Earlier this month (13 November 2018) the United Nations Environment Finance Initiative (UNEP FI) announced a partnership with 16 of the world’s largest insurers including two members of the International Cooperative and Mutual Insurance Federation (ICMIF); The Co-operators (Canada) and Länsförsäkringar Sak (Sweden). This new Insurer Group represents around 10% of world premium and USD 5 trillion in assets under management and has the goal of developing a new generation of risk assessment tools designed to enable the insurance industry to better understand the impacts of climate change on their business.
According to a recent press release from UNEP FI, the pilot group will develop analytical tools that they will use to pioneer insurance industry climate risk disclosures that are in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). This will require them to make use of the latest climate science, including some of the most advanced, forward-looking climate scenarios available. This understanding is vital for an industry whose core business is to manage risk.
Talking about her organisation’s involvement in the partnership, Ann Sommer, CEO, Länsförsäkringar Sak, said: “To be included in this international pilot project involves participating in the creation of a new standardization of climate risk information and climate risk modelling in the financial sector. The opportunity to exchange experiences and get a better understanding of the TCFD recommendations and climate risks in a global perspective together with other leading insurance companies is of course very valuable to us.”
Rob Wesseling, President & CEO, The Co-operators, said: “Climate change is the defining issue of our times. It has and will continue to pose increasing risks that impact the financial, social and environmental prosperity of current and future generations. As risk experts, we cannot turn a blind eye to this issue. Through the TCFD pilot, we are collaborating with global insurance leaders to incorporate climate-related risk into our governance, strategy, products and services, seize low-carbon opportunities, and design solutions that will enable communities to be more resilient in the midst of a changing climate.”
The Co-operators has since released a Climate Commitment, alongside the UN Environment Programme Finance Initiative’s (UNEP FI) biennial Global Roundtable which took place this week in Paris, France. The commitment outlines actions the organization will take to address climate-related risk and seize opportunities presented by the low-carbon economy.
“For generations, the insurance industry has served as society’s early warning system and risk manager by understanding, reducing, pricing and carrying risk. Its message now is loud and clear: climate change risk is intensifying and is a serious threat to the insurability of communities and economies around the world,” said UN Environment chief, Erik Solheim. “An uninsurable world is a price that society could not afford. This is why UN Environment is working with leading insurers to understand and reduce risk, to seize unprecedented business opportunities in climate action, and to ensure an insurable, resilient and sustainable world.”
According to UNEP FI, the recent report of the Intergovernmental Panel on Climate Change (IPCC) highlights the rapid, far-reaching and unprecedented changes needed to limit global warming to 1.5°C (rather than the 1.5 to 2°C range as specified in the Paris climate talks in 2016). As rising temperatures accelerate sea level rise and catalyse extreme weather events, communities, businesses, cities and countries are facing new types and higher levels of risk.
The Financial Stability Board, chaired by Bank of England Governor Mark Carney, mandated its Task Force to develop voluntary and consistent climate-related financial disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The Task Force’s final recommendations were submitted to the G20 in June 2017 and have four key pillars—governance, strategy, risk management, and metrics and targets.
The tools and indicators that will be jointly developed and piloted by the Insurer Group, says UNEP FI, will incorporate the latest scenario analysis to assess climate-related physical and transition risks in insurance portfolios. Insurance coverage incentivises risk reduction, puts a price tag on risk, de-risks investments, and serves as a financial shock absorber for communities, businesses and governments. While insurers are also major investors—with global assets under management of over USD 30 trillion—this initiative will focus on the assessment of climate risks in their core insurance portfolios and products.
Reliable information on insurers’ exposure to climate risks will strengthen the stability of the financial system, encourage more and better disclosures from client companies across sectors, and help boost insurance products and investments needed to transition to low-carbon, climate-resilient communities and economies, according to UNEP FI.
The Insurer Group’s work follows equivalent work by leading banks and investors, all convened by UNEP FI for the purpose of advancing financial sector know-how on climate change and the adoption of the Task Force’s recommendations. Its outputs aim to support key platforms and initiatives, including the UN Secretary-General’s Climate Summit in New York in September next year to drive ambitious climate action needed to achieve the goals of the Paris Agreement on Climate Change.
Member companies of the Insurer Group
The insurers that will work together with the UN are all signatories to UNEP FI’s Principles for Sustainable Insurance (PSI), a global best-practice sustainability framework and the largest collaborative initiative between the UN and the insurance industry. The Insurer Group includes: Allianz (Germany), AXA (France), IAG (Australia), Intact Financial Corporation (Canada), Länsförsäkringar Sak (Sweden), MAPFRE (Spain), MS&AD (Japan), Munich Re (Germany), NN Group (Netherlands), QBE (Australia), Sompo Japan Nipponkoa (Japan), Storebrand (Norway), Swiss Re (Switzerland), TD Insurance (Canada), The Co-operators (Canada), and Tokio Marine & Nichido (Japan).
About UN Environment’s Principles for Sustainable Insurance Initiative (PSI)
Endorsed by the UN Secretary-General and insurance industry CEOs, the Principles for Sustainable Insurance (PSI) serve as a global framework for the insurance industry to address environmental, social and governance risks and opportunities—and a global initiative to strengthen the insurance industry’s contribution as risk managers, insurers and investors to building resilient, inclusive and sustainable communities and economies. Developed by UN Environment Finance Initiative, the PSI was launched at the 2012 UN Conference on Sustainable Development, and is the largest collaborative initiative between the UN and the insurance industry.