Turning climate vulnerability into agency

RE/INSURERS have gained momentum since the United Nations' climate talks in Brazil with four main deliverables this year, Butch Bacani, head of insurance at the UN Environment Programme (UNEP) said this week.

Bacani was speaking at the UNEP Transition Insurance Series on June 22, an event held during London Climate Action Week and hosted by King’s Business School in London.

Bacani had travelled to the conference from Berlin, where he had attended the Berlin Climate Mobility Forum, a landmark international diplomatic gathering to address the impacts of climate change on human migration, livelihoods and displacement. The message he took from this, Bacani said, is “the right to migrate or the right to stay, with dignity”.

“My conclusion from that event on the global climate mobility principles is also my conclusion for the event today, and I think what will happen for London Climate Action Week, which is that the antidote to vulnerability is agency,” Bacani said. “Agency is the ability of individuals, communities, systems and organisations to be able to make meaningful choices, take deliberate action and shape outcomes in the face of the climate and nature crisis that is facing us.”

Re/insurers have shown this “agency” through UNEP’s four milestones this year, Bacani said. 

COP30 hosted the first ever House of Insurance that placed insurance at the centre of discussions, which began with a communiqué on insuring the transition. This led to the assembly of a global community of insurers, alongside technical partners, who are undertaking a flagship global adaptation and resilience project that focuses on the “vulnerability of assets and projects on the ground”. This will produce a white paper by COP31, which is being hosted by Turkey in November, Bacani said.

The second milestone is the first ever landscape study of climate financial services for micro, small and medium enterprises in developing countries, which UNEP will publish on July 8. “This is not another pilot about premium subsidy from donor governments. It’s about embedding risk management and resilience and insurance in the MSME credit ecosystem,” Bacani said.

The third is an underwriting toolkit produced by the UNEP Finance Initiative’s Principles for Sustainable Insurance Working Group for Nature — the Climate-Nature Nexus Atlas. This aims to address the “negative feedback loop” that rising carbon emissions have on climate change and nature, Bacani said.

Finally, UNEP’s Forum for Insurance Transition (FIT) has published the fourth in a series of global guidance, which explains how re/insurers can turn the “total balance sheet” transition plan principles unveiled at COP30 into practice. “This is the Excalibur of the insurance industry,” Bacani said, “in terms of what you can do to support a resilient and a stable transition: not simply underwriting, not simply investing, but by taking the whole balance sheet into account.”

Management consultancy Baringa assisted with that guidance and the firm’s ESG and sustainability lead, Emily Farrimond, stressed that the balance sheet principles did not require perfect alignment of the underwriting and investment sides of a business. Instead, re/insurers should identify where they have “divergence”.

“You need to decide for your organisation what divergence is acceptable. So set yourself some guardrails for what’s okay and what’s not,” she said, adding that the aim is to create a transition plan that has “cognitive consonance”.

Insuring the transition
Bacani then moderated a panel discussion on how to insure the transition to net zero with Leah Ramoutar, director of environmental sustainability at Aviva, Peter Tufano, Baker Foundation professor at Harvard Business School, Fiona Watson, vice president of the World Business Council for Sustainable Development (WBCSD), and Danielle Imperato, group head of sustainable innovation and stakeholder engagement at Generali.

Aviva published the second iteration of its transition plan — Becoming a Net Zero company by 2040 — in February 2025. The motivation for this target, Ramoutar said, is understanding that re/insurance is “one part of an ecosystem”.

She explained: “We have a certain amount of control and influence within our own remit, but there’s a huge role for collaboration and engagement. We cannot do this in isolation, so there’s an opportunity here, not just to think about our own resilience and our own long-term value, but how we work with all stakeholders to deliver an economy-wide transition.”

Asked how Aviva had achieved co-operation across all of its business units, Ramoutar said “buy-in” from Aviva’s leadership — chief executive Amanda Blanc, its board of directors and its board sustainability committee — meant it was like “pushing on an open door”.

The total balance sheet approach to climate and nature is a challenge for re/insurers, given their “misaligned incentives and misaligned time horizons, with an annual P&L”, Imperato said. “It’s great to have top leadership support, and we have that as well, but how do we get our agents to be coordinated in the way they communicate and prioritise products and services, especially in a world where we are moving towards an insurance model that is much more holistic, so we’re not just writing policies and underwriting risk?”

Generali’s answer is its Lifetime Partner 27 strategy: “This means being there, not just as someone who carries risks and helps pay after an event has happened, but by looking at resilience far ahead,” Imperato said.

Watson said the probability that environmental risks are going to cause “material upheaval and value destruction” demands new ways of working, with insurance as the risk transfer industry “writ large” having a leading role in partnering with the real economy. The problem, she added, is “information asymmetry”, meaning re/insurers are using scientific projections out to 2100, while the corporate world does not have their expertise, and are making capital investments on the assumption that underwriting coverage is going to be available for any given project for the next 10 years, for example.

There also needs to be a change of mindset by all stakeholders, Watson added, from “managing a loss” to embedding resilience into the real economy. In that vein, WBCSD recently partnered with the Federation of European Risk Management Associations in a pan-European initiative, Open Sesame, which aims to be the first market-ready resilience finance framework to preserve the long-term insurability of climate-exposed risks and support the sustainability of insurance markets.

“In my more visionary moments I say, why on earth can’t resilience be recognised as some kind of intangible asset to help with value creation,” she said.

WBCSD is also working with “valuation experts” globally, on how loss experience can inform a better indication of future losses. Its other initiatives include the Climate Resilience Awards for Business, which it launched last year with the Global Resilience Partnership, to spotlight business leadership and innovation in climate adaptation and resilience.

Tufano appealed for a uniform approach to climate resilience. He conducted a study last year of more than 400 financial institutions, some of which joined one of 11 climate alliances. In his paper — An Empirical Examination of Business Climate Alliances: Effective and/or Harmful? — he tried to understand the implications of alliance membership for firm practices and behaviours.

“It may be helpful to think of alliance as akin to groups like Weight Watchers and Alcoholics Anonymous. The idea that you’re not alone in this process probably is useful,” he wrote. “But much like members of these self-help groups, the choices that firms make in the privacy of their own organisations is an individual one.”