Risk, opportunity and cooperation: the path to climate resilience
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Climate change is an existential threat. Worst-case scenarios predict mass migration events, coastal flooding, increasingly severe weather events and an 18% contraction of the global economy.
At the Supercharging Public, Private Sector Efforts on Climate Change virtual panel debate, hosted by Swiss Re in mid-June, the assembled speakers shared insights and opinions on what can be done to tackle some of these challenges.
The panel agreed that the seriousness of the threat should not be underestimated, the size of the investment opportunity should not be ignored, and that finding a way forward will necessitate close cooperation between the public and private sectors. Done well, the work that we stand ready to do together could actually lead us to a healthier, wealthier and more inclusive world, in a closer balance with nature.
Understanding what’s at stake
Veronica Scotti, Chairperson Public Sector Solutions, Swiss Re, moderated the session.
“The question is, how do we work together across the public and the private sector to accelerate the transition to zero,” she asked, referencing the importance of net-zero carbon emissions.
Jerome Haegeli, Group Chief Economist at the Swiss Re Institute highlighted the threat to global GDP if the 2015 Paris Agreement goal is missed – it could fall by as much as 18%. This statistic is explored in the Swiss Re Institute’s Economics of Climate Change report, which also details how, by 2048, OECD economies could lose 10.6% of GDP, and China’s economy could shrink by 23.5%.
“We need to build climate resilience,” he urged. “As we saw [with] COVID-19, resilience [needs to] happen before the crisis starts. We are now in a climate crisis mode.” In Haegeli’s view there is “no question” that public-private partnerships are vital to facilitating what he called “the smooth transition to a low-carbon economy.”
Identifying the opportunities
Haegeli also referred to the USD 100 trillion investment opportunity that tackling climate change represents.
“Climate change, while it's the number one systemic risk for the global economy, is probably also by far the biggest investment opportunity out there,” he said.
Green financing deals are a key part of that opportunity, helping large-scale energy transition projects get underway and facilitating the move to a low-carbon future.Doing nothing in the face of climate change is not a realistic option, and the costs of the crisis are already self-evident, in the view of Emma Howard Boyd, Chair of the UK’s Environment Agency. “In the US, the federal government is spending about USD 46 billion dollars per year on recovery from disasters,” she said.
The price of inaction is outstripping the cost of preparedness, according to Boyd, who went on to say that US spending on disaster recovery is “seven times the level of investment in resilience”.
“The world cannot afford to respond like this,” she added. “We need to be better prepared.”
Providing mechanisms for funding
Elina Kamenitzer, Head of the Climate Office – Operations at European Investment Bank (EIB), also stressed the sense of urgency needed to respond to climate change.
“I think we can safely say we are living in a critical decade,” she said. “We need to take drastic action now to decouple economic growth from usage of fossil fuels and also consider how we can ramp up investment in adaptation.”
The EIB issued the world’s first green bond in 2007 and since then has increased its interests in environmentally friendly finance. Kamenitzer said that green investments now account for 40% of the bank’s lending, reaching USD 26 billion last year.
Providing access to funding is, obviously, very significant. But the EIB is also working on detailed data analysis to assess the risks and results of the projects it evaluates. “We have developed tracking and reporting metrics as tools to assess environmental risks and impacts,” Kamenitzer said, explaining that such activities now play a central role in the EIB’s due diligence and investment decision making processes.
The Monetary Authority of Singapore is also heavily involved in the green finance sector, as Meena Chandra, Deputy Director of the Authority’s Financial Markets Department explained.
Climate change presents an existential threat to Singapore, she said. Which is why the island city-state is “taking firm action to understand and adapt to climate change”. That involves developing green financing initiatives, including what she described as “a range of measures to some of our plans to try to delay the incremental costs [to] corporates … taking up [green] financing, sustainable bonds and loans to support their investment into a more sustainable business model”.
The role of insurers as a partner
Standing in stark contrast to the geographic size of Singapore is India, where Kamal Kishore is a member of the country’s National Disaster Management Authority (NDMA). Its vast size means India faces a range of climate-related threats. One such problem is glacial melting in the Hindu Kush Himalaya (HKH) region, which could usher in an era of deadly flooding, followed by catastrophic water shortages. An estimated two billion people rely on HKH meltwater, and as it flows down some of India’s most important rivers, that water irrigates large amounts of agricultural land.
“We are a large country,” Kishore said. “It is extremely important that we focus on building adaptive capacity at the local level and look at where the hotspots are. For example, dedicated resources for building adaptive capacities in hill towns, or for dealing with issues that coastal areas are facing.”
He identified insurance as an important mechanism in helping with some of that preparedness. “Increasingly, the Indian system is opening up to looking at insurance as a solution to many, many of the problems at the local level,” he continued.
Getting to the point where the insurance sector is seen as a partner offering solutions to the wide-ranging challenges – not just in India but all around the world – can only be done through closer cooperation. That’s something that Ivo Menzinger, Swiss Re Head Public Sector Solutions EMEA, believes is already starting to take shape.
He sees the global community gradually coming together to find answers to some of the challenges of climate change, he told the panel. “I really think as an industry, we are at a very exciting inflection point, as more and more global leaders look towards the industry to support addressing the climate challenge,” he said.
“They look at us I think from two perspectives as we have two fundamental roles,” Menzinger continued.
“On the one hand as a risk-taker, which enables economic activity, but then also as an institutional investor with more than USD 30 trillion of assets under management.”
Working with risk is at the heart of everything insurance businesses do and that includes taking a longer-term view of how situations may develop over time. Understanding which assets and what infrastructure are needed to offset a particular series of risks was a further illustration Menzinger gave of how the sector can deploy its capabilities to the challenge of climate change.
Climate resilience investments made today need to be robust enough to meet the climate change risk in years to come. They also need to be financially viable so that spending capital, whether to de-risk threats or deploy resilience, becomes sustainable too. Having the right expertise available to make the necessary assessments and decisions will be an important part of the climate change response.