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CLIMATE RELATED PERILS COULD BANKRUPT INSURERS
Environment News Service
October 7, 2002
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
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
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
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
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
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
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
"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:
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