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Four Twenty Seven has mapped the physical locations of more than one million
corporate facilities globally and uses climate science models to assess the
likelihood of them being affected by climate hazards such as heatwaves, floods
and cyclones. This means that exposure to catastrophic events for individual
companies can now be calculated.
This is the first time the physical location of corporate facilities and their exposure
to climate-related events have been mapped for investment purposes. Deutsche
Asset Management will now be able to integrate a company’s physical climate
risk equity score within new investment products, and assess the implications of
climate events for individual companies in its portfolios.
The scoring methodology identifies and categorises the location, activity and
business sensitivity of facilities or companies to climate hazards. Climate science
models are then applied to assess the geographical exposure to climate hazards.
The business impact of these is measured from an operations, supply chain and
market risk perspective.
The data can be analysed, for example, to look at how rising sea levels could
affect coastal and offshore oil and gas infrastructure, how floods could disrupt
supply chains, or whether extreme heat affects labour productivity in the
agricultural and construction sectors.
“The availability of this new data on physical climate risk is a major step forward
to addressing a serious and growing risk for investors. Climate risk is now centre
stage, however we believe the investment industry needs to champion the
disclosure of annual and once-in-a-lifetime climate risks by companies. We have
a duty to understand what more hurricanes or heatwaves mean for valuations
and investment returns,” said Nicolas Moreau, Head of Deutsche Asset
Management.
This new approach, and the physical climate threat to investment portfolios, is
outlined in a research paper by Four Twenty Seven and Deutsche AM that was
launched as the COP23 climate conference in Bonn gets underway.
It tackles physical risk head on, giving credible insight into the vulnerability of
corporate production and retail sites to climate change. Factors such as sea level
rise, droughts, flooding and cyclones pose an immediate and measurable threat
to investment portfolios.
Whilst no location is immune from the risks of physical climate change, the
research paper highlights Asia as particularly vulnerable. Five out of six people
occupying the highest climate risk zones globally live in Asia, with 145 million
people in China living on land threatened by rising seas.
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