The risk officer's view of climate change - part one

Published in: Risk management, Conduct risk, Corporate strategy, UK, Rest of Europe, Climate change and sustainability

Companies: AIG UK, NewRe, Just Group, Zurich, Aviva

Chief risk officers have played a major role in responding to the many challenges presented by climate change. But as climate risk becomes more embedded in insurers' everyday operations, their role is evolving, as participants in this InsuranceERM roundtable discuss.


Paul Barrett, chief risk officer & Climate Risk SMF, AIG UK
Christian Dahmen, chief risk officer, NewRe
Alex Duncan, group chief risk officer, Just Group
Eugenie Molyneux, chief risk officer for commercial insurance, Zurich
Maeve Sherry, operational sponsor for Aviva's climate-related risks and opportunities project

Chaired by: Christopher Cundy, editor, InsuranceERM

Christopher Cundy: What role does the risk function have in your climate risk framework?

Alex DuncanAlex Duncan: I have been collaborating with other CROs in the UK in a group called the Risk Officer Sustainability Forum. One of the first questions we asked was: "What are the different models we are seeing for sustainability?". We have realised risk officers in different sizes and types of organisations all have a different perspective on this.

At the current time, in the vast majority of cases, CROs are carrying the responsibility for climate change. There are a small number of cases where it's shared – for example, with the chief investment officer.

It's not unusual for initiatives that come out of the regulator to be caught by risk and compliance in the first instance, and then be delegated into the organisation with a degree of oversight from second-line functions.

In our case, we have been making sure all of the parts of the organisation that contribute to the climate change agenda have plans in place to progress our strategy, but also meet the regulatory requirements. In due course, we anticipate we will embed risk management within the overall risk framework as just part of the way we do business.

If you're in an organisation with a separate sustainability function or a separate climate modelling function, how do you provide oversight of that function, and whether that function's work with the first line has been done? You end up with a double-layer of oversight. We see that more with the sustainability agenda, rather than the climate agenda, where the CRO seems to be talking much more directly to the functions.

"We anticipate we will embed climate risk management within the overall risk framework" Alex Duncan

Right at the moment, in our organisation, part of the challenge is being ready for TCFD [Task Force on Climate-Related Financial Disclosures reporting] and the risk function is having to work not just with the finance function, but with everybody who has to contribute to that, such as the investment function and climate modelling function.

Eugenie Molyneux: We have a sustainability function, owned by the business. But just as Alex described, it was started off in the risk function and owned by the CRO.

I think we're on a trajectory where you do have to embed it in the business, going forward. It's quite a normal path, to go from it being owned by the risk function, to being owned by the first line, to being embedded in the first line.

Christopher Cundy: Christian, given that NewRe is part of a very large group, Munich Re, how is your setup regarding climate risk?

Christian DahmenChristian Dahmen: On the one hand, we have the group risk framework, where dedicated teams drive the group climate risk strategy. On a legal entity level, the topic sits with me as CRO. Of course, I interact a lot with the group's climate risk colleagues.

Regarding the aspect of emerging vs. established climate risk organisation, we are in the "establishing" phase of the journey, yet making steep and steady progress.

For instance, we have begun to incorporate the relevant climate aspects into our Orsa [own risk and solvency assessment] and other risk management reports, rather than starting from the organisational lens like creating dedicated teams and driving a dedicated ESG, climate and sustainability report. In short, we currently focus on extending the products we already have in risk management to cover climate risk.

Christopher Cundy: Do you think risk is the epicentre of insurers' work on climate?

Christian Dahmen: Not necessarily the epicentre of the work we do; but risk is definitely a key voice at board level these days. The CRO will always have the natural acumen to balance commercial interest with risk-control considerations, be it on the more traditional risk topics such as accumulation or, instead, on climate risk.

Paul BarretAt NewRe we therefore see the contribution of a climate risk perspective as a natural part of the CRO role. At the same time, I find it neither realistic nor necessary that everyone who is involved in modelling climate risk, who follows ESG issues, does TCFD reporting and so on, reports to the CRO.

Saying that, it is key that climate responsibilities do not rest with the business purely, as these vital discussions have to take place at board level.

Paul Barrett: I'm not sure 'epicentre' is correct. There are certain moments when risk is a critical enabler – we are here to help the business get through difficult moments. We can be an 'incubator', bringing together the right people, the right data, etc. We can help equip underwriting leads and the CEO with tools and analysis, and be a partner to the business.

Christopher Cundy: What role has the risk function played in your organisation's response to climate change?

Maeve Sherry: The risk function has led the response – it has a natural fit for all the reasons we have discussed. The SMF responsibility is also currently with the CROs. We had planned, at the end of the project, to hand over those responsibilities to the first line. But now we have an executive committee member who is accountable for all things sustainability, we're reconsidering at group level which is the right role/function.

Alex Duncan: The project for embedding climate change work in the organisation sits with me and the risk team. That project will end in 2021 and then it will be within the risk framework. We will still have that oversight responsibility because we are responsible for making sure the risk framework is fit for purpose. One of the decisions we have to make is whether the project morphs into the sustainability work – particularly now as we think about achieving our ESG targets.

Who will own the responsibility for climate risk in the longer term? I suspect we will start to spilt our risk down into physical risk and transition risk, and apportion those to different people.

Christopher Cundy: Is anyone in your organisation incentivised to manage climate risk?

Maeve Sherry: We have introduced climate/ESG metrics for the senior layer of our organisation. This year is the first year it will be part of their long-term incentive plan (LTIP).

Alex Duncan: We are in the process of putting them into LTIP this year across the sustainability agenda, not just climate.

Christopher Cundy: Have you had good engagement from the board?

Paul Barrett: Yes, many people are enthusiastic, and it is about translating it into manageable steps: we have to recognise it's not going to be done in the next two or three years.

Christopher Cundy: How has the climate work affected the composition of your risk team?

Alex Duncan: We haven't the size to hire climate scientists or specialist modellers, so we buy in those specialist skill sets. Within my team, I have been building sustainability experience with training and education.

Maeve Sherry: We have taken a mixed approach. We haven't found it difficult to find people through internal opportunities. We've also done a lot of collaboration as well, with consultancies, academics and industry working groups.

The second part of this roundtable – covering net-zero commitments, climate risk modelling and scenario testing – will be published next week.