Climate resilience: how insurance can contribute to a new, "green" dawn
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Re/insurance is at the front line of mitigating climate risk and facilitating sustainable growth. Re/insurers can contribute to the UN's 1.5°C target from both sides of the balance sheet and help drive a unified policy framework for green transition.
Climate change is a systemic risk that impacts the financial industry also. The Economist Intelligence Unit estimated that USD 4.2-13.8 trillion of the world's financial assets in 2015 were at risk from the impact of climate change. Calls to address climate risk and build a robust green financial system are becoming ever louder. According to OECD estimates, if a "decisive transition" to a low-carbon economy is effectively implemented, climate-change associated damage to economic value will be reduced to the tune of 2% of the gross domestic product of the G20 nations. It will also boost long-run output by up to 2.8% by 2050, resulting in a net growth benefit of 4.7% across those countries (see Figure 1-1).
Driving this value creation will be investments in sustainable infrastructure, supportive fiscal initiatives, structural reforms and green innovation, like a capital market for green securities. Insurers can contribute to the new green dawn by applying climate adaptation underwriting measures and environmental, social and governance (ESG) criteria into their investment portfolios.
- Tackling climate risks could lift G20 GDP growth by 4.7% by 2050.
- Insurers can contribute to climate resilience through environmental-friendly underwriting guidelines.
- Incorporating ESG criteria to investment process supports long-term economic growth.
- Green bond issuance is at record highs but is still just 0.5% of global bonds in circulation.
- A harmonized "taxonomy" of what is green and sustainable is needed to further advance climate resilience.
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