key indicators compared to their international peers. However, among all assessed regions, not even a quarter of the firms disclose the indicators reviewed in this assessment. This demonstrates the significant room for progress and shows that increasing firms’ capacity to assess and disclose climate risks in an informative manner remains a global challenge, aligning with findings in the TCFD's 2020 Status report released last month.
Emilie Mazzacurati Appointed Global Head of Moody's Climate Solutions
Moody's announced last week that Four Twenty Seven Founder and CEO, Emilie Mazzacurati will oversee the climate solutions suite within Moody’s ESG Solutions Group, a new business unit formed earlier this year to serve the growing global demand for ESG and climate analytics. As part of its climate solutions suite, Moody’s ESG Solutions provides risk measurement and evaluation tools to understand, quantify and manage physical and transition risks, informing due diligence and risk disclosure in line with the recommendations from the Taskforce on Climate-related Financial Disclosures (TCFD).
Emilie also remains CEO of Four Twenty Seven, which is now fully owned by Moody's.
Moody's Analytics Wins Climate Risk Award at Chartis RiskTech100®
Moody’s Analytics' offering helps customers first identify whether they have exposure to climate risk in their portfolios and then quantify the credit risk implication of climate risk factors. These solutions incorporate climate risk analytics from Moody's ESG Solutions powered by Four Twenty Seven and V.E.
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 finds significant exposure to floods and sea level rise, which can damage crucial structures, leading to significant costs or rendering the assets unusable. Hazards such as heat stress and wildfires present risks with implications for take-off and landing. Airports often undertake long-term capital intensive projects and integrating resilience measures into planning these investments will be critical. Register for free to read the report.
Climate Change and Financial Stability
Financial Stability Board Releases Report on Climate Risk
Yesterday the Financial Stability Board (FSB) released its report, The Implications of Climate Change for Financial Stability,outlining the ways in which physical and transition risks may affect the financial system. It highlights how physical risks can decrease asset prices, increasing uncertainty and how a disorderly transition could also destabilize the financial system, while an orderly transition is expected to have a less significant impact on asset prices. Likewise, the report emphasizes that climate risk could amplify credit, liquidity and counterparty risks and interact with other macroeconomic risks, with significant implications for financial stability.
The European Insurance and Occupational Pensions Authority (EIOPA) opened a public consultation on its draft opinion on the supervision of the use of climate change risk scenarios in ORSA. This consultation is a follow-up to EIOPA's recommendations that insurers integrate climate risks into their governance and risk management beyond a one-year time horizon, aiming to provide additional guidance on the supervision of these processes. Respond by January 5, 2021.
Hong Kong SFC Consultation on Climate Risk Management for Funds
The Hong Kong Securities and Futures Commission (SFC) opened a public consultation on its proposed guidance for fund managers to integrate climate risk into their investment decision-making and to release climate risk disclosures. The guidance applies to all fund managers, while those with at least HK$4 billion under management would have to comply with additional requirements, such as disclosing more quantitative metrics. The recommendations reference the TCFD Recommendations to encourage consistency in risk disclosure. Respond by January 15, 2021.
TCFD Consultation on Forward-looking Metrics
The Task Force on Climate-related Financial Disclosures (TCFD) released a public consultation on decision-useful forward-looking disclosure metrics for financial institutions. Recognizing the growing need for standards guiding forward-looking, comparable climate risk disclosures, it solicits input on the utility and challenges of disclosing certain forward-looking metrics, including metrics on implied temperature rise and value at risk. Respond by January 27, 2021.
Climate Analytics for Financial Risk Assessment: Panel Recordings
Moody's Analytics Synergy Americas Conference
Founder & CEO, Emilie Mazzacurati, and Moody’s Analytics Managing Director, Global Head of Quantitative Research, Jing Zhang, discuss the impacts of climate risk on credit risk in the panel, “How Floods, Wildfires, and Heat Stress Can Play a Role in Financial Reporting and CECL.” Register for free to access the recording.
Risk Australia Virtual 2020: Taming the Green Swan
Emilie Mazzacurati presents a keynote presentation titled “Taming the Green Swan: Incorporating Climate Risk into Risk Management.” She covers changes in the regulatory environment and how investors can use science to inform risk management and investment decisions. Emilie discusses progress made on climate risk disclosure to date, explains the latest thinking on conducting scenario analysis for climate risks and provides case studies of the economic impacts of climate risk in Asia and Australia.
Webinar: How Real Estate Can Adapt and Prepare for Climate Risks
Join us on Thursday Dec. 10 at 9am PST / 12pm ET / 5pm GMT
We’re already seeing the impacts of climate change on our real assets—so how do we better prepare for future climate events? Four Twenty Seven will join CBRE, Measurabl and Nova Group GBC to discuss the full process of integrating physical climate risk management into real estate investment. The webinar will include an explanation of the climate data driving the analytics, how to understand physical climate risks alongside broader ESG data and how to leverage this information to mitigate risk by building resilience.
Speakers:
Zachary Brown, Director of Energy and Sustainability at CBRE
Yoon Kim, Managing Director, Global Client Services at Four Twenty Seven
Cameron Ravanbach, Account Manager at Measurabl
Rob Jackson, Vice President, Equity Markets Group at Nova Group, GBC
Dec 2– ULI 2020 Virtual Resilience Summit: Managing Director, Global Client Services, Yoon Kim, and Director, Communications, Natalie Ambrosio Preudhomme, will join.
