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Risk

Climate - No time to waste

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Open-access content Wednesday 4th May 2022
Authors
Anita Boniface
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Anita Boniface examines what the insurance profession is doing to help with the transition to net zero by 2050

March this year marked the 50th anniversary of the establishment of the United Nations Environment Programme (UNEP). In an address to the General Assembly in January, UN secretary general António Guterres highlighted again the importance of reforming financial systems as a key piece in creating a more sustainable and politically stable planet.

The UNEP includes the Finance Initiative (UNEP FI), a suite of programmes that incorporates the Principles of Responsible Investment (PRI) and Principles of Sustainable Insurance (PSI), among other finance-related programmes and alliances.

For the insurance profession, the UNEP FI provides a map and compass, together with landmarks along the way to reaching net zero by 2050.

Many insurance companies that have signed up to the PRI and/or PSI feel that doing so is a crucial step in demonstrating their commitment to a sustainable planet that will be here for future generations.

Driving force

Ben Howarth, manager of climate change and open data at the Association of British Insurers (ABI), says the profession’s commitment to protection and resilience is a key driving force behind the ABI and many of its 200 members signing up to the principles.

Mr Howarth says: “The insurance industry is unique. If you look across the full scope of the ABI’s membership, almost every aspect of the climate-change agenda is worked on. From general insurance underwriting looking at physical risk and climate change, to investing to support technologies and advancing solutions that are driving the transition to net zero.

According to Mr Howarth, the profession has a “dual role”, which is being “directly involved with reducing impact of climate change, but also the capability to insure and invest in the technology and development of things to come and agreeing to a common set of principles”.

Johanna Köb, head of responsible investment at Zurich Insurance Group, also a signatory of the PRI, says: “The insurance industry has many levers to pull to help the world develop resilience to climate change. In particular by influencing the transition to a net-zero global economy in our role as investors, underwriters, risk managers and working with policymakers.

“We believe that responsible investment will only truly have an impact if financial market participants advance together to take this approach mainstream. Supporting collaborative initiatives and working together with other industry participants to advance responsible investment practices forms an integral part of our approach. We have signed the UN-backed PRI as well as the UN PSI, and we collaborate with a number of industry initiatives and research bodies,” she adds.

Just transition

Mr Howarth also speaks of the ‘just transition’ concept, of considering parts of the world where climate change is most extreme and where less sustainable industries are depended on, such as countries that are dependent on fossil fuels.

“A just transition is to make sure they have a replacement economy when we start pulling out of fossil-fuel usage and investing in alternative industries,” he explains.

Mr Howarth feels insurance companies have a key role to play in building resilience for the worse-case scenarios that could arise from temperature escalation, like mass population movement caused by crop failure, drought, flooding and pandemics.

The insurance industry has many levers to pull to help the world develop resilience to climate change. In particular by influencing the transition to a net-zero global economy in our role as investors, underwriters, risk managers and working with policymakers.

He says: “Climate change is such a big part of the public policy challenge, you need to have a really thoughtful, creative and forward-looking response to that problem, so you need to have all those structures in place. You need good governance and you need to have a high quality, positive workforce.”

The insurer Utmost Group is another signatory of the UN-supported PRI. The group has previously announced that it will only work with asset managers who are signatories to the PRI in the management of its own assets and guided architecture ranges.

Paul Thompson, Utmost Group CEO, says: “We believe that responsible investing has a huge role to play in building a sustainable future for current and future generations. The group is committed to taking a proactive approach to sustainable investing and we will continue to embed it across our business – in our strategy, in our investments and in our ongoing stewardship. The work of the PRI supports our mission by actively contributing to developing a more sustainable global financial system.”

He adds: “Financial metrics must go beyond gross domestic product, to assess vulnerability, climate, and investment risks. Credit ratings should be based on comparable fundamentals and evidence, rather than harmful preconceptions.”

ABI’s board has agreed a series of commitments in its Climate Change Roadmap, to create transparent goals and a transparent wider dataset, as well as to be accountable on the shorter-term goals around the 2025 and 2030 milestones the UN has set.

“If we do not meet those milestones now, you are not going to get to net zero by 2050. You have to have made impact in the next five to 10 years,” Mr Howarth adds.

Butch Bacani, UN programme lead for the PSI, concludes: “For decades, science has been ringing the alarm bells on the triple planetary crisis of climate change, nature loss and pollution – but the message has fallen on deaf ears. Now humanity is in a code red of planetary emergency. Through the UN’s PSI, the UN is working with the global insurance industry to urgently raise the industry’s ambition and play its full role as risk managers, insurers and investors in tackling global sustainability challenges.”

He feels insurers “must make every effort to help tackle loss and damage by reducing disaster risk and closing the protection gap, starting by building the resilience of the most vulnerable communities”.

Anita Boniface is a freelance journalist

Image credit | iStock

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This article appeared in our April/May 2022 issue of The Journal.
Click here to view this issue
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Topics:
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