It shouldn’t be fear, but rather the pursuit of significant opportunity that business and industry leaders should be focused on when approaching and addressing climate change, say experts gathered at a recent Geneva Association virtual conference bringing together CEOs and senior officials from government, the United Nations, and the insurance, finance and engineering sectors.
Panelists in the presentation, Future-Proofing Technological Innovations for a Resilient Net-Zero Economy, examined this opportunity in some depth for the benefit of those gathered, but also discussed what’s needed for companies and investors to gravitate to the agenda, and gave a number of suggestions for those interesting in navigating the challenges climate change has imposed.
“This may be the greatest economic transformation in history, one with enormous potential for growth,” says Patricia Espinosa, executive secretary of the United Nations Framework Convention on Climate Change. “I truly believe that those who are willing to drive this transformation are at the forefront of one of the most significant economic revolutions in history. But, unlike previous economic revolutions, it will not happen solely as a result of market forces. It will require deliberate, directed effort to leave behind industries and activities that have proved harmful to our environment and are threatening our very lives.”
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Leonardo Martinez-Diaz, senior director of climate finance for John Kerry, the U.S. special presidential envoy for climate, adds that “action doesn’t only have to be driven by fear of what happens if we don’t act, it should also be driven by the opportunity that this transition represents. It is really the largest economic opportunity since the Industrial Revolution.”
It’s a tall order, but the experts gathered say there is a need for an overhaul of global finance. “It wasn’t built with sustainability in mind,” says Mark Versey, CEO of Aviva Investors.
John Colas, partner and vice chairman, financial services Americas, at management consulting firm, Oliver Wyman, meanwhile, says there are definitely financing opportunities for those interested in working on industrial decarbonization, “but the financing system as it exists today will not deliver. We really view this as an issue of market failure. This will not be resolved by the actions of individual stakeholders alone,” he says. “There is a desperate need for a mechanism that really engages the universe of stakeholders to co-design and coordinate climate action,” he adds. “To mobilize the trillions needed for the net zero transition, we need to cultivate a multistakeholder transition finance ecosystem. Mechanisms allowing collective action are ultimately the need of the hour.”
Across the board, the experts say partnerships between the public and private sectors are going to be critical and will require all involved to avoid passing the responsibility off to the other side. “Both have to act,” says Anthony Hobley, executive director of the Mission Possible Partnership. “The best way for them to act is to work together in collaboration.”
Conference delegates also called on government stakeholders to set clear priorities and have a vision that others can rally around.
“The climate emergency, the laws of nature, growing inequality, they are now all on the desks of CEOs and the boards of companies. We therefore need to have a very clear, long-term vision,” says Peter Bakker, president of the World Business Council for Sustainable Development (WBCDS). “At WBCDS We’ve created one in which we’ve said there are nine billion plus people living well within planetary boundaries by mid-century. That’s a relatively simply worded vision. If you think a bit about it (though), it requires a wholesale transformation of everything we know – energy needs to decarbonize, materials need to go circular, food needs to be produced sustainably and equitably, and provide healthy diets to all the people on the planet. Even though that’s an ambitious vision, it is within reach.”
At the same time, Denise Bower OBE, Executive Director with global engineering firm, Mott MacDonald, points out that a change of mindset will also be needed on the part of governments and companies. “We’ve got less than 30 years to prepare and deliver. If you just think about the lifecycle of an infrastructure project, that’s not very long at all. This (creates) multiple strategic challenges to the private sector, and especially for governments. In mature economies, governments will need to place multiple and potentially costly bets on different technological approaches, knowing that not all will succeed. The private sector needs to embrace a way of working that’s subject to policy pivots as government adapt to a fail fast approach to decision making.”
Navigating the change
The panelists also recognize that insurance companies could have some challenges convincing investment boards to rally to the cause of technological development in a space without a lot of history.
“I know, quite often, when you’re dealing with new technologies, new approaches, investment committees that are deploying large amounts of capital (can) get very nervous,” says Hobley. “If they haven’t got years of statistics and data around technologies and other approaches, there’s a lot of perceived risk. I think here there’s a huge opportunity for the insurance industry to develop forward-looking products.”
In investing too, Versey says companies are already engaged with top carbon emitters, telling them that absent an effort to meet science-based targets, they will be divested from company holdings. “We’re getting a really good response from quite a majority of those top emitters,” he says. “If underwriting follows that too, we will be able to exert pressure across multiple fronts,” he adds.
“We want to finance the transition and we want to underwrite the transition. That’s our role here.”
This report was first published in the December 2021 issue of the Insurance Journal