ICMIF backs Mark Carney’s call to act on climate change risks

‘If some companies and industries fail to adjust to this new world, they will fail to exist’

The International Cooperative and Mutual Insurance Federation (Icmif) has backed Bank of England governor Mark Carney’s call to the finance sector to act in the face of “existential threat” from climate change.

In an open letter, published in the Guardian last month, Mr Carney and François Villeroy de Galhau, governor of the Banque de France, called on the international financial community to tackle climate-related financial risks, and ensure a smooth transition to a low-carbon economy.

“This requires a massive reallocation of capital. If some companies and industries fail to adjust to this new world, they will fail to exist,” said the banking leaders in the letter.

“As long as temperatures and sea levels continue to rise and with them climate-related financial risks, central banks, supervisors and financial institutions will continue to raise the bar to address these climate-related risks and to ‘green’ the financial system. We need collective leadership and action across countries and we need to be ambitious.”

Banks and insurers face losses from climate change due to increasing catastrophic weather-related events, such as heatwaves, droughts and floods – as do banks that have lent to fossil fuel-burning industries.

The letter accompanies the launch of a report from the Network for Greening the Financial System (NGFS), an international group of central banks and financial regulators.

The report makes a number of recommendations including: the integration of sustainability into investment portfolios; sharing climate-risk data and knowledge on managing climate-related financial risks, and taking a long-term, strategic approach to the consideration of these risks by embedding them into business-as-usual governance and risk-management frameworks.

“The success of these recommendations relies on two important factors,” said the banks’ leaders, “which lead to two broader calls to action on disclosure and classification of climate-related financial risks.

“First, to support the market and regulators in adequately assessing the risks and opportunities from climate change, robust and internationally consistent disclosure is vital. The market and policymakers must continue to work together to determine the most decision-useful metrics for climate-related financial disclosures.

“Second, the NGFS encourages regulators to develop an adequate classification system to identify which economic activities contribute to the transition to a green and low-carbon economy. This will be particularly valuable in supporting financial actors to make sustainable investment and lending decisions.”

Faye Lageu, senior vice-president, business intelligence at Icmif, said that the report and letter are “at the very least timely, some would argue extremely urgent, or even overdue”.

She pointed out that almost four years have passed since world leaders pledged their commitment to the Paris Agreement the historic deal in which nations agreed to tackle climate change and work to cut greenhouse gas emissions.

“This report and open letter urge companies to integrate climate change responses into their planning and their daily activities and operations,” she said. “In other words, not just talking about being responsible businesses, but in fact acting as truly responsible businesses.” 

She added: “Responsible action lies at the very heart of co-operative businesses from every part of the business world, so Carney and de Galhau’s message reinforces the relevance of co-operatives to the most pressing, current demands and our future survival.”

According to Ms Lageu, co-operative and mutual insurers are in a good position to play a leading role in a number of areas to help tackle climate change and encourage the transition to a more resilient world.

The first of these is supporting the overall management of climate-related risks such as typhoons, earthquakes and floods. “Insurers hold various technical resources, especially data and sophisticated modelling tools, which help to predict the timing and impact of these risks and also to inform the development of preventative measures to stop or minimise the impact of disasters,” she said.

“They can also contribute their experience and knowledge of responding to disasters. So when disaster does strike, recovery efforts can be more effective, save more lives and reinstate communities more rapidly.”

Responsible investment choices are crucial to supporting the development of climate-related risk reduction, she added. And this is where the co-operative and mutual insurance the sector with total global assets of approximately £6.5tn, plus savings and pension funds of their member-policyholders is a true pioneer.

“In the past, the insurance industry has generally been slow to build its responsible investment portfolios, but a number of co-operative and mutual insurers have led the way in ‘impact investing’ with outstanding results. This demonstrates that responsible investing corresponds to co-operative principles and values without sacrificing returns on investment for businesses or their members.”

To support climate risk actions, Icmif is working with and on behalf of its members through a number of global bodies. One of these is the Insurance Development Forum a private-public partnership that brings together multiple stakeholders with a real contribution to make to building resilience against disasters.

Icmif is also working with several United Nations institutions that support climate-risk and disaster reduction, as well as Accounting for Sustainability (A4S), which works with finance leaders to embed sustainable business actions.

But there is much more to be done. “There are huge opportunities for the insurance sector to play a stronger educational role,” said Ms Lageu.

“In emerging economies in particular, where the economic impacts of climate change are more sharply felt and, at the same time, where climate-related risks occur more frequently or on a larger scale, insurers can contribute to the development of policies and measures that can reduce the physical impact of climate-related risks.”

This means co-operative insurers exchanging information with other insurers about the processes that have helped their businesses assess and reduce risks, as well as the messages that have helped their member-policyholders take individual actions.

“This type of information-sharing would be beneficial to their own member-policyholders, to other insurance industry players, and to policymakers and governments that are striving to increase the socio-economic stability of their countries,” said Ms Lageu.

Elsewhere in the co-op sector, Canadian financial co-op Desjardins has recently announced a number of measures to tackle climate change with new targets, policies and procedures to ensure greener investments and business practices. Read more about it here.

And the European Association of Co-operative Banks has announced a declaration on greening the financial system, calling for a legal framework in the EU to make it easier to financially support sustainable projects.

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