The Summit presented a number of opportunities for members to engage in climate-focused research and conversation with sessions ranging from practical to big picture, and covered topics as broad as insuring the climate transition, modelling climate dynamics, and tackling climate change alongside other societal issues.
In this article, we outline some of the key takeaways from two sessions:
Scaling Up Adaptation Finance: Balancing Climate Resilience and Commercial Returns
Chair of the Actuaries Institute Climate and Sustainability Practice Committee Dr Ramona Meyricke, moderated a panel on adaptation finance with experts:
- Ben Newell – Professor of Behavioural Science in the School of Psychology at UNSW Sydney, and Director of the UNSW Institute for Climate Risk & Response.
- Fergus Pitt – Director, Communications and Climate Resilience for the Investor Group on Climate Change.
- Alison Drill – Head of P&C Structured Solutions Asia and ANZ, Swiss Re.
The discussion covered the need for adaptation, the challenges holding it back, and new solutions that build climate resilience, reduce risk, and protect returns.
The major takeaways from the session were:
- The case for adaptation is overwhelming, and we're seeing real action. Australia needs billions of dollars in adaptation and resilience investment to maintain a vibrant and productive economy. The economic considerations are clear: $1 spent in adaptation has a $3 to $20 benefit post-disaster. While translating climate risk into specific investment decisions remains challenging, the panellists shared compelling examples of government, businesses, and investors successfully capturing the benefits of adaptation investments and building profitable resilience strategies.
- We need to get comfortable with uncertainty or fall for the precision vs accuracy trap. Climate models can produce very precise estimates for the next 100 years, but precision doesn't equal accuracy. There are many sources of uncertainty in climate projections. The most successful adaptation projects embrace uncertainty as a starting point, focusing on understanding what climate change means for their business and building flexible adaptation options.
- Adaptation decisions require new frameworks – and they're emerging. Whether you're an investor, insurer, homeowner, or business owner, new pricing and risk assessment models are needed that allow for climate risks. The panellists shared examples of innovative approaches and solutions that are working, such as parametric heat stress and flood insurance overseas, and new methodologies for valuing adaptation investments. The conversation reinforced that climate adaptation isn't just about managing risk, it's about unlocking new opportunities for resilient growth.
- Actuaries have an important role to play as we are embedded in the heart of risk assessment. Our work involves translating current and future risks into financial impact. To do this for climate risk, we will need to collaborate with the scientific community to ensure rigour in our risk analyses and pricing signals.
Emission Impossible? - Measuring Insurance-Associated Carbon Emissions
Members of the Climate & Sustainability Practice Committee and authors of this article, Alan Greenfield and Sarah Wood, addressed another climate-change challenge facing the insurance industry – how insurers might go about measuring the greenhouse gas emissions associated with not their own activity (e.g., heating and cooling offices, running fleets of vehicles) but the activity of those they insure.
We explained why this measurement is now very relevant to the insurance industry, as under mandatory climate change disclosure requirements , organisations will need to disclose emissions associated with their business activities. For many types of business activities, there have been established global protocols for measuring associated emissions in place for decades. In contrast, a global standard for measuring and reporting emissions associated with re/insurance underwriting was only finalised in November 2022 for two segments: commercial lines and personal motor.
The audience was given a crash course in corporate emissions accounting, explaining the three major types of emissions :
- Scope 1 (essentially direct emissions – e.g. burning coal),
- Scope 2 (emissions released from the generation of electricity) and;
- Scope 3 emissions (everything else). The presenters outlined that insurers measurement of Scope 3 covered emissions arising from the activities of insured clients (known as underwriting emissions).
For example, the emissions generated from aircraft fuel consumption would form part of an insurer’s Scope 3 emissions from their aviation insurance lines. We introduced the methodology developed by insurers and reinsurers as part of the Partnership for Carbon Accounting Financials (PCAF) to estimate insurance-associated emissions.
As a thought experiment, we extended the PCAF methodology to a line of business that is not currently covered by PCAF – travel, noting that rough estimates of the percentage of emissions associated with travel and tourism range from 6.5% to 9%, putting it on par with the global emissions associated with private motor cars and vans (about 10%).
We also highlighted some of the challenges insurers have faced when applying PCAF:
- Data availability and quality: There were a number of data challenges, including getting accurate emissions accounting data from small businesses. To remedy this issue, PCAF allows the use of proxies when data is missing although the relevance and accuracy of these proxies can vary.
- Setting scope and coverage: For example, given the standards are relatively new and data is immature, insurers who have applied the PCAF standards have typically done so to a subset of their business, which can make year-to-year comparisons difficult
- Using insurance-associated emissions to drive decarbonisation: As insurers are the enablers of the economic activity they are underwriting, it can be difficult to directly influence policyholder operations. In particular, many insurance policies are short-term and so it may challenging to incentivise longer-term decarbonisation opportunities.
We concluded that while the proposed changes to international sustainability standards to make insurance-associated emissions disclosures voluntary may reduce the number of insurers disclosing, there will remain those insurers who find the process helpful for understanding their climate impact.
