Over the last few weeks, we have seen two sharply contradictory stories on risk management and climate change. In response to accusations from Republican politicians in the US that the UN’s Net Zero Alliance is anti-competitive, a growing number of insurance firms have pulled out of the initiative. At the same time, an industry expert in the UK recently warned insurance executives that they could be held individually liable if their firm fails to live up to promises about environmental, social and governance issues.
It seems that insurers are being squeezed between two conflicting demands, one which criminalises an over-zealous approach to climate change, while another adds teeth to demands for climate change to be taken more seriously.
How are insurers supposed to negotiate these risks?
The first lesson is that there are no easy answers – there is no absolute good and bad in the practice of sustainability, and often the right thing to do is to embrace complexity and ambiguity and play a part in managing complex changes – ensuring the right governance and plans are in place to create an orderly transition, not only in insurance firms, but in the companies they underwrite and invest in.
More black-and-white approaches like screening out entire sectors or seizing on one technology as a panacea for the environment will ultimately reveal a lack of rigour, and a lack of willingness to track and understand the issues as they develop.
There is no easy way out of the demands that face insurers on climate change, but there is a way to meet the challenges. By tracking the route through to net zero, and factoring equally important issues such as political and social stability and biodiversity, insurers can develop a new dimension of professionalism that will enable them to manage regulatory risks and emerge from the climate change debate with a stronger reputation for ethical practice.