ShareAction releases practical guide on managing climate risks

Published in: Risk, Risk management, Environment, Climate change and sustainability

Companies: ShareAction

Responsible investment organisation ShareAction 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 relevant for insurers of all types.

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’.

“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.”

The first urgent step is a rapid decarbonisation of the real economy, he said, but disclosure is a big role towards achieving that.

Current barriers highlighted included issues around availability and quality of climate-related data.

“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. 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 (capital 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.

“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.”

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