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The Investor Agenda recognizes 2020 as a tipping point for taking action to avoid irreparable climate change, in line with the goals of the Paris climate agreement, and focuses on accelerating action in four key areas: investment, corporate engagement, disclosure and advocacy, according to a summary of the initiative. Seven partner organizations focusing on these areas developed the initiative: Asia Investor Group on Climate Change, CDP, Ceres, Investor Group on Climate Change, Institutional Investors Group on Climate Change, Principles for Responsible Investment and UNEP Finance Initiative.
Investors are talking about the need to ramp up clean energy investments to $1 trillion per year, up from the current $330 billion a year, to meet the Paris climate agreement goals, said Mindy Lubber, president of Boston-based investor coalition and sustainability advocacy group Ceres.
“The world has established the financial imperative to act,” she said.
As investors, the insurance industry, under its liability-driven approach, is constrained by fiduciary duties and regulations, according to a report called Climate Change and the Insurance Industry: Taking Action as Risk Managers and Investors published by the Zurich-based Geneva Association and based on interviews with 62 C-level executives at 21 globally active insurers and reinsurers. Insurers are addressing climate change through their risk modeling and pricing, knowledge of preventive measures and innovation in risk transfer solutions, as well as from an operational perspective by reducing their carbon footprints, according to the report.
But there is more the insurance industry can and should be doing, according to Ceres officials. For example, insurers have been showing “modest” improvement in disclosing climate risk management practices, but there is still plenty of room for growth in addressing climate risks and opportunities.
“When we talk about the insurance sector, there is a big difference in whether we’re thinking about U.S. insurance companies versus European,” said Cynthia McHale, director of the insurance program for Ceres. “That divide has been fairly long-standing when it comes to climate, but it’s gotten only more so over the past year.”
Ceres has engaged in discussions with U.S. insurers about investment opportunities in clean energy, she said. “That’s really significant because many insurance companies that we have been speaking with do see the opportunity to invest in renewables as well as energy storage and energy efficiency. Those types of investments tend to fit well with insurance investment criteria – long-term holdings that have reliable cash flows.”
“That being said, we are not seeing U.S. insurers very active at all when it comes to engaging with companies around issues such as greenhouse gas emissions nor are U.S. insurers stepping up on the policy front, either at the federal, state or even local level,” she added. “I think it’s a combination of the U.S. insurance industry being an industry that is very conservative (and) tends to be reticent to be proactive about things that they would see as political or in any way contentious. It’s not a practice of insurance companies to be active, engaged investors. They tend to be passive in their approach.”
Even the spate of major natural disasters affecting insurance company earnings has not led to more action in this area, she said.
“I wish I could say otherwise – that this really was a shakeup for the industry over the past six months with these devastating hurricanes, but truth be told most of the losses from hurricanes Harvey and Irma and Maria were not insured,” she said. “Unfortunately, as destructive and unprecedented as that string of hurricanes was, I don’t think it will have a meaningful, material impact on the position of the U.S. insurance industry when it comes to climate change and the risks associated with that.”
Harvey caused the most insured losses of any catastrophic event in 2017 at $30 billion, followed by Maria at $27 billion and Irma at $23 billion, but the economic losses were far greater: about $100 billion for Harvey, about $65 billion for Maria and about $55 billion for Irma, according to a report by Impact Forecasting, Aon Benfield’s catastrophe model development team.
But major European insurers and reinsurers are acting to address climate risks as both institutional investors and underwriters, Ceres officials say.
For example, in December, AXA Group committed to quadruple its green investment targets to reach €12 billion by 2020, as the company reached its initial €3 billion investment target in 2015.
Laurent Clamagirand, AXA’s group chief investment officer in Paris, said he has discussions with his peers at other insurers to raise awareness about the ability to scale up their green investments and how AXA has done so to show it’s “not an impossible target.”
In addition, AXA pledged to phase out insurance coverage for new coal construction projects and oil sands businesses, which required some difficult conversations with the company’s underwriters about why insuring such projects was not “good for the planet,” he said. He likens it to a health insurer declining to invest in tobacco companies because of the health problems associated with smoking.
“Insuring that business was not the right way to promote the world of 1.5 and 2 degrees,” Mr. Clamagirand said, referring to the goal of limiting the global temperature increase below 2 degrees Celsius above pre-industrial levels – a goal reaffirmed by the Paris climate agreement, which urged efforts to limit the increase to 1.5 degrees Celsius.
AXA also contributed to the Task Force on Climate-related Financial Disclosures and pledged to implement their recommendations in the group’s upcoming annual financial report.
European insurers and reinsurers are “taking a much more visible and public role as leaders,” Ms. McHale said.
The Investor Agenda announcement was made as part of Ceres’ 2018 Investor Summit on Climate Risk, held in New York on Wednesday, and convening 450 investor, business and capital market officials to discuss climate-related investment risks and opportunities.
Investment firm Cedent Ltd. has formed Bermuda-based corporate advisory firm Resilience Economics Ltd. with $500 million in pledged capacity to offer organizations help managing climate-related risks, the company announced Wednesday.