Insurers and Bankers Are Telling Us That The Climate Change Bill is Due

If you are a frequent reader of this blog then you will note that I have often cited reinsurer data when discussing the march of global warming, extreme weather events and their consequences. In this posting, I do this once again and add to it an initiative begun by the Former Governor of the Bank of Canada, and Bank of England, and now special climate envoy for the United Nations, Mark Carney, who has organized hundreds of companies including the world’s biggest banks to put their money behind a net-zero future. So let’s begin.

Munich Re Calls Out World Leaders at COP26 to Act

Munich Re and other reinsurers have been increasingly vocal about the need for global action on climate change. In the latest pronouncement from the company issued at the beginning of COP26, the Chair of the Board of Management for the reinsurer, Joachim Wenning, states “The fact that this year’s Nobel Prize for Physics went to climate researchers shows that the world should have listened to the experts sooner.”

Reinsurers underwrite the insurance companies that issue policies to businesses and individuals. Their operations include experts on climate change and actuaries that look at data to place long and short-term bets on whether they can get a return on these policies because payouts don’t exceed premiums.

Munich Re’s Chief Climate and Geo-Scientist (yes, they have one of those) is Ernst Rauch. He notes that “the longer we as a global community fail to properly combat climate change, the worse the risks posed by natural catastrophes and consequent losses will be.” As an example, the latest catastrophic flooding and extreme rainfall events in Central Europe cost 46 billion Euros of which 9 billion was insured.

In 2007, Munich Re was instrumental in setting up the Caribbean Catastrophe Risk Insurance Facility (CCRIF), a disaster risk financing instrument that guaranteed payments within two weeks following a natural catastrophe within a participating country. This is the type of initiative that needs to be duplicated elsewhere according to Munich Re. CCRIF acts as an agent of liquidity for governments to manage the fallout that arises from an extreme weather event such as flooding, or drought, and that damages agriculture, infrastructure and housing.

Governments and industries need to begin footing the bill to protect humanity and the rest of the flora and fauna on this planet from anthropogenic global warming. Munich Re in its latest statement calls for a phaseout in the use of fossil fuels as essential to the Earth’s future wellbeing and states that current annual investments in renewable energy at more than $300 billion U.S. need to be quadrupled by 2030, not including investment in upgrading the power grid and the adding of large-scale energy storage.

Without reservation, the company calls for a global price on carbon dioxide (CO2) in the form of a tax greater than $100 per ton by 2030, particularly if there is no agreement on a comprehensive carbon-trading system in place by then.

In this latest pronouncement, the company calls out the nations of the world to put in place a roadmap to set interim and long-term targets for carbon reduction. Wenning notes, “It is only by making sufficient investments in the net-zero transition and in the decarbonization of industrialized societies that we will be able to maintain our standard of living and mitigate societal hardships – while also paving the way for greater prosperity in poorer countries. Climate policy will succeed if it takes into account the needs of businesses. For the business world, transparency and reliability are vital.”

Net-Zero Financial Alliance Forms to Meet Paris Climate Goals

Known as GFANZ (the Glasgow Financial Alliance for Net-Zero), this initiative inspired by former central bank head in Canada and later England has gathered 450 companies including some of the world’s largest banking and financial institutions representing $130 trillion in assets, committed to using science-based guidelines to achieve net-zero emissions by 2050, including interim 2030 goals.

What is ironic and disappointing is to note that many of the GFANZ signatories have been notorious for continuing to funnel investments into fossil fuel companies since the signing of the Paris Climate Agreement in 2015. How much? The amount of money these institutions have put into oil, gas, and coal projects equals $4 trillion, with $500 billion alone in this current year. As GFANZ members this has to change immediately. But without a standard of practice agreed to by all how can this be achieved?

The key will be the “science-based targets.” Through the auspices of the United Nations, an expert panel of leading scientists will set the standards of measure to achieve both the net-zero 2050 and interim 2030 goals. A group that goes by the acronym SBTi is working on these standards. One of its spokespersons quoted in a recent Bloomberg Green report states that the “lack of consistent principles, definitions, metrics and evidence of effective strategies to meet the targets limits the ability of financial institutions to support the reduction of emissions in the real economy.” 

Without standards, GFANZ signatories will be muddling through, making things up as they go along in trying to achieve transitional 2030 and ultimately the zero-emission 2050 goal.

One of the hosts at COP26, U.K. Chancellor of the Exchequer, Rishi Sunak, argues the need “to guard against greenwashing” by putting in place this “science-based gold standard.” Sunak notes that the creation of global climate reporting standards will “give investors the information they need to fund net zero.” If you are not familiar with the term “greenwashing,” a comment often coming up in newspaper reports quoting climate change protestors like Greta Thunberg, refers to behaviour and activities by a company to make it seem that is doing more to protect the environment than it is.

There are plenty of greenwashing examples to choose from. Here are two:

• Chevron, BP, ExxonMobil and others in the fossil fuel sector front their web home pages and annual reports with images of renewable energy projects while investing ten times more on oil and gas exploration and development.
• Governments, for example like China, which has set a net-zero target of 2060 (ten years later than the Paris goal) because it argues it is still developing and should be given some wiggle room to catch up with the Developed World countries that caused global warming in the first place, and that its commitment to mitigating climate change can be seen in its establishment of a domestic carbon market and carbon pricing while it continues to underwrite projects for coal-fired power plants both at home and overseas.

There is no doubt that out of GFANZ we need to see the realization of a “sea-change” professed by those from the financial community attending Glasgow COP26. This will be a critical outcome from the meeting in Scotland. We, collectively on the planet, need to hold the signatories of GFANZ as well as all of the nations attending COP26 to account, to ensure that climate change commitments made are achieved.