How insurers will help shape NZ's climate change response

How insurers will help shape NZ's climate change response | Insurance Business New Zealand

How insurers will help shape NZ's climate change response

Aotearoa has set a target of reducing its net greenhouse emissions by 50% by 2030, and the insurance industry will be watching its efforts closely as it prepares for its own responsibilities in climate-related signalling and disclosure.

Prime Minister Jacinda Ardern and Climate Change Minister James Shaw announced the new emissions goal a day before the 2021 United Nations Climate Change Conference (COP26) began in Glasgow. New Zealand had initially pledged to cut its emissions by 39% by 2030, but Shaw said that at least a 48% reduction on current levels was needed to “stand a chance of limiting global warming to 1.5C.”

“The science shows we now have about eight years left to almost halve global greenhouse gas emissions,” Shaw said. “That’s eight years for countries to make the necessary plans, put in place policies, implement them, and ultimately deliver the cut.”

New Zealand has been delivering a raft of policies aimed at limiting the impacts of climate change over the past several years. The Zero Carbon Act passed in late 2019 and set a target to reduce all greenhouse gasses to net zero by 2050, and more recently, the government introduced mandatory climate-related disclosure rules for large insurers, banks, non-bank deposit takers and investment managers - companies it said hold a “higher level of public responsibility.”

Read more: New Zealand passes mandatory climate change reporting law

The insurance sector has widely recognised its key role in mitigating the impacts of climate change, and in delivering price signals to influence investor and customer decisions. Commenting on the role of climate change in its business plan, Suncorp CEO Jimmy Higgins said that Suncorp takes a long-term view of its role in mitigating climate risks, and has active policies in place to manage its business and investment decisions.

“Based on our claims figures, we can see that frequency of natural hazards is increasing, and the severity of them is also increasing,” Higgins said. “For us, we have to think about this issue not just in the context of ongoing insurance cover and risk and price selection, but also about what it means more broadly in terms of climate risk, climate change and how we think about that.”

“We typically take a three year outlook in our business plan, and we have policies around responsible investment, banking and insurance,” he explained. “We are looking at the kinds of industries that we want to support, and who are equally making plans to be carbon neutral by 2050. We’re on a programme at a group level to support this, and New Zealand is certainly part of that.

“On the topic of disclosure, Suncorp Group does already report climate-related financial disclosures, and this currently includes Suncorp New Zealand data. We have also started to undertake a number of climate risk scenario assessments, and the results of these will help inform any future climate-related financial disclosures.”

Read more: Climate change risk to have huge impact on energy sector - Willis Towers Watson

IAG sustainability and climate change spokesperson Bryce Davies also acknowledged the potential costs of failing to address climate change, and said that climate risk reporting was a vital step in preparing for its “inevitable impact.”

“It is vital that all of us reduce the impact we have on the climate, but also that we all prepare for the inevitable impact that our changing climate will have on us,” Davies said. “Taking account of climate risks is a key element in enabling and incentivising the transition of individual businesses, markets and the economy to a low carbon and resilient future.

“This reporting regime is also an important step towards a more sustainable financial system and one that supports the long-term wellbeing of society, the environment and the real economy.”

The Insurance Council of New Zealand (ICNZ) chief executive Tim Grafton highlighted that insurers are uniquely affected by the impact of climate change, and said that monitoring exposures on an ongoing basis will be vital if they don’t want to “operate blind.”

“It’s important that insurers are able to identify and report their physical exposures to climate change thought the properties that they underwrite, for example, which may be impacted by more extreme weather events brought on by climate change,” Grafton said.

“The exposure may also be in the investments that they, and others in the financial sector, have that may also be more exposed to climate risks. Reporting on those two areas is quite critical, along with any other areas that may arise as we transition to a low carbon future.”