The interdependency of humans and nature is becoming increasingly evident as the climate crisis looms ever larger. Every individual, business and industry is feeling the effects of biodiversity loss. Duncan Taylor, Infinity’s compliance offer, takes a look at how the insurance industry is addressing the challenges it faces as a result of climate-related events.
The interdependency of business and nature
According to a recent report by the World Economic Forum, 50% of the world’s GDP, valued at $44trillion, is moderately or highly dependent on nature. The disruption we have caused to the biosphere and the resulting loss of biodiversity is undisputedly impacting businesses. And this is only going to ramp up as the climate crisis deepens.
The WEF highlights an urgent need for businesses ‘to protect and restore nature and start regularly identifying, assessing, mitigating and disclosing nature-related risks to avoid potentially severe consequences.’
Biodiversity describes how different plant and animal species interact to protect nature and humans. If biodiversity breaks down, with species disappearing at a startling rate, we are at risk on every level. Protecting biodiversity means protecting humanity.
All financial institutions, including insurers, have an impact on biodiversity as well as being exposed to the financial risks associated with biodiversity loss.
Climate-related events have been an integral part of the insurance industry for hundreds of years. Historically, insurers have risen to the myriad challenges associated with climate risk and they are now harnessing that knowledge and expertise to address current issues related to biodiversity risk.
Three ways insurers are tackling biodiversity risk
1. Promoting biodiversity through insurance activities
Insurers can address biodiversity loss by refusing to insure biodiversity-unfriendly activities. Steps have already been taken along this path. In 2020 Lloyds, the world’s biggest insurance market, pledged to stop new insurance cover for coal, oil sands and Arctic energy projects by January 2022, and to quit fossil fuel insurance by 2030.
Major insurers have made similar pledges. In 2021, the Net-Zero Insurance Alliance was established at the G20 Climate Summit in Venice. Eight of the world’s major insurers -– Axa, Allianz, Aviva, Generali, Munich Re, Scor, Swiss Re, and Zurich –committed to individually transition their underwriting portfolios to net-zero greenhouse gas emissions by 2050. The alliance has grown to include over 29 leading insurers.
2. Promoting biodiversity through investment activities
Channelling capital towards investments that promote biodiversity is a powerful way for insurers to impact the preservation of the natural world. While to date there have been limited opportunities to do this, governments and other organisations are starting to take action. The UK government, for example, has just released a policy paper outlining a 10 point plan for financing biodiversity.
On the other side of the coin, the insurance industry is impacting the market by allocating capital away from biodiversity-negative activities such as fossil fuels. This process has been underway for some time. Many large insurers, including Zurich, Allianz, Aviva and Axa, have announced plans to divest money away from coal.
3. Optimising internal practices
Insurers also need to get their own houses in order when it comes to supporting biodiversity. Committing to the UN’s Race to Zero campaign is a great start. The Association of British Insurers has taken the lead in this, having been designated an Accelerator of the campaign and committing to support its members in tackling issues related to climate change.
In addition, it is becoming more and more commonplace for companies to put in place a Company Biodiversity Action Plan (CBAP) with achievable goals. There are many free resources online to help.
Many companies and industries are beginning to realise that embracing biodiversity does not have to mean sacrificing profit. Indeed, for the insurance sector, investments in biodiversity will ultimately reduce the risk of damage from natural disasters which benefits the industry and impacts the cost of insurance, also benefitting individuals and businesses. It makes business sense for insurers to engage in supporting policies that reduce biodiversity risk.
I have over 20 years of experience in the financial services industry and hold a Chartered FCSI qualification. I ensure that our operations are fully compliant with the rules of our most stringent regulators.