Financial institutions are becoming increasingly interested in climate change

Climate change is already having an impact on financial institutions, producing an exponential growth in investment into new energy technologies, but will also result in insurance customers paying out more for weather related policies, say delegates at a side event at the climate change talks in Bonn.

According to Thomas Loster of insurers Munich Re, since the 1980s there has been an increase in financial losses due to natural disasters each year. However, it is important to note that increases are not necessarily due to the climate, he said. In some areas, for example Florida, there has been an increase in population and wealth, and a corresponding increase in high value property such as yachts and theme parks such as Disney World, so that each natural disaster creates more damage. Nevertheless, global warming is causing greater precipitation, which increases phenomenon such as landslides, hurricanes and flooding.

“This change in patterns – and this change in rain patterns especially – this is a factor which will concern us in the future because if we are having rain in areas where we do not have it today, the people and the systems are not at all prepared,” said Loster.

The losers in this scenario will be people in developing countries, those paying higher premiums, and consequently the politicians who will be held accountable. Insurance companies will also force their customers to pay a significant part of any claim, said Loster. However, this could be beneficial, as it will result in the customers themselves taking greater care of their property, he said.

Loster finished by pointing out that if a major hurricane was to go across Florida and go up the East Coast to New York it will cause $100 billion worth of damages. In 1992, Hurricane Andrew cost $20 billion to insurers alone, even though it missed both Miami Beach and New Orleans. Had it hit further north, we would be seeing the first steps in climate change measures from the US Government, said Loster.

At the end of last year, a major insurance company pointed out that the industry could use its power to push for more action against climate change, for example, by forcing oil companies to behave in a more sustainable manner (see related story).

However, whilst the US Government sleeps, venture capitalists are indicating that energy could become the next big theme in the capital markets, says Ivo Knoepfel, of Sustainable Asset Management, the organisation which, in conjunction with Dow in the US, has produced the first global stock market index that screens company’s greenhouse gas emissions and records their contribution to protecting the climate.

On the markets, there have been two trends in recent years, said Knoepfel. Firstly, there has been an exponential growth is socially responsible investments, and secondly this has been accompanied by an exponential growth in investment in renewable and new energy technology investment. Of the largest 100 banks and insurance companies, one third of them now publish an environmental report, compared to eight years ago when none did. Of these, 48% are now measuring and managing environmental performance, and over two thirds are offering environmental or climate change financial packages.

“There’s a lot of excitement at the moment in the investment world about energy and renewable energy, and the new energy market, but I believe that this market can only pick up and develop properly if the clear political framework – an international framework – that supports this development,” said Knoepfel.

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