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Moody's Ramps Up Its Game In Assessing Climate Change Risk For CRE And Other Businesses

Rating specialist Moody’s Corp. has acquired a majority stake in Four Twenty Seven, a provider of data and analysis related to physical climate risks. According to Moody's, the deal solidifies its commitment to standards for evaluating environmental, social and governance, or ESG, risks and opportunities.

Glacier melting

Four Twenty Seven scores physical risks associated with heat stress, water stress, extreme precipitation, hurricanes and typhoons, and sea level rise. Of particular interest to the commercial real estate industry, the company has compiled detailed data risks faced by 320 REITs.

The company's data is used by asset owners, managers, banks, corporations and government agencies to evaluate the potential climate risk they hold in their portfolios and that are associated with their activities. Besides real estate owners, Four Twenty Seven has data on over 2,000 listed companies, 1 million global corporate facilities, 3,000 U.S. counties and 196 countries. 

"Four Twenty Seven has built a strong platform for quantifying climate-related exposures and producing actionable risk metrics, which are essential to understanding climate risk and resilience measures,” Moody’s Investors Service Global Head of Assessments Myriam Durand said in a statement

The deal complements Moody’s recent acquisition of Vigeo Eiris, a provider of ESG research data and assessments.

Moody's is betting that asset owners and managers will want as much data as possible on their climate change risk, the better to facilitate resilience. That means taking steps to make sure properties and other assets continue to perform, even during weather disasters. 

Late last year, Moody’s said that cities on the U.S. coasts will need to take climate change into account if they don't want to lose access to cheap credit. Property owners need to take note as well, the company noted.

"The affects of climate change on commercial real estate are real and being factored in and considered by most major real estate investors and tenants today," Scott Muldavin, president of San Rafael real estate consultancy The Muldavin Co., told Bisnow.

Many REITs are embracing ESG policies, sometimes as a management decision, but also under pressure from investors. That is because real estate is among the most demanding asset classes on the environment, given the materials, energy and resources required to build and operate investment properties.