As the (re)insurance industry has continued to step up its efforts to fight climate change, there has also been an increasing focus on protecting natural ecosystems. We spoke to AXA’s Ms Ulrike Decoene to understand how the shift to renewable energy, biodiversity protection and the fight against climate change are all interlinked.
In the fight against climate change, there is a growing acceptance that biodiversity protection is just as important as the transition to sustainable energy.
The topic of nature-based solutions has also been trending as people begin to understand that natural ecosystems – both forests and oceans – play a vital role in carbon sequestration.
Climbing up the (re)insurance priority list
The (re)insurance industry is also paying more and more attention to this, with the topic taking up significant discussion time during recent events, and (re)insurers making more, and greater, commitments to preserve biodiversity.
In October last year, AXA committed to investing EUR1.5bn ($1.7bn) to support sustainable forest management, including EUR500m in reforestation projects in emerging countries – a move that will enable a total of 25 megatonnes of CO2 to be captured each year.
Shortly after, in the lead-up to COP26, the insurer announced extensions to that commitment by strengthening its oil and gas exclusions, with a specific focus on unconventional activities and new greenfield explorations.
Speaking to Asia Insurance Review, AXA group chief communication, brand and sustainability officer Ulrike Decoene said that there is now a clear conviction that the fight against climate change and biodiversity loss are intrinsically linked.
“We treat biodiversity loss and climate change as two parts of the same problem because of that interdependence – thriving ecosystems can prevent and mitigate climate change but are also harmed in an accelerated way by global warming,” she said.
Ms Decoene believes that there is much the (re)insurance industry can do as it is able to make a difference both as an investor and insurer.
As an investor, the industry’s predominant focus will be on shifting financial flows into activities that are, at the very least, not harming nature and, hopefully, making a positive impact and developing nature-based solutions.
And while the methodology and approach might not be as mature on the insurance front, there has been encouraging progress, in particular with the establishment of the Net-Zero Insurance Alliance (NZIA) under the auspices of the United Nations Environment Programme’s Principles for Sustainable Insurance initiative in July last year, that currently has 16 (re)insurers as members and of which AXA is a founding member and chair.
“We called for the creation of an alliance to develop a global standard to measure and disclose insured emissions and a target-setting protocol because we believe that insurers working together in a united front can play a role in accelerating the transition to a resilient, net-zero emissions economy, in line with the 1.5°C target of the Paris Agreement,” she said.
At the same time, she highlighted how biodiversity protection is a far more complex field than energy transition. “You cannot assess your biodiversity impact with just one indicator as you can with energy transition (tonnes of CO2 equivalent emissions). You have to establish a link with the drivers of biodiversity loss and their impacts to factor in the complexity of ecosystems,” she said.
“This is why we insist on working with organisations that develop frameworks, methodologies and tools for the financial sector and also for other sectors.”
AXA is also a founding member of the Taskforce on Nature-related Financial Disclosures (TNFD), a counterpart of the Task Force on Climate-related Financial Disclosures (TCFD), that was formally launched in June 2021.
The TCFD was launched in 2015 and has since become the internationally accepted framework for disclosure of climate-related risks and opportunities, and Ms Decoene is hoping for the TNFD to have a similar impact.
“This is what investors look at so we are very hopeful that we can maybe speed things up and the TNFD can be a lens for investors and the financial sector to understand biodiversity risks and opportunities better and shift investments in the right direction.”
Engaging in dialogue
Being careful not to support activities that are harmful to natural ecosystems also does not need to focus entirely on methodology. Incentivising shifts to more sustainable practices while engaging people in dialogue is an entirely viable approach.
“It’s not about penalising businesses. We engage with clients and investees to accelerate their transition and strengthen their ambitions,” she said.
“We know that it’s not easy for whole sectors to move to a completely sustainable business model overnight, but we do want to see proof that they are trying – that they have the willingness to have a material impact in the transition with detailed mitigation strategies and timelines to achieve commitments, and that this materialises tangibly in investments (for example, size of CapEx) and in more sustainable practices.”
Taking risks in unchartered territory
There is then the challenge of making a business case for underwriting new, sustainable sectors and technology.
For instance, while private financing in the coal industry is still an issue that needs to be tackled, the risks of investing in coal have become quite apparent. But the same cannot be said from an underwriting perspective.
“It’s much more difficult to explain to an underwriter that they should drop a very well-managed coal plant – which can be very profitable from an underwriting point of view because they know how it is operated and can assess whether the associated risks are under control – and move towards new technologies and sources of renewable energy,” said Ms Decoene.
These new technologies represent unchartered territory as they may not be as profitable to underwrite, present unknown risks and lack historical data, and she said that insurers have to work on the conditions under which those new solutions can be profitably underwritten.
“This is where the work that is going to be done within the NZIA will focus – not only about exclusions, but how to bring insurance support to those new technologies and low-carbon energy solutions profitably and more effectively,” she said.
Shining a light on oceanic issues
While it is of paramount importance to protect both forests and oceans as they are critical sources of natural carbon sequestration, it is also important to note that oceans play a fundamental role in regulating global temperatures.
Despite that, oceans tend to receive less attention than forests with signs of oceanic harm such as acidification and the depletion of carbon sinks such as seagrass being much less visible. Furthermore, vast swathes of oceans lie outside of national boundaries, making it more difficult to work with any specific government on conservation projects.
This is another area in which the (re)insurance industry can make a difference. AXA is co-chair of the Ocean Risk and Resilience Action Alliance, an organisation primarily led by the UK and Canadian governments that pioneers innovative finance products that drive investment in marine and coastal natural capital, reduce ocean and climate risks and build resilience in coastal communities.
The insurer released the Coastal Risk Index at COP26, based on the data it has collected, that helps governments and various organisations better measure what sea level rise, for example, is having on coastal communities, activities and economies.
“One of the first things that we can do is bring knowledge and data to show how the harm that is done to oceans is detrimental to whole sectors of activity,” said Ms Decoene. “We will work with governments and the public sector at large because it’s going to be about protecting the most vulnerable communities.”
She added that for (re)insurers, it is mostly about raising awareness, funding research and bringing data to ensure a better understanding of the ocean-related risks to decision makers. “In parallel, we are also working on incentivising fisheries to adopt more sustainable practices or even replanting of seagrass for better carbon capture.” A