Cynthia McHale, Senior Director, Ceres
Please give us some background information on Ceres. What is the role of investors in the climate risk agenda?
Ceres is a sustainability advocacy organization that works with some of the most influential investors and companies to build leadership and drive solutions throughout the economy. The Ceres Investor Network includes over 170 investors from leading asset management firms, public pension funds, labor and socially-responsible investment funds, foundations, endowments and family offices. Ceres Investor Network memberscollectively managemore than $28 trillion in assets,and use that leverage to engage and collaborate on environmental, social and governance issues to advance leading investment practices, corporate engagement strategies and policy solutions to better manage carbon, water and supply chain risks, and to ramp up global investments in clean energy.
What is unique about the Climate Action 100+ initiative and how have signatory investors been successful in changing businesses?
Climate Action 100+ is an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take urgent action on climate risk. More than 320 investors with over $33 trillion in assets collectively under management are engaging the world’s biggest greenhouse gas-emitting companies to improve governance, curb emissions and strengthen climate-related financial disclosures. Launched in December 2017, Climate Action 100+ is coordinated by five investor networks: Asia Investor Group on Climate Change (AIGCC); Ceres (Ceres); Investor Group on Climate Change (IGCC); Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI).
The Climate Action 100+ initiative brings unprecedented and coordinated investor pressure on companies through strategic engagement and escalation strategies, including the use of shareholder resolutions. Climate Action 100+ signatory investors have secured major new commitments from companies in Europe, North America and Asia across a wide range of sectors including oil & gas, electric utilities, automotive, mining, shipping and consumer goods.
Bloomberg recently called the initiative the “richest, and possibly most benevolent bully the corporate world has ever seen,” while The Economist referred to it as the best organised and most successful group of investors concerned with climate change to date.
Why is climate risk particularly relevant to insurers?
The CEO of Insurance giant AXA has warned that more than 4 degrees Celsius of warming this century would make the world "uninsurable." With global temperatures and greenhouse gas emissions on course for a 3-5 degrees Celsius rise this century,climate change impacts could be so severe that insurance will broadly become unavailable or unaffordable. This is a very big deal for each and every insurance company, and society at large as insurance is critical to a vibrant and resilient economy.
What are insurance companies doing in the face of climate risk?
There is no more certain driver of risk than climate change and insurers confront climate risks on both sides of the balance sheet. We are very pleased that a number of leading European insurers have demonstrated strong climate risk governance, and are reducing their high-carbon underwriting and investments, while increasing their allocations to renewable energy and climate resilience.
In contrast, at present some of the leading US insurers are lagging, and continueto promote the misleading notion that because the term of most property/casualty insurance policies is one year, they only need to be concerned about what will happen in the next twelve months. This line of thinking is of course false and potentially quite damaging, as climate-fueled extreme weather events are unpredictable, both in terms of their timing and intensity. For example, the 2018 California Camp Fire was the deadliest and most destructive wildfire in California history, and caused at least 85 fatalities. It destroyed over 18,800 structures, and total damage was almost $17 billion. Scientific evidence shows clearly that climate change is exacerbating California’s wildfires through higher temperatures, longer dry spells and a shorter rainy season.
Do insurers disclose to investors how climate change could impact their businesses?
Many investors have called on companies across a wide range of sectors to provide better disclosure on how climate change could impact their businesses. However, a Financial Stability Board taskforce status report issued in June 2019 shows that insurers have substantially lagged banks across all core climate risk disclosure requirements. For example, only 16% of insurers had integrated climate risk management into the company’s overall risk management approach, compared with 32% of the banks surveyed. Furthermore, there was a 3% decrease from 2016 to 2018 in the number of insurers’ that provide investors with a description of the targets set by the company to manage climate-related risks and opportunities. Given their exposure to climate risk, insurers need to demonstrate how the company identifies, assesses and manages climate-related risks, and the processes for integrating these practices into the organisation’s overall risk management framework.