Adam Pawloff, Greenpeace’s Climate and Energy Campaigner for Central and Eastern Europe, believes the insurance and wider financial services sector has to heed its own warning if change is to be truly delivered.
“Our house is on fire” is the now infamous quote from Greta Thunberg, referring to our collective home, planet earth.
As we speak, Australia is actually on fire, with massive fires engulfing huge swaths of the countryside and one temperature record following the next. Every year, the typhoons that hit East Asia, get more intense. Every year the hurricanes that hit the Caribbean and the US get stronger. Small island states are literally at risk of drowning. Huge swaths of Sub Saharan Africa at risk of becoming uninhabitable. And the massive heatwaves, extreme drought and the deadly wildfires of the past two summers, show that the climate crisis has arrived in Europe as well. What we are witnessing now is still a walk in the park, compared to what is to come.
The heatwave in Northern Europe last summer was made twice as likely by global warming. The intensity of Hurricane Harvey three times more likely. Lucifer, the heatwave in Southern Europe in 2017, ten times more likely. The searing heat in Australia in 2016 was fifty times more likely by global warming. These are the results of modelling done by the University of Oxford and others in the past years, known as weather attribution. As such, it is no surprise, when companies ranging from Aviva to Swiss Re and Insurance Australia Group to Axa have said that the world we are currently heading for is going to be largely uninsurable.
But here, the financial sector is not heeding its own warning. Financial institutions by and large are pricing future global heating of 3 to 4°C into their business decisions. Insurance companies that have traditionally been very risk averse, which have always played a long game managing risks and hedging their bets on the investment side, have become shortsighted, or perhaps even blind. This is an industry that in its day to day business decisions still considers transition risk above failure to transition risk. And whilst the risks associated with the transition are not negligible, the ecological, human and economic consequences of the failure to transition to a carbon neutral economy will be catastrophic. We already see a small taste of what is to come, when Munich Re releases its annual analysis of the costs of extreme weather events. But right now, we risk tens and hundreds of billions becoming tens of trillions.
That is why Mark Carney, the Governor of the Bank of England and soon to be United Nations Special Envoy for Climate Action and Finance, has said that “the world needs a new, sustainable financial system to stop runaway climate change”. To stop runaway climate change, we need to phase out coal by 2030 in Europe and the OECD, and 2040 globally and all fossil fuels shortly thereafter. The financial system needs to go from voluntary incremental change, with some insurance companies developing coal exclusion policies of differing quality, to systemic transformation with all insurance companies committing not to insure new fossil fuel infrastructure. And we need it in 2020, because infrastructure built today is built on the premise that it will be in operation for decades to come. What insurance companies do is not only crucial, it also has a demonstrable effect. With the action taken to date, insurance for coal has already become more expensive and hence coal has become financially less attractive. If insurance does not act, the industry will not only have spiraling costs of climate impacts to deal with, they will also start bearing the brunt of the increasing number of climate liability lawsuits being brought against fossil fuel companies and their backers.