COP27 recap: implementation opportunities and focus on emerging markets

After COP27, insurance investors should note the private-public sector cooperation required to achieve net zero and the shifting focus to emerging markets.

Maya Sibulposted on Wednesday, November 23, 2022

@Pixabay. Insurance investors look to private-public partnerships with new eyes.

The 27th United Nations Climate Change Conference (COP27) took place over the past two weeks, focusing on the decades-long conversation on how to address the most severe impacts of climate change. Developments from insurers at the conference highlighted the ways public-private engagement is key to securing a net zero future.

The conference, this year in Sharm El Sheikh, Egypt, focused on communities, ecosystems, and economies in vulnerable countries and emerging markets, making important progress. 

A 12-page agreement was signed on 20 November by almost 200 countries detailing plans to create a climate damages fund to compensate countries most vulnerable to and damaged by climate change. Major goals achieved in this document included the establishment of a transitional committee — comprised of representatives from 24 countries — to plan logistics and funding.

The results of this committee will present their plans at COP28 in the UAE in 2023. The compensation fund is set to begin distributing capital shortly after. Insurance investors should take note of this concrete action, and the shifting focus toward the wellbeing of emerging markets.

Stalled plans on the net zero front

While a controversial compensation agreement was reached after much wrangling, the conference also saw continued stalling on the carbon emissions front, with significant implications for insurers and investors. 

The  1.5 °C temperature target set out in the Paris Agreement — to which countries recommitted at COP26 last year in Glasgow — remains precarious. There was little to no consensus on concrete plans to mitigate further temperature changes and keep this target well in sight — a failure not just of regulators and policymakers, but also of the investment community more broadly. All of which could affect insurance investors’ ESG targets, investment goals, and reporting needs moving forward.

COP27 was characterised as an ‘implementation COP’, and many saw the conference as a platform through which to generate material action.

At the conference’s start, COP27 was characterised as an ‘implementation COP’, mainly because there has been little tangible progress since COP26, and many in the investment industry saw COP27 as a necessary platform through which to generate material action.

With markets tending to take a short-term view on the topic – inflation, political upheaval, the war in Ukraine, and the cost-of-living crisis often seem to be more immediate issues – climate change has been pushed off or swept under the rug; it receives less actionable change despite the constant chatter. 

The importance of the insurance investment community

As policymakers dragged their feet – and as climate change begins to garner more concrete actions from the private sector – it became evident that the insurance community has an opportunity to bake sustainability into investment choices and reporting goals.

Veronica Scotti, Chairperson for Public Sector Solutions at the giant reinsurer Swiss Re, emphasised the need for re/insurers to fund transformative climate adaptation projects, which are critical in terms of improving resilience and driving change.

Scotti stressed that when it comes to carbon emissions, mitigation efforts are not enough.

Scotti stressed that when it comes to carbon emissions, mitigation efforts are not enough. Key adaptation projects supported by Swiss Re included those preventing coastal erosion, bolstering ports against wind and waves, and protecting vulnerable cities from floods and heatwaves.

It is becoming clear that governments and the public sector will be unable to undertake these initiatives alone, which means that the support of private firms and investors is paramount. The re/insurance industry has an integral role to play, especially when it comes to unlocking access to necessary capital.

“We need solutions that the private sector can implement, and promoting renewable energy and carbon zero energy is critical. Energy efficiency in buildings could pay for itself.”

Professor Jim Skea, Chair of Sustainable Energy at Imperial College London, was blunt on the matter and the clear risk if insurance investors do not take note. “We need financing and political will to move forward. We need solutions that the private sector can implement, and promoting renewable energy and carbon zero energy is absolutely critical. Energy efficiency in buildings could essentially pay for itself,” he said at The Geneva Association’s 2022 Climate Change & Environment Conference earlier this month.

Stepping up to the plate

When it comes to the shifting focus toward emerging markets, some industry players are stepping up to the plate.

This past April, Flood Re – the UK’s levy and pool system that covers flood insurance for domestic properties at risk of flooding – announced their Build Back Better scheme, a joint initiative between the UK government and insurance industry set to reduce the impact of future flooding for households.

The scheme now has about 60% support from the UK’s residential property insurance market, and promotes affordable flood insurance, enabling reimbursements of up to £10,000. Participants include: Ageas, Aviva, NFU Mutual, Lloyds Banking Group (Bank of Scotland, Halifax, and Lloyds Banks home insurance products), and LV= General Insurance.

This initiative is gaining traction amongst insurance investors, as many look to public-private partnerships with new eyes.

He added that it was important now for insurers to turn their “ambitions into actions”.

At COP27, CEO of Flood Re, Andy Bord, announced that three more insurers have joined their scheme including: Covea, Hiscox, and RSA. He added that it was important now for insurers, large and small, to turn their “ambitions into actions”.

For insurance investors, this might also mean that remaining invested in high carbon emitters – specifically in emerging markets – is necessary, at least for the short-term. Globally, most companies do not yet have clear plans on how they will achieve the net zero goal by 2050.

 

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