A recent study is recommending that insurance firms should do what they can in order to avoid any “stranded assets” - assets that are subject to an unforeseen write-down or devaluation.
The report, carried out by Lloyd’s and the University of Oxford Smith School of Enterprise and the Environment, studied the impact of climate change-related regulation and taxation policies and how such things have led to the creation of stranded assets.
Lloyd’s study, entitled “Stranded assets: The transition to a low-carbon economy”, ultimately recommends that firms must put their portfolios through a stress test in order to have a better picture of any potential exposure to stranded assets. Alternatively, firms should consider the environmental characteristics of investments in their portfolio while being an active participant in the development of environmental legislation and regulation.
“As governments across the globe put in place frameworks to address the causes of climate change, insurers and reinsurers need to ensure they are not caught out on the wrong side of the debate,” Lloyd’s head of innovation Trevor Maynard said.
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“This study illustrates the importance of considering how climate change could impact the value of your assets, but more than that, it encourages the insurance industry to play a pro-active role in the development of policies and regulation with the knowledge and expertise that exists in this field.”
“Insurers and reinsurers price environment-related risks in their insurance policies but don’t always apply these same principles to their investments,” commented University of Oxford Smith School sustainable finance programme director Ben Caldecott. “Doing so would help avoid stranded assets and ensure investments are appropriately protected in order to meet liabilities.”
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