Natural disasters driven by climate change could have a disastrous impact on world stock markets and financial centers, and the financial services industry should provide more mechanisms for hedging such risks and should better factor those exposures into pricing, a United Nations report contends.
The report, produced by members of the United Nations Economic Program's Finance Initiatives, warns that annual losses from natural catastrophes could approach $150 billion in the next 10 years if current trends continue.
But, financial institutions have been slow to respond to the threat, according to the report, because many are unaware of the magnitude of the issue or fail to see a financial reason to address it. Also, disagreements and delays in achieving international and national climate-change policies have discouraged financial institutions from addressing the issue, according to the report.
The report notes that although property/casualty insurers are among those threatened by climate-change risks, opportunities exist for such companies in increased demand for risk transfer products, including coverage for mitigation projects such as clean-energy technology.
Other financial sector opportunities presented by the climate-change threat include further development of markets for trading greenhouse gas emission credits, weather derivatives and catastrophe bonds, the report says.
The UNEP Finance Initiatives is a partnership between the Nairobi, Kenya-based UNEP and 295 banking, insurance and investment companies. The report will be released Tuesday at a greenhouse gas conference sponsored by Swiss Reinsurance Co. in Zurich, and also will be presented to governments at the next round of climate change negotiations in New Delhi, India, later in October.
The report is available online at www.unepfi.net.
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