Riskier Times ahead for the Risk Carrying Business

Published in Bimaquest, September 2021

‘Riskier times ahead for the Risk Carrying Business’ – is what lies in store for the business of insurance – unless it acts seriously and urgently on the Climate Crisis front (Bimaquest, September 2021).

‘Despite increasing pledges of action from many nations, governments have not yet made plans to wind down fossil fuel production’, says a UN report. ‘The gap between planned extraction of coal, oil and gas and safe limits remains as large as in 2019’, when the UN first reported on the issue. The UN secretary general, António Guterres, called the disparity “stark”.

A report, produced by the UN Environment Programme (UNEP) and other researchers, found global production of oil and gas is on track to rise over the next two decades, with coal production projected to fall only slightly. “Fossil fuel production set to soar over next decade”. Countries plan to produce around 110% more fossil fuel than would be compatible with a 1.5C temperature rise by the end of this century (Mark Campanale).

Ironically, as Wolfgang Kuhn, CFA highlights: “Insurers say the solution is not to penalise brown investments but create a greater supply of green assets.” And all we have in terms of time, warns renowned climate scientist Michael Mann: the “lag” between halting CO2 emissions and halting the rise in global temperatures may be as little as three to five years.

Businesses, as a rule, do not like being forced to do anything – reminds Brett Ryder of The Economist. They prefer to make voluntary gestures – just enough to keep governments off their backs. Right now they are throwing around promises to cut carbon emissions to “net zero” like confetti… On the one hand the UNEP bares it all but the @UNEP FI initiatives for financial institutions remain toothless.

Peter Bosshard points out a serious disconnect: “of the 5 new Net Zero Insurance Alliance (NZIA) members, only @NN_Group has a strong coal exit policy. #HannoverRe is still covering coal through treaties, and none of the others have taken any steps to pass this low bar”.

‘Offsetting schemes are pure #greenwash so that fossil fuel companies can continue to do what they’ve been doing and make a profit’. Jennifer Morgan of Greenpeace has called for their immediate abolition. All this would not be possible without the money pipeline and the hypocrisy of banks, insurers and asset managers actively involved in this space.

The disconnects, double standards and skullduggery et al make insurers’ case as agents for a green transformation increasingly challenging. Before the existential issues assume a more threatening and irreversible form for them, reputational risks are already in play!