Top insurers all at sea on climate risk

Worldwide, a select few insurers are taking stock of climate risk but the rest remain woefully behind the times in their underwriting and investment decisions.

So says a new report from the Asset Owners Disclosure Project (AODP), part of responsible investment charity ShareAction.

The report analyses disclosures made by 80 of the world's largest insurers on climate change - organisations in charge of assets worth $15 trillion. According to the findings, nine in ten investment strategies in the sector don't match up with the goals laid out in the Paris Agreement.

As 'society's risk manager', insurers hold a crucial position in the global movement to thwart dangerous temperature rises - yet many are still lagging. And as AXA CEO Thomas Buberl noted as 2017 drew to a close, "a +4C world is not insurable".

Is the sector digging its own grave?

As well as underwriting projects, insurers also play a major role as institutional investors. This means that many are giving climate-damaging industries double support, enabling high-carbon projects through underwriting while funnelling finance into the companies leading them.

According to new research published in Nature, failure to keep warming below the 1.5C target could result in $30 trillion in damages globally. As climate change-related events increase the rate and scale of insurance payouts, it is significantly harder to justify supporting projects that are clearly connected to global temperature rise.

ClientEarth insurance lawyer Stephanie Morton said: "The AODP report demonstrates that insurers are beginning to internalise the significance of climate-related financial risks. It is also clear that there is a long way to go.

"Insurers are heavily exposed to the risks of climate change: extreme weather events are becoming more intense and as efforts to mitigate climate change step up, we are seeing a growing risk of stranded assets - investments that don’t end up delivering returns. Insurance professionals and those who advise them need to be factoring these realities into their underwriting and investment decisions.

"Many insurers are still perilously exposed to the systemic financial risks posed by climate change. This could severely undermine the stability of the sector, with grave consequences for society."