As an European CEO of a global company long committed to combating climate change, I have always been convinced the United States has a decisive part to play in meeting the ambitious objectives of the Paris climate agreement. The emissions pledges at the recent White House "Climate Summit of World Leaders" by President Biden and many other world leaders illustrate that these goals are now shared on both sides of the Atlantic, ahead of the key COP 26 climate negotiations in Glasgow, Scotland this November.
Just last month, the Biden Administration issued a ground-breaking executive order to protect against risks climate change may pose to the U.S. and global financial sector. The order requires Treasury Secretary Janet Yellen, as chair of the Financial Stability Oversight Committee (FSOC), to assess “the necessity of any actions to enhance climate-related disclosures” by financial institutions to “mitigate climate-related financial risk to the financial system or assets.”
It also requires a report to the president within 180 days on any efforts by U.S. regulators and agencies “to integrate consideration of climate-related financial risk in their policies.” Understanding risks from climate change to financial sector stability is important and necessary. But insurers in particular must also play important roles, both as large investors, and in helping society to manage risk.
The insurance industry, as financial investors, should shift investments towards a more sustainable economy. For example, AXA, the global insurance company I lead, developed a climate change strategy to achieve investment climate neutrality by 2050, more than doubled its green investment goal to €25 billion by 2023, and planned our total exit from the coal industry through investment and underwriting restrictions. Convinced that convergence around climate-related reporting standards and science-based targets is key, we will publish the 6th edition of our Climate Report, which provides our stakeholders with details of our climate efforts, and the alignment of our investment portfolio with the recommended 1.5°C temperature goal of the Paris Agreement.
But as we enter what is increasingly seen as the “decisive decade” to fight climate change, individual corporate actions are not enough; the entire industry must change investment patterns and share risk management lessons.
AXA is part of the “Glasgow Financial Alliance for Net Zero.” It brings together over 160 firms — together responsible for more than $70 trillion in investments from leading initiatives across the financial system — to accelerate the transition to net zero emissions by 2050 at the latest. Yet in our unique role as insurers, we know a lot still needs to be done. We believe insurers can integrate carbon neutrality objectives into their core insurance underwriting activities.
Late last year, on the 5th anniversary of the Paris agreement, we called for the creation of an UN-convened “Net-Zero Insurance Alliance” to extend our industry commitments to underwriting decisions. Since then, a number of leading insurers and reinsurers have joined us, and we will launch the Net-Zero Insurance Alliance, which AXA will chair, as part of the “Glasgow Financial Alliance for Net Zero” coalition this fall. These actions are needed because the costs of climate change impacts are escalating rapidly.
According to a report by reinsurance company Munich Re, a record number of hurricanes, wildfires, and floods intensified by climate change cost the world $210 billion in damage in 2020 alone. This presents new risks to investors, businesses large and small, consumers, and taxpayers and governments. Climate change will not only cause more costly extreme weather events such as flooding, forest fires, and heatwaves, but also accelerate other emerging risks. For example, the UN International Organization for Migration predicts that there could be up to a billion environmental migrants moving within or across borders by 2050, creating acute geopolitical tensions. AXA’s risk experts emphasize that climate change, biodiversity loss, and environmental degradation are interlinked and self-reinforcing.
For instance, massive wildfires, unprecedented rainfall and flooding in the U.S. have far-reaching combined consequences, ranging from business losses and property damages to declining forest and wetland health and protections. We are at the beginning of an ambitious effort, which will set new standards in how insurers evaluate and select risks with growing attention paid to the impact of insured activities on climate change. This could mean incentives for green projects and higher insurance premiums as a deterrent to run carbon-intensive activities. The more insurers engage in such initiatives, the more they will encourage “green” clients to thrive and carbon-intensive clients to shift to low-carbon business models. These are not easy commitments for insurers. But we have a collective responsibility to consider the long-term climate impact of our business — both investments and underwriting. The Net Zero Insurance Alliance will provide a major step in our industry’s commitment to the fight against climate change. We hope U.S. insurers will support this new alliance by joining it ahead of COP26.