Exclusive: ShareAction releases guide on managing climate risks

Channels: Risk, Governance, Regulation

Companies: ShareAction/AODP, Aegon, Ageas, Aviva, ASR Nederland, CNP Assurances, Folksam, Generali, Legal & General, MS&AD, Munich Re, MN Group, Prudential PLC, Scor, Zurich

People: Peter Uhlenbruch

ShareAction/AODP has released a report providing practical guidance to insurers on managing climate-related risks and opportunities.

The report will be officially launched at the Insurance & Climate Risk Americas conference, held by Insurance Asset Risk in partnership with sister publications Environmental Finance and InsuranceERM and taking place in New York on 16 September.

Based on interviews with 14 insurers, the report explores current practices, identifies common barriers, and presents a framework of building blocks relevant for insurers of all types.

Current best practices:

  1. Developing climate-supportive products and services
  2. Raising climate risk awareness among customers and communities
  3. Taking a holistic approach to climate risk management
  4. Exploring climate risks facing life and health
  5. Integrating climate science into risk models
  6. Building climate into investment strategies
  7. Driving collaboration on key climate issues
  8. Using TCFD to their advantage

Source: ShareAction/AODP's Insuring a low-carbon future: A practical guide for insurers on managing climate-related risks and opportunities

Peter Uhlenbruch, research and engagement manager at ShareAction and the report author, told Insurance Asset Risk the main message to insurers was to start integrating climate risk in their management and processes now, and not to wait for the perfect tools.

“You are never going to have the perfect tools,” he said. “You need to make sure that your governance is in shape and all departments and business lines are talking together. You need to network with your peers, and you need leadership from the top.”

Current practices highlighted in the report range from ‘developing climate-supportive products and services’ to ‘integrating climate science into risk models’ through to using ‘TCFD-type disclosures’ (see box).

The first urgent step is a rapid decarbonisation of the real economy, he said, but disclosure is a big role towards achieving that.“Right now, you can make a pretty sensible argument that climate risk isn't been reflected in the market because disclosure is pretty poor,” Uhlenbruch said. “That is why we have an interest in more forceful stewardship to raise equality of disclosures across markets.”

Common barriers highlighted included issues around climate-related data (see box).

Common barriers:

  1. Issues around climate-related data
  2. Weak demand for climate-supportive insurance products and services
  3. Capital requirements yet to directly reflect climate risk
  4. Shortage of investable clean infrastructure opportunities
  5. Inconsistent climate progress within and between regions
  6. Lack of pressure from insurers’ investors on climate issues
  7. Misaligned time horizons

Source: ShareAction/AODP's Insuring a low-carbon future: A practical guide for insurers on managing climate-related risks and opportunities

“At the moment data is not perfect but it shouldn’t hold us back doing everything we can with the data that we have,” Uhlenbruch said.

The report also offers wider recommendations for policymakers, customers, insurers and their investors (see box). Interestingly it calls for policymakers to review capital requirements to ensure insurers are incentivised to invest in the low-carbon transition.

However, the integration of sustainability in Solvency II’s pillar 1 (financial requirements) is far from generating consensus.

Applying a climate lens on capital requirements can only be done once the green taxonomy that is being developed at European level is finalised, Uhlenbruch conceded. However, the recommendation was included in the report to spur insurers to be more proactive in discussing these issues with policymakers and regulators, he explained.

Building blocks:

  1. Start the journey now - don't wait for the perfect tools
  2. Consider climate change from a risk perspective
  3. Start using TCFD
  4. Gain support from senior decision-makers
  5. Build a cross-functional climate working group
  6. Communicate climate awareness throughout the company
  7. Join collaborative initiatives
  8. Start challenging risk model providers

Source: ShareAction/AODP's Insuring a low-carbon future: A practical guide for insurers on managing climate-related risks and opportunities

“Less than 1% of investment is going into low carbon assets –  we need €90trn,” Uhlenbruch said. “They are not doing enough, so we need something more explicit than implied.”

The full guide is available for download here. While the summary is available here.

Uhlenbruch will be speaking at the Insurance & Climate Risk Americas conference on 16 September, see the conference webpage here.

Interviewed insurers were: Aegon (Netherlands), Ageas (Belgium), Aviva (UK), ASR Nederland (Netherlands), CNP Assurances (France), Folksam (Sweden), Generali (Italy), Legal & General (UK), MS&AD (Japan), Munich Re (Germany), NN Group (Netherlands), Prudential PLC (UK), Scor (France), Zurich (Switzerland).

Vincent Huck