Building a sustainable future
The intensity of public discussion on sustainability has grown and accelerated markedly following the Covid-19 crisis. This covers all aspects of sustainability from climate change and CO2 emissions, to ethical sourcing and the global supply chain, to environmental, social and governance (ESG) conduct. The momentum of action is building at all levels, ranging from individual commitments for more sustainable household practices, to China's announcement that it will go Net-Zero Emissions from 2060.
Sustainability fundamentally comprises three pillars – economic, environmental and social, sometimes referred to as profit, planet and people. I believe that the changes underway within these pillars, both individually and collectively, represent an opportunity for the insurance industry to become more relevant to the communities and economies in which we operate by contributing the following building blocks:
Building Awareness. The generations alive today are perhaps the first to really understand the level of damage being done to our environment and ecosystems and the implications this has for our future and that of our children. This threatens the ability of future generations to thrive socially, economically and even physically. For example, Swiss Re research has shown that over half of Global GDP (55%) is dependent on the contribution of biodiversity and ecosystems. Yet our Biodiversity and Ecosystems Index shows that nearly a third of ecosystems are in a fragile state in 20% of all countries. The need for action is urgent and our industry must be a catalyst for continued awareness building and intervention.
Building Commitment. Last August, the Business Roundtable underlined the importance of publicly traded companies fulfilling their obligations not just to shareholders, but to other stakeholders as well, including employees, customers, suppliers, the communities in which they operate, and society at large. This influential announcement was prompted by a new level of discussion and expectation within the investment community and in the wider public about the responsibilities of businesses beyond the purely financial realm. The scale of change required means that this will not happen overnight. Companies need to set challenging and ambitious targets over long time horizons. To achieve them they must set interim targets, take action to achieve them, monitor progress and then report transparently on outcomes.
At Swiss Re, we've long believed in a strong dialogue with different constituencies and have taken a more stakeholder focused approach since the early 2000s.
We have since committed to achieve net-zero emissions in our operations by 2030 and in our entire business, on both sides of the balance sheet, by 2050. And to reinforce our belief in the importance of a collective and global approach, we are a founding member of the United Nations-convened Net-Zero Asset Owner Alliance.
Building Momentum. Nearly three-quarters of consumers say they would "definitely or probably" change their consumption habits to reduce their impact on the environment, according to Nielsen Research. This sentiment is especially strong among Millennials and Generation Z, who are becoming more and more influential through their purchasing behaviours as well as through their choice of employer. As such, to attract and retain consumers and the best employees, businesses now need to take account of these generations' expectations of more sustainable corporate behaviours and actions. Additionally, institutional investors are also increasingly adding sustainability issues to their investment criteria and stand ready to call companies to account. Indeed, sustainable and responsible investing may even bring financial benefits, as our Group Chief Investment Officer has outlined.
Building Value. Based on current spending trends and economic growth forecasts, our recent sigma report Power up: investing in infrastructure to drive sustainable growth in emerging markets estimates that emerging markets will collectively invest an average of USD 2.2 trillion (3.9% of GDP) annually in infrastructure until 2040, making up two-thirds of global spend. The largest share of the investment will be in energy infrastructure (34%), with a focus on renewable power as countries seek to reduce their greenhouse gas emissions. Our industry must play an integral role in creating sustainable value for a low carbon economy through the provision of risk transfer and other risk-related services for these projects, and as I've outlined previously. Additionally, the insurance industry also plays a role on the financing side of this transition. The hard asset and long-term cashflow characteristics of infrastructure investments are an attractive opportunity for our industry, provided that we have the right legislative and regulatory environment to support us.
Building Inclusion. So far, I've discussed mostly economic and environmental considerations, but the social aspects of sustainability are also crucial. Today, worsening economic inequality is being exacerbated by the Covid-19 crisis while recent social injustice events point to a shocking lack of inclusion and racial equality in some aspects of society. In addition to the fundamental human, moral and social justice imperatives of equality, businesses with diverse workforces and inclusive of different approaches and perspectives tend to be more creative, more open-minded and more resilient. These attributes will promote sustainability in the form of long-term business profitability and societal resilience as we as building cohesion and morale inside the business itself.
The time is now
I believe the insurance industry has a historic opportunity to harness sustainability to deliver value for all our stakeholders – our employees, clients, investors and civil society. We can be part of the solution on climate change, protecting and enhancing the communities in which we operate while also providing a meaningful opportunity for our employees alongside value for our shareholders. Without question, the winners in tomorrow's world will be the companies that fully embrace and integrate sustainability in all its forms and use it to build stronger and more resilient businesses that can navigate and succeed in the rapidly evolving risk landscape ahead. As an industry I believe we have much to offer on the path to a more sustainable future and I'm optimistic that we can work together to realise the benefits it will bring.