Category: Industry News, Corporate Responsibility, Aviva, Climate Change, Insurance, honour, discussion, represent, investor
In January 2018 I had the honour of representing Aviva in a discussion at the United Nations Investor Summit on Climate Risk. This fabulous experience also coincided with the end of my time as the chair of ClimateWise.
The conclusion of my three year tenure and Earth day 2018 feels like a good time to take stock of the contribution to the battle against climate change from both Aviva and the wider insurance industry.
So, on reflection, can we say that the insurance industry has made — and continues to make — a difference; have we made a meaningful contribution? Has our industry inspired the wider business community to do more? Or is it simply a drop in the (rising) ocean?
A vast array of gifted academics and talented professionals, in and around our industry, are working on climate change. As an industry, much of the focus is on closing what we call ‘the climate risk protection gap’. This is the gap between the impact/cost of more severe, frequent climate-related incidents and a decrease in insurance coverage.
In short, there are more major incidents happening but less insurance cover to put things back together. With this in mind there are three projects which I believe have made a contribution.
Task Force on Climate-related Financial Disclosures (TCFD)
ClimateWise was a key part of Mark Carney’s TCFD project, looking to develop a set of recommendations for voluntary, consistent climate-related financial risk disclosures in mainstream filings; this means businesses publicly sharing their plans to respond to climate change — both the risks it poses and the opportunities to be grasped.
This is something ClimateWise members have done for some time, so it was great to see their Principles supporting insurers to implement the recommendations. In particular, helping them to;
- Manage risk across both their assets and liabilities, as opposed to a more traditional focus on just the liabilities
- Use their abilities to assess and disclose climate-related risks, and help support other companies to assess and manage their own exposure.
- Use consistent definitions to enable insurers to predict risks by using high quality climate data and to assess the impact of different climate scenarios over the short, medium and long term.
This guidance for all corporates is game-changing. It can only help to reduce the climate-risk protection gap by making risks clearer and more predictable, helping businesses to plan ahead effectively.
The World Benchmarking Alliance
We, at Aviva, and everyone at ClimateWise can take great pride in the consultation around establishing the World Benchmarking Alliance.
While many leading companies do great work aligning their businesses with the Sustainable Development Goals (SDGs), it can be difficult to understand the cumulative impact or compare performance.
Before the project began there was no consistent way, open to everyone, by which to measure the impact of the efforts — or the lack of them — made by businesses on specific sustainability issues. This reduces any incentive to improve performance and makes it difficult to see who is doing well and who could do more.
Aviva is working on a consultation with the UN Foundation, BSDC and Index Initiative to produce free, publicly-accessible SDG league tables. These will help investors, wider society and governments assess how well businesses are delivering against the SDGs.
It will help to inform investment and other economic decisions, increase transparency and trust between sectors and create a league table of best (and worst) performers. The consultation is still open. If successful, it will make it easier to identify where more work is required and opportunities to improve action around the SDGs. Something we can all get behind.
The last project to mention is the work that ClimateWise did on societal resilience (how communities cope with and bounce back from climate-related incidents). As climate-related incidents become more frequent and intense the protection gap discussed earlier grows, undermining our industry’s role as insurers.
The irony is that our focus on reducing risk can make the protection gap bigger, if our response continues to simply avoid — rather than prevent and manage — risk.
A shift in how our industry evaluates the increasing impact of climate change and the events caused by it was needed. ClimateWise's Societal Resilience Programme directly addressed closing the protection gap. It identified new risks and opportunities across the industry’s activities by focussing on three key areas;
- Finance: by exploring how the insurance industry can manage assets in a way that also reduces underwriting risk. This promotes the commercial opportunities associated with such strategies and identifies where the industry can collaborate with other stakeholders, to improve societal resilience.
- Regulation: by looking at where the industry can support global regulators, to fully understand the nature of the physical, transition and liability risks that climate change presents. It also identifies how the industry can support other parts of the financial system, as it responds to the low-carbon, climate-resilient transition
- Resilient cities: identifying which parts of the insurance industry can support cities to make better infrastructure and development decisions, while creating new risk transfer and risk management opportunities. The insurance industry has extensive capabilities which can enhance resilience in cities (which are the industry’s most concentrated and exposed markets).
This is just the beginning of the programme; I look forward to seeing how it continues to grow and deliver.
Although my role as Chairman with ClimateWise has finished I will continue to work with them and I wish the new Chairman (Dominic Christian — Executive Chairman of Aon Benfield International) great success. The battle against climate change is far from over and will continue to evolve; everyone in our industry and the wider business community needs to keep pushing for change and progress.
In the fight against climate change it is easy to focus on the negatives; but there are also projects driven by our industry where we can be proud of the legacy we have created, the example we have set and be inspired to making further valuable contributions.
Maurice Tulloch, Chief Executive Officer, International Insurance