With the eyes of the world on the COP26 summit in Glasgow, Joachim Wenning, chairman of the board of directors of Munich Re, assured that climate policy will succeed if it takes into account “the needs of businesses”.
In a new report, Munich Re called for greater collaboration between the private re / insurance industry and public bodies to improve human adaptation to the impacts of climate change.
As temperatures continue to rise, Munich Re believes different types of extreme weather events will become even more common in different parts of the world.
In response, the company believes that a higher percentage of natural disaster risk should be borne by insurers, meaning more work needs to be done to close the global protection gap.
But most regions still lack a roadmap for meeting their climate goals, and more focus is needed on alternative ways to limit dependence on fossil fuels.
One approach would be to use the price of CO2 as a centralized means of regulating emissions trading, while other interesting strategies could involve international collaboration on building renewable energies, as well as coordinated funding for emissions trading. Net zero technologies that remove CO2 from the air is also important, although this remains complex and expensive today.
“In this regard, quantum leaps are urgently needed,” warned the reinsurer in the conclusion of its report.
“Only by investing enough in the net zero transition and the decarbonization of industrialized societies can we maintain our standard of living and alleviate societal hardship – while paving the way for greater prosperity in the poorest countries. poorer, ”Wenning commented.
“Climate policy will be successful if it takes into account the needs of businesses,” he added. “For the business community, transparency and reliability are vital.
While the protection gap in industrialized countries has often halved over the past 40 years, in developing and emerging countries more than 90% of all losses from natural disasters are still uninsured, and these are the countries that are expected to be disproportionately affected by climate change. .
In many of these places, Munich Re argues that national or supranational public-private partnerships could be useful, with insurance solutions being jointly developed by the private insurance industry and governments, as well as the support of donor countries. or the IMF.
Experience shows that risk prevention, in the form of risk transfer solutions, can work even in low-middle-income countries using parametric trigger hedges.
In order to ensure structured risk management at the national level, Munich Re recommends that governments appoint Chief Risk Officers (CROs) to oversee risks at the state level, as they traditionally would in a private company. .
“Having some sort of government CRO would mean having someone who knows all of the major risks to the company – and who is responsible for the required preventative measures and disaster recovery,” Wenning explained.
Climate success will also require the rapid phase-out of fossil fuel use, but Munich Re warns that this will be hugely expensive.
In recent years, more than $ 300 billion a year globally has been invested in renewables for power generation alone, but this is expected to be quadrupled by 2030 to meet climate goals, in addition to substantial investments in networks and storage.
Munich Re suggests that a sufficiently high CO2 price of over $ 100 per tonne by 2030, made possible by comprehensive trading systems with a fixed target of net zero emissions by 2050, should be used as an incentive. for climate-friendly technologies.
“The more we, as a global community, do not tackle climate change properly, the greater the risks posed by natural disasters and the resulting losses,” said Ernst Rauch, Head of Climate and Geology at Munich Re.
“The fact that this year’s Nobel Prize in Physics was awarded to climate scientists shows that the world should have listened to the experts sooner. Today, time is running out, but in many cases we still lack the reliable framework needed to effectively protect the climate, ”continued Wenning.
“With market incentives, the right conditions can stimulate the development of new technologies to transform the global economy into a climate neutral one. It is a good thing that the role of business in climate protection is being discussed here in Glasgow. One of Munich Re’s top priorities, both as an insurer and as an investor, is to help new technologies for a low-carbon economy achieve real breakthroughs.