90% of insurers’ investment strategies don’t meet global climate goals
Compiled by Insurance24
HARARE, In spite of the risks stemming from climate change, a new report finds that nine out of 10 American insurance companies’ investment strategies fail to align with goals set out by the Paris Agreement.
“Despite looking at and considering this question over a number of years, they have not come to a conclusion that it’s an important or material question,” said AODP project manager Pavel Kirjanas.
The Asset Owners Disclosure Project (AODP), which is part of the responsible investment organization ShareAction, evaluated 80 of the largest insurers around the world and found American companies lacking in active management of material climate risk. AODP analyzed insurers’ climate disclosures using recommendations from the Task Force on Climate-related Financial Disclosures, and applied 40 indicators that resulted in rankings from AAA to the lowest ranking of X.
The US insurer which scored highest was The Hartford, with a rating of CC, while Metlife and Travelers both got ratings of C. The rest of the US insurance companies on the list, including Prudential Financial, AIG and New York Life, received ratings of D or lower. European insurers, like AXA, Aviva and Allianz, are meanwhile leading the charge on climate risk.
“The public debate in Europe has been so extensive and it’s been quite forceful, not just by governments and by leading politicians, but also by key industry spokespeople, such as Mark Carney, who’s the governor of the Bank of England,” said Kirjanas. “That coupled with a very strong voice coming from non-governmental organizations, and civil society in general, putting pressure on insurers and financial institutions makes for advancement in this whole climate risk debate.”
According to the AODP, none of the US insurers in the rankings measure the emissions intensity of their investment portfolios, 70% don’t identify low-carbon investments in their portfolios, and only 21% demonstrated evidence of a climate-aware approach to investing.
Titans in the insurance sector still have work to do to become leaders on climate change. Kirjanas recommends executives look at how resilient their investment portfolios are to climate change and how exposed they are to risks, and then address those exposures in their investment strategies.
“It all starts with the realization that [climate change] is a material risk and it’s simply not prudent to ignore it anymore. You can believe or not in climate change, but the transition to a low carbon economy is taking place, and we see more and more investment from the government and institutions into low carbon solutions,” said Kirjanas. InsuranceBusinessAmerica
Dealing with the risk of natural resource depletion
By Insurance 24
HARARE, Many post-apocalyptic movies force audiences to envision a world without natural resources or imagine what significantly depleting them could do to our ecosystems as well as our ability to survive as a species.
The fear isn’t based on fiction – natural capital, or the global stock of resources that includes soil, groundwater and clean air, is disappearing at a faster rate than it can be replenished, according to a recent report from Allianz Global Corporate & Specialty (AGCS). “Measuring and Managing Environmental Exposure: A Business Sector Analysis of Natural Capital Risk” analyzes the natural capital risks facing over 2,500 companies in 12 selected sectors to help insurance and risk management professionals understand how to manage natural capital risks (NCR) going forward.
While there are sectors that are better prepared to mitigate natural capital risks, the report finds that most are exposed on some levels to business interruption and liability issues as a result of these risks.
Take the chemical sector, which falls into the middle zone (or a high level) of risk, but, at the same time, is also no stranger to government oversight and implementing well-rounded environmental management systems.
“It’s an industry used to compliance [and] proactive mitigation,” said Chris Bonnet, manager of environmental, social and governance business services at AGCS, adding that while not every company in the sector is good at this and there are black sheep in every part of the market, “overall, the sector is very much used to the concept of risk and the concept of risk mitigation.”
Outside influence can play a large part in encouraging companies to manage their natural capital risk exposures. The clothing sector is very focused on sourcing raw materials and supply chain management, so companies in that field are keenly aware of how they could be affected if that capital suddenly was at threat of vanishing completely. But it’s also demands from other parties that promote risk management among clothing companies.
“The sector has been seen as very critical, had a lot of political pressure already, social pressure, to really act so they are also used to managing their supply chains and to doing something about it,” said Bonnet.
By contrast, the transportation sector hasn’t seen that kind of pressure, outside of a focus on car emissions. Cities and countries promote their airlines, which are often partly subsidized, said Bonnet, and the shipping industry has been insulated from the same pressure put on auto transport, even though their emissions are far worse than what is allowed for others transportation businesses.
Surprisingly, investments in risk management vary somewhat, but not wildly from one sector to another, according to Bonnet, even if their natural capital risk exposures are different.
“The chemical sector spends some efforts on proper risk management, and you see that in the NCR profile, but, for example, for oil and gas companies, we would’ve expected more. They’re very much under public scrutiny and very much used to proper risk management,” said Bonnet, adding that these companies nonetheless still experience events like the Deepwater Horizon oil spill in 2010. InsuranceBusinessAmerica
