As climate change and the associated increase in natural catastrophe events alters the contemporary risk landscape, there is now an opportunity for companies to partner with the (re)insurance market and put its expertise to work.
Today, there is rising concern about the current climate threat among the public, some governments and the investment community, according to Oliver Wyman colleagues Thomas Fritz, Partner, Utilities, Joerg Staeglich, Partner, Utilities and Markus Knopf, Principal. Oliver Wyman is an affiliate of Guy Carpenter.
In January, Black Rock CEO Larry Fink told chief executives his firm would make investments with environmental sustainability as a core goal and would exit investments in companies that “present a high sustainability-related risk.”
Just recently, France told some companies they would have to cut emissions as a condition for receiving COVID-19 financial aid and said it would support sales of low-emission cars like electric vehicles (EVs) with the bailout money. Other European countries — and maybe even the European Union — are expected to follow. Even in the United States, probably among the economies dragging its feet most on climate change, the Congress has been considering similar conditions for financial aid. In 2019, the European Union began discussing more ambitious goals for emissions reduction as part of its Green Deal: By 2030, emissions would have to be cut by 50 to 55 percent from 1990 levels instead of the 40 percent discussed in the Paris Climate Agreement.
Stricter regulation and the mounting public demand for more aggressive cuts in carbon-dioxide emissions are creating an existential risk for companies that are not proactively moving to reduce their carbon footprint. This cannot be addressed by slapping on some solar panels, planting trees, or buying carbon offsets alone. It will require making investment decisions with multimillion-dollar and even multibillion-dollar implications, despite huge uncertainty about where future regulation and technological innovation will take the industry and global economy.
What this should tell companies is that we’ve reached a tipping point and failure to address emissions and pursue carbon-neutral strategies endangers your business. Immediately, the risk is from increasingly stringent but regionally different regulation that may put companies at a competitive disadvantage. Ultimately, the risk will be suffering the consequences of rising temperatures, including flooding, severe storms, droughts and wildfires. Companies need to put the issue at the top of the agenda.
Guy Carpenter is well-placed to advise clients on responding to climate change risk. We have multiple experts in atmospheric and climate science across the globe that have been actively researching and consolidating the scientific literature. Our solutions can help clients make informed decisions about pricing, capital and risk management strategies.