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Harnessing insurance for sustainable development PSI meeting with Finance Norway 20 November 2015, Oslo
Butch Bacani Programme Leader The UNEP FI Principles for Sustainable Insurance Initiative
1
The triple role of the insurance industry in sustainable development
2
Risk carrier role (financial risk management)
Risk manager
role (physical risk management)
Sustainable development challenges & opportunities
Investor role (asset
management)
USD 31 trillion global assets under management
USD 5 trillion world premium volume
Global studies by the UN and the insurance industry on environmental, social and governance (ESG) risks and opportunities relevant to insurance
3
2007
2015
2009
Examples of key ESG issues § Climate change & extreme weather
events § Natural disasters § Biodiversity loss & ecosystem degradation § Water scarcity § Food insecurity § Environmental pollution § Violation of human rights & labour
standards § Social inequality & financial exclusion § Emerging health risks & pandemics § Ageing populations & demographic
change § Technological risks including big data § Accountability & transparency issues § Trust & reputation issues § Unethical business conduct & practices § Corruption § Unfair treatment of customers
Example of a changing risk landscape
The safe operating space of 4 of 9 interlinked planetary boundaries have already been exceeded
Source: Steffen et al. 2015. Planetary Boundaries: Guiding human development on a changing planet. Science Vol. 347 no. 6223
The 9 planetary boundaries 1. Change in biosphere integrity
(biodiversity loss and species extinction)
2. Biogeochemical flows (nitrogen and phosphorus cycles)
3. Climate change
4. Land-system change (e.g. deforestation)
5. Ocean acidification
6. Freshwater use
7. Stratospheric ozone depletion
8. Novel entities (not yet quantified) (e.g. organic pollutants, radioactive materials, nanomaterials and micro-plastics)
9. Atmospheric aerosol loading (not yet quantified) (microscopic particles in the atmosphere that affect climate and living organisms)
4
Disaster risk is acute in developing countries
Source: World Risk Report 2012
Human vulnerability to climate change
Worlds apart: Insurance density in developed and developing countries Property insurance premium per capita*
*Property insurance premium (non-life including health) per capita Source: Munich Re (as at July 2010)
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The UNEP Inquiry’s final report
The financial system we need
“Closing the protection gap is the top priority; one element in the imperative to secure universal access to financial services. In the poorest 100 countries, less than 3% of the population is served by effective insurance protection against natural hazards.”
Oct 2015
7
0
50
100
150
200
250
300
350
400
450
1980 1985 1990 1995 2000 2005 2010
Uninsured losses Insured losses 10-year moving average insured losses 10-year moving average total economic losses
Source: Swiss Re Economic Research & Consulting and Cat Perils, Sigma on natural catastrophes and man-made disasters
USD bn
§ Economic development, population growth and a higher concentration of assets in exposed areas are increasing the economic cost of disasters
§ The protection gap for
2014 losses was USD 75 billion
8
The protection gap Gap between economic losses from natural catastrophe losses and insured losses has been increasing
Macro
9
Economic loss
gap
Damaged public physical assets
Foregone revenues
Clean up costs
Damaged uninsured private assets
Insurance schemes and pools to increase insurance penetration; distribution and simplified products
Simplified products distributed via aggregators such as
MFIs1, NGOs, and corporates Micro
Risk transfer solutions for (sub)sovereigns to cover their direct or indirect costs
Pooling
Solution type Description
9
Emergency relief
How to close the gap?
Insured loss
Livelihood assistance, rehabilitation of the poor
1 Monetary Financial Institutions Source: Swiss Re
Different solutions are available to address the protection gap
Trust and reputation is a fundamental issue
Global survey: Financial services and banks are least trusted across industries
Source: 2013 Edelman Trust Barometer
10
2015 UNEP global insurance industry consultation
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Risk drivers and insurance issues
The Principles for Sustainable Insurance: A global commitment to drive systemic change
Public
Governments, regulators &
other key stakeholders
Clients & business partners
Own business strategies & operations
12
Principle 1:
We will embed in our decision-making environmental, social and governance issues relevant to our insurance business.
Principle 3:
We will work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.
Principle 2: We will work together with our clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.
Principle 4:
We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.
Global launch of the Principles for Sustainable Insurance
1
The thousands of companies that have embraced the United Nations Global Compact and the Principles for Responsible Investment demonstrate the growing influence of
sustainability in business. The launch of the Principles for Sustainable Insurance at the UN Conference on Sustainable Development (Rio+20) is a further evolution of this important movement to build a green economy. Developed by the UN Environment Programme’s Finance Initiative, the Principles are a framework for the global insurance industry to address environmental, social and governance risks and opportunities.
For years, insurers have been at the forefront of the corporate world in alerting society to the risks of climate change and, more recently, threats such as the loss of biological diversity and the growing pressures on forests, freshwater and other essential ecosystems. Insurers
are also increasingly recognizing the need to develop products and services that address the needs of a rapidly changing world, including inclusive insurance that caters to low-income communities, people with HIV/AIDS or disabilities, and ageing populations.
Insurers have worked with the UN World Food Programme to cover small-scale farmers in Africa so that, should the rains fail, a policy pays out before they are down to their last cow or supply of maize. The UN Environment Programme, with funding from the Global Environment Facility, has partnered with insurers to develop wind power derivatives in Mexico that cover a wind farm during less windy periods. And the success of initiatives such as the UN-REDD programme on reducing emissions from deforestation and forest degradation may hinge on whether insurers can cover the long-term challenge of keeping forests intact.
The Principles for Sustainable Insurance provide a global roadmap to develop and expand the innovative risk management and insurance solutions that we need to promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities.
With world premium volume of more than $4 trillion and global assets under management of more than $24 trillion, insurers that embed sustainability in their business operations can catalyze the kinds of financial and investment flows and long-term perspectives needed for sustainable development.
The United Nations looks forward to working with all sectors of society towards the global embrace of this important new initiative as we shape the future we want.
Ban Ki-moonSecretary-General of the United Nations
I. Message from the UN Secretary-General
Ban Ki-moon UN Secretary-General
“The Principles for Sustainable Insurance provide a global roadmap to develop and expand the innovative risk management and insurance solutions that we need to promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities. “The United Nations looks forward to working with all sectors of society towards the global embrace of this important new initiative as we shape the future we want.”
13
2012 UN Conference on Sustainable Development (Rio+20)
PSI membership by country of domicile
PSI signatory company PSI supporting institution
14
§ 87 members and growing § Largest collaborative initiative between the UN and the insurance industry § Insurers representing ≅20% of world premium and USD 14 trillion in assets under management
PSI as insurance industry criteria
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§ Interbrand: PSI recognised by organisation that rates the best global brands across all industry sectors
§ Sustainability indices: PSI now part of insurance industry criteria of Dow Jones Sustainability Indices, FTSE4Good, and BM&FBOVESPA Corporate Sustainability Index in Brazil
§ Annual public disclosure of implementation progress by PSI signatory companies
Implementing the Principles: Examples A company commitment
16
Swiss Re’s Sustainability Risk Framework spanning industry sectors and environmental, social and governance issues § Oil & gas § Defence § Mining § Dams § Forestry & logging § Animal testing § Nuclear weapons proliferation § Human rights & environmental
protection
Implementing the Principles: Examples A company commitment
17
Munich Re underwriting tool to assess environmental, social and governance issues in engineering projects
Main criteria: Consistent evaluation Individual assessment Qualitative – not quantitative Increasing awareness of ESG issues
18
Implementing the Principles: Examples A company commitment
“The debate is no longer about whether, it's about when. “As an insurer, I have personally witnessed many times humanity's capacity for resilience. This gives me hope that we will learn from the errors of the past and set ourselves on a path towards a more sustainable future, beginning here today and resulting in a comprehensive, fair and ambitious agreement this December. In any case, we have no choice: a 2°C world might be insurable, a 4°C world certainly would not be.” Henri de Castries Chairman & CEO, AXA Group 22 May 2015, Climate Finance Day, Paris
Disaster losses in the past decade: Average annual economic losses: USD 190 billion Average annual insured losses: USD 60 billion 21st century so far: More than 1 million deaths due to disasters
Many nations spend more on disaster relief and recovery than on disaster risk reduction Funds are diverted to dealing with disasters after the fact, rather than being spent on reducing the risk of disasters happening
BUT
The case for disaster risk reduction
The PSI Global Resilience Project
Collaborative project led by IAG
19
Australian government investment
Disaster risk reduction
$50 million
Post-disaster relief & recovery
$560 million
The Australian Business Roundtable for Disaster Resilience & Safer Communities
Australian Productivity Commission recommendation
Disaster risk reduction
$200 million
Awarded certificate of distinction at 2015 UN Sasakawa Awards for Disaster Reduction
20
Disaster risk reduction measures Behavioural Structural Ecosystems
Cyclone Mangroves
Sand dunes
Seawalls
Flood Controlled barriers
Wetlands
Land-use planning
Earthquake Building codes
Retrofitting
Relocation
Multi-hazard measures (cyclone, flood, earthquake) Education & communication Risk mapping Early warning & evacuation
The PSI Global Resilience Project
First phase: Assessing the effectiveness of disaster risk reduction measures in the context of economic and social costs
21
The PSI Global Resilience Project
Second phase: Global Risk Map http://globalriskmap.nicta.com.au
22
The PSI Global Resilience Project
Phase 1 (2014) Global research on
disaster risk reduction measures
Phase 2 (2015) Publicly accessible
online global risk map
Phase 3 (2015-16) How-to resilience guide + Country engagements
Examples of country engagements: § Australian Business Roundtable
for Disaster Resilience & Safer Communities
§ Partners for Action Network on flood resilience in Canada
§ City Innovation Platform for African Infrastructure Risk & Resilience
§ Resilient New Zealand initiative
23
How-to resilience guide: To be published November 2015
§ Perceptions on climate risk, adaptation and resilience
§ Over 40 city/urban leaders
(e.g. mayors, chief resilience officers) in developed and developing countries
§ Over 1,100 small-to-
medium-sized enterprises in Europe, Asia and the Americas
AXA-PSI international climate resilience survey of cities & SMEs
24
AXA-PSI international climate resilience survey of cities & SMEs
25
AXA-PSI international climate resilience survey of cities & SMEs
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ESG criteria, surety bond underwriting and infrastructure projects
§ Collaboration by insurers writing surety bonds, led by Munich Re and the International Finance Corporation of the World Bank Group
§ Global survey supported by the International Credit Insurance & Surety Association (ICISA) and the Panamerican Surety Association (PASA)
§ Survey report and ESG guiding principles for surety bonds (2016)
§ Foundation to develop ESG guiding
principles for other lines of insurance business
27
The Chief Risk Officers Forum
Environmental, social and governance factors in country risk management
§ Insurance underwriting § Investment management § Reputation management § Sustainable development
28
Human rights and corporate insurance “Insurers, re-insurers and their brokers also have an opportunity to collaborate and jointly influence projects, companies or industry sectors to prevent and mitigate potential adverse human rights impacts. “The Principles for Sustainable Insurance provide a platform that can enable such collaboration.” - Chief Risk Officers Forum
A South African market collaboration
Priority environmental, social and governance risks and opportunities identified by the South African Insurance Association’s Strategic Risk Forum
29
A Brazilian market collaboration
30
Goal 1: 40% of insurers integrating ESG
issues into their risk underwriting policy
Goal 2: 30% of insurers have an ESG engagement programme
targeted at brokers
Goal 3:
50% of insurers integrating official
public policies from city, state & federal governments into
their corporate responsibility
policies
Goal 4: 50% of insurers
reporting on ESG issues
2015 environmental, social and governance (ESG) goals by the Brazilian insurance industry Through the work of Brazilian PSI signatory companies and the Brazilian Insurance Confederation (CNseg)
CNseg monitoring progress through surveys starting 2014
Insurers supporting UN global policy frameworks on sustainable development
“United for Disaster Resilience Statement” developed by the PSI
A global commitment by the insurance industry to help implement the Sendai Framework for Disaster Risk Reduction 2015-2030 § We believe that the insurance industry’s extensive experience and expertise in risk management–from
identifying, assessing, preventing and reducing risk, to pricing, carrying and diversifying risk–can contribute not only to developing risk transfer solutions, but also, and particularly, risk reduction strategies.
§ We believe that insights, data and tools from the insurance industry on disaster risk can help inform the debate on issues such as land use, building codes and standards, and zoning.
§ We believe that certain proactive risk reduction and risk transfer strategies identified by the insurance industry can help protect investments and economies, and create long-term value.
§ We believe that the insurance industry can play a key role, alongside governments, the broader business community and civil society, in raising awareness of disaster risk and in promoting disaster risk reduction, in addition to developing risk transfer solutions and making risk-sensitive investments.
§ We believe that the strong risk management processes, models, analytics and metrics developed by the insurance industry can serve as a model for understanding and reducing risk across a broad range of industries and public sector entities.
www.unepfi.org/psi/united-for-disaster-resilience
31
Insurers supporting UN global policy frameworks on sustainable development
32
“Insurance sector initiatives… including the UNEP FI Principles for Sustainable Insurance…are demonstrating leadership in researching, debating and promoting the role of insurers in sustainable development. “This includes an explicit recommendation to create a set of Insurance Development Goals, based on a pioneering global consultation by the PSI Initiative and the UNEP Inquiry on how insurance companies and insurance regulators could better support development through to 2030.” – UN Global Compact & KPMG Sustainable Development Goal (SDG) industry matrix for financial services
UN General Assembly
Sep 2015
Jun 2015 Sep 2015
Online PSI global platform for insurance industry commitments to build climate and disaster resilience and promote sustainable development
March (Sendai)
July (Addis Ababa)
September (New York)
December (Paris)
Sendai Framework for Disaster Risk
Risk Reduction
Addis Ababa Action Agenda
UN Sustainable Development
Goals
Universal climate change
agreement
Insurers supporting UN global policy frameworks on sustainable development
33
www.unepfi.org/psi/commitments
Global consultation on insurance policy and regulation and sustainable development
Consultation meeting held
2 Sep 2014, Mumbai, India
24 Sep 2014, California, US
4 Nov 2014, Toronto, Canada
5-7 Nov 2014, New York and Connecticut, US
11 Mar 2014, London, UK
16 Oct 2014, Geneva, Switzerland
2 Sep 2014, Beijing, China
11-12 May 2015, Rüschlikon, Switzerland
27 Feb 2015, Manila, Philippines
12 Aug 2014, Rio de Janeiro, Brazil
29 Oct 2014, Cape Town, South Africa
30 Oct 2014, Johannesburg, South Africa
27 Jun 2014, London, UK
Preparatory meeting
2014-15 project of the PSI and UNEP Inquiry into the Design of a Sustainable Financial System
Greening China’s Financial System Project
Final meeting
Insurance 2030 Roundtable
34
International Expert Network 国际专家⺴⽹网络
Greening China’s Financial System: Ground-breaking policy initiatives
35
§ Led by People’s Bank of China, Development Research Center of the State Council of China, UNEP Inquiry, and International Institute for Sustainable Development (IISD)
§ PSI Secretariat insurance lead of international group of sustainable finance experts
Apr 2015 Sep 2015
UNEP-Swiss Re Roundtable 11-12 May 2015, Swiss Re Centre for Global Dialogue, Switzerland
§ Mobilising insurance industry commitments § Creating effective insurance partnerships § Designing enabling insurance policy & regulatory
frameworks
Insurance 2030: Policies & partnerships for sustainable development
36 www.unepfi.org/psi/insurance-2030-roundtable
Insurance 2030 report of the PSI & UNEP Inquiry Key actions to harness insurance for sustainable development
Cross-cutting Risk Access Investment
Corporate actions
Principles-driven commitments (Brazilian market PSI targets)
Sharing data and information (Finance Norway)
Product innovations (Index insurance)
Portfolio analysis & disclosure (Montreal Carbon Pledge)
Sustainability risk management frameworks
Direct risk resilience support (Swiss Re)
Distribution & deployment (Mobile technology)
Investment frameworks & funding commitments (AXA)
Multi-stakeholder actions
Policy-oriented partnerships (Australian Business Roundtable, Partners for Action)
Partnerships for risk assessment: Sharing capabilities & knowledge (1-in-100 initiative)
Partnerships for access: Engagement, capacity building & implementation (A2ii, IIF, GIIF)
Partnerships to develop project pipelines (G20 GreenInvest)
Policy & regulatory actions
Regional insurance facilities & partnerships (African Risk Capacity)
Mandatory coverage approaches (China)
Policy-directed market provision (India)
Solvency regulations, capital requirements & tax incentives (EU)
Insurance development roadmaps
Mandatory risk assessment & disclosure (US, UK)
Support for market development (Philippines)
Frameworks for risk reduction
Public finance for access (G7 climate insurance) 37
Insurance 2030 report of the PSI and UNEP Inquiry
Convene an Insurance Network on Sustainable Development to improve dialogue, stimulate innovation, and enhance coherence
Establish a Sustainable Insurance Policy Forum to scale up policy progress through enhanced collaboration
Agree on a set of Insurance Development Goals to focus long-term efforts beyond 2015
§ Significant progress already underway on many sustainable development challenges
§ Emerging industry,
regulatory and policy efforts need to be integrated and scaled up
§ Increasing coherence
between existing initiatives could maximise impact
§ Sustained efforts will be
required to carry forward momentum
3 proposed measures for scaling up action
38
§ Climate Disclosure Task Force § Carbon price “corridor” § Environmental stress testing The impact of climate change on the UK insurance sector § Physical risks § Liability risks § Transition risks Insurer leadership via the PSI recognised by the Bank of England
“Climate change is the tragedy of the horizon.”
– Mark Carney, Governor of the Bank of England & Chairman of the Financial Stability Board
“More widely, insurers had clear views on their role in driving a wider societal response to climate change. They believed that it was their responsibility to show leadership on the issue. This is taking a variety of forms, including participation in industry initiatives, such as…becoming a signatory to the Principles for Sustainable Insurance…”
– Prudential Regulation Authority of the Bank of England
Sep 2015
Report suggests a “network for insurance regulators and associations interested in sustainable insurance policies, guidelines and practices” may be worthy of further consideration
39
§ UN Secretary-General to give a decisive push on resilience at 2015 UN Climate Change Conference (COP21)
§ UN system-backed, multi-stakeholder global platform to catalyse action and address gaps by bringing different actors together
§ Specific 2020 outcomes
§ Commitments from governments, UN agencies, private sector (including insurance industry), and civil society 40
A2R: The coming UN global climate resilience initiative
1
The thousands of companies that have embraced the United Nations Global Compact and the Principles for Responsible Investment demonstrate the growing influence of
sustainability in business. The launch of the Principles for Sustainable Insurance at the UN Conference on Sustainable Development (Rio+20) is a further evolution of this important movement to build a green economy. Developed by the UN Environment Programme’s Finance Initiative, the Principles are a framework for the global insurance industry to address environmental, social and governance risks and opportunities.
For years, insurers have been at the forefront of the corporate world in alerting society to the risks of climate change and, more recently, threats such as the loss of biological diversity and the growing pressures on forests, freshwater and other essential ecosystems. Insurers
are also increasingly recognizing the need to develop products and services that address the needs of a rapidly changing world, including inclusive insurance that caters to low-income communities, people with HIV/AIDS or disabilities, and ageing populations.
Insurers have worked with the UN World Food Programme to cover small-scale farmers in Africa so that, should the rains fail, a policy pays out before they are down to their last cow or supply of maize. The UN Environment Programme, with funding from the Global Environment Facility, has partnered with insurers to develop wind power derivatives in Mexico that cover a wind farm during less windy periods. And the success of initiatives such as the UN-REDD programme on reducing emissions from deforestation and forest degradation may hinge on whether insurers can cover the long-term challenge of keeping forests intact.
The Principles for Sustainable Insurance provide a global roadmap to develop and expand the innovative risk management and insurance solutions that we need to promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities.
With world premium volume of more than $4 trillion and global assets under management of more than $24 trillion, insurers that embed sustainability in their business operations can catalyze the kinds of financial and investment flows and long-term perspectives needed for sustainable development.
The United Nations looks forward to working with all sectors of society towards the global embrace of this important new initiative as we shape the future we want.
Ban Ki-moonSecretary-General of the United Nations
I. Message from the UN Secretary-General
A2R: Three pillars of action
Absorb
Anticipate
Climate resilience
Reshape
Reshaping development pathways: Strengthened adaptive capacities; climate risks integrated into decision-making; resilient physical and natural infrastructure
Absorbing shocks: Social protection and insurance coverage (individual, sub-national and national)
Anticipating climate-related hazards: Early warning and early action systems
41
42
The UN Sustainable Development Goals (2015-2030)
As risk managers
§ Research on health, disaster risk reduction and climate change adaptation and mitigation § Catastrophe risk analysis and models that integrate natural ecosystems, climate change and socio-economic
vulnerability factors § Risk management processes and insurance underwriting guidelines that promote better health, disaster risk reduction
and climate change adaptation and mitigation § Literacy programmes on health, climate and disaster risks and insurance § Programmes that improve disaster awareness and preparedness in communities § Risk management tools for clients and suppliers to reduce climate and disaster risk As risk carriers § Insurance for low-income people, people with disabilities, people with HIV/AIDS, ageing populations § Insurance for climate risks and natural hazards § Insurance for renewables, green buildings, zero and low-emission transportation, energy efficiency, green rebuilding § Insurance based on usage (e.g. pay-as-you-drive, pay-how-you-drive) § Insurance for sustainable agriculture and forestry § Insurance for environmental pollution liabilities
As institutional investors § Investment in inclusive finance, healthcare § Investment in climate and disaster-resilient infrastructure § Investment in sustainable agriculture and forestry § Investment in renewables, green buildings, zero and low-emission transportation § Investment in sustainable water management, sustainable waste management
43
Examples of insurance industry solutions that promote sustainable development
Global launch of the Principles for Sustainable Insurance (Rio de Janeiro, 2012)
The vision of the PSI Initiative: “A risk aware world, where the insurance industry is trusted and plays its full role in enabling a healthy, safe, resilient and sustainable society.”
44
45
Insurance for sustainable development www.unepfi.org/psi
