Posted on 9-10-2002
Climate
Could Bankrupt Insurers
ZURICH, Switzerland, October 7, 2002 (ENS) - Climate change
is causing
natural disasters that the financial services industry must
address, a
group of the world's biggest banks, insurers and re-insurers
warned today.
They estimated the cost of financial losses from events such
as this
summer's devastating floods in central Europe at $150 billion
over the next
10 years. "Climate Change and the Financial Services Industry,"
a report
supported by 295 banks and insurance and investment companies,
was launched
today at the Swiss Re Greenhouse Gas conference in Zurich.
A partnership between the United Nations Environment Programme
(UNEP) and
the financial institutions, known as UNEP Finance Initiatives
commissioned
the report. It shows that losses as a result of natural disasters
appear to
be doubling every decade and have reached $1 trillion in the
past 15 years.
"The increasing frequency of severe climatic events, threatening
the social
stability or coupled with significant social costs, has the
potential to
stress insurers, reinsurers and banks to the point of impaired
viability or
even insolvency," the report concludes.
John Fitzpatrick, CFO and member of the Executive Board of Swiss
Re, said,
"Climate change and substantial emissions reductions - like
any other
strategic global business challenge - ultimately becomes a financial
issue.
The problems associated with environmental disasters quickly
become
measured in dollars and cents. Our industry needs to lead by
developing
financial solutions and risk mitigation techniques to assist
our clients in
achieving global emission reductions." "In addition to the emitting
industry needing to take a carbon constrained future into account,"
Fitzpatrick said, "the financial services industry, of which
we are a part,
also has an obligation to contribute to the solution of these
problems
through its own investments and business expertise."
Linked to heat-trapping emissions from the combustion of coal,
oil and gas,
the environmental implications of global warming are serious.
Melting polar
ice caps and glaciers, rising sea levels, distorted weather
patterns, and
drought are widely forecast. Coastal cities, crops, and animal
habitat
could be destroyed.
But too few financial companies are taking the risks and opportunities
posed by climate change seriously, a survey of mainstream financial
institutions carried out for the UNEP Finance Initiatives report
indicates.
Most are "unaware of the climate change issue" or have adopted
a "wait and
see policy."
These attitudes are "due to the prolonged wrangling over the
Kyoto
Protocol," the report states, compounded by "the lack of solid
information
on emissions and delays in finalizing the regulations of the
new greenhouse
gas markets."
The protocol, agreed under to the United Nations Framework Convention
on
Climate Change, limits the emission of six greenhouse gases
linked to
global warming. Thirty-nine industrialized nations were to have
been
governed by the original agreement signed in Kyoto, Japan in
December 1997,
but the Bush administration said in 2001 that the United States
would not
ratify the protocol, and Australia followed suit this summer.
It still has
not entered into force.
A small group of financial companies is addressing the issue,
but many of
them are reinsurers whose businesses are already feeling the
economic
impact of rising, weather related, insurance claims. "This report
is a wake
up call for the global financial community. It highlights the
real risks
and economic perils they are facing as a result of human influenced
climate
change," said UNEP Executive Director Klaus Toepfer. The property
market,
where loans for houses and buildings are made over relatively
long periods
of time, could be particularly vulnerable as a result of extreme
weather
events, the report warns. "Homeowners and companies with property
holdings
may find that their insurance cover is cancelled at short notice,
leaving
them highly exposed."
Government action to arrest the problem will "inevitably" mean
a reduction
in emissions of the main sources of greenhouse gases linked
with global
warming, predicts the report. This will require cutbacks and
the more
efficient use of fossil fuels such as coal and oil.
Asset managers who are slow to appreciate the climate change
threat "may
see the value of energy or power company holdings decline" as
investors
become aware of the liabilities linked with carbon intensive
industries,
the report concludes. Recommendations in the report's "blueprint
for
action" include urging insurers and re-insurers to better reflect
the risks
from climate related perils in policies and to develop public/private
partnerships in high risk areas so that cover can be maintained.
Commercial
banks should fully price risks from climate change into loan
agreements and
give incentives to schemes that encourage energy efficiency
or cleaner fuels.
Greenhouse gas trading markets will need standardized accounting
methods to
operate, an area where financial professionals can contribute
to solving
the problem. "Given the financial muscle available to them,"
said Toepfer,
"these institutions could move markets and minds to deliver
a cleaner,
healthier and less vulnerable world for the benefit of the world
economy,
for the benefit of people everywhere." Governments are urged
to adopt a
long term global plan to keep greenhouse gases at safe levels.
This is
"vital" because the Kyoto Protocol runs out in 2012, the report
points out,
whereas "carbon dioxide, methane and the other greenhouse gases
can persist
in the atmosphere for many tens of decades."
The report was prepared by investment research and advisory
firm Innovest
Strategic Value Advisors of Toronto, Canada, under the direction
of the
UNEP FI Climate Change Working Group - Andlug Consulting, Citigroup,
Corporacion Andina de Fomento, Dresdner Bank AG, Gerling Sustainable
Development Project GmbH, Munich Reinsurance Company, Prudential,
SAM
Sustainable Asset Management, and Swiss Re.
"Climate Change and the Financial Services Industry" is available
online
from October 8 at: http://www.unepfi.net
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