Moody’s Adds Climate Data into Ratings for Real Estate-Linked Securities and Debt
In a clear sign of the mainstreaming of climate risk integration in financial analysis, Moody’s Investor Service announced that it will include climate risk data and analytics from its affiliate Four Twenty Seven in its research on and ratings process for US commercial mortgage-backed securities (CMBS) and commercial real estate collateralized loan obligations (CRE CLOs).
Four Twenty Seven is a publisher and provider of data, market intelligence and analysis related to physical climate and environmental risks. The company provides aggregated climate risk scores and portfolio analytics, quantifying a property’s exposure to the impacts of each of six specific climate risks, including floods, heat stress, hurricanes and typhoons, sea level rise, water stress, and wildfires, with scores ranging from ‘no risk’ to ‘red flag,’ or extremely high risk.
Moody’s announced that its presale reports will now include physical climate risk tables for the properties backing the loans in CMBS and CRE CLO transactions. Including Four Twenty Seven’s data and analytics is intended to enable commercial real estate professionals to better understand the exposure of their properties to the physical impacts of climate change, and to factor that insight into their investment decision-making processes.
Nicholas Levidy, Managing Director with Moody’s Structured Finance Group, said:
“CRE market participants are particularly exposed to physical risks associated with climate change, which could impact both properties and the surrounding communities. In the coming decades, climate hazards could disrupt access to certain locations and operations, damaging infrastructure and, where climate events become chronic, undermining an asset’s viability. The Four Twenty Seven scoring system provides a systematic way for us to monitor the impacts of gradually worsening extreme weather hazards.”
Levidy added that with the frequency and severity of extreme weather events on the rise, anticipation of these hazards will be increasingly reflected in insurance costs, and eventually also capital expenditures and commercial property valuations. Additionally, climate change could also impact utility costs due to factors such as higher demand for energy or a lack of water.
Emilie Mazzacurati, Founder and CEO of Four Twenty Seven, said:
“Four Twenty Seven leverages global climate models to help investors and lenders understand what future risks related to climate change are likely to emerge. Our analytics look 10 to 20 years into the future, with this data compared to historical conditions to produce a measure of expected disruption from climate change.”