Oct 28, 2014 - 11:48am
News that UK financial authorities have queried large insurers on their climate risk underscores the urgency with which the financial sector must assess its exposure to damage from climate change, said The Climate Institute.
“The Bank of England’s request to dozens of large insurance companies enquiring about when climate change would begin to affect ’the viability of your business model’ is a hugely significant development,” said Erwin Jackson, Deputy CEO of The Climate Institute, in response to a report in the Financial Times overnight.
“What we are seeing is the mainstreaming of the realities of the carbon bubble and carbon risk.”
“We have long said that climate change poses a significant economic risk, and insurers are the front line on long-term assets, whether they are large infrastructure or homes.”
In June, The Climate Institute released a report that found that climate change and extreme weather events could double the price of home insurance premiums and erode home property values in some areas by 20 per cent or more within the term of a mortgage.
Commissioned in partnership with consumer group CHOICE, the report also found that in high-risk areas, some home insurance policies are already unaffordable and there are insurers who won’t even offer policies at all.
“Climate change and extreme weather impacts add to our cost of living,” Jackson said. “We have long said that listed companies and institutional investors should be transparent and disclosure the emissions profile of their assets and/or portfolios and be upfront about their exposure to the physical, regulatory and other climate-related risks.”
Insurers can be exposed to the effects of climate change through both higher payouts and through their own investments in vulnerable physical assets, and those at risk of becoming “stranded” as stricter regulations seek to mitigate climate change.
Through its sister organisation the Asset Owners Disclosure Project, The Climate Institute has been working for seven years to encourage the world’s largest asset owners – including several dozen insurers – to acknowledge and disclose the carbon risk of their investments.
Pension funds make up the majority of asset owners ranked, as they are a significant proportion of the world’s largest asset owners. Australia’s pensions market is the fourth largest in the world.
“Climate change is long-term and high-risk: it impacts on everything that is near and dear to us, from our homes to our retirement savings,” Jackson said.
“The reality is that many assets are vulnerable to the effects of climate change. So we welcome the Bank of England’s move to get insurers to disclose whether and how they have assessed this risk. This will hopefully get many more everyday people thinking about how their long-term financial security is impacted by climate change and by investment decisions that don’t account for climate risk.”
Just two weeks ago, the Bank of England’s governor Mark Carney said at a World Bank event that the vast majority of oil reserves should be considered “unburnable” if the world wants to avoid dangerous climate change.
For more information
Kristina Stefanova, Communications Director, The Climate Institute, 02 8239 6299