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Finance is a “critical lever” to climate transformation: Swiss Re’s Mumenthaler

28th January 2020 - Author: Matt Sheehan

Swiss Re CEO Christian Mumenthaler has argued that finance – and reinsurance in particular – is a “critical lever” to achieving the kind of global transformation necessary to mitigate the impacts of climate change.

financial-climate-riskWriting in an article for the World Economic Forum (WEF), Mumenthaler expressed concern about the lack of progress to come out of recent climate agreements, such as the COP25, as well as the limited scope of initiatives such as the European Green Deal.

The Swiss Re boss has previously been vocal about the need for private businesses across the financial sector to come together to create a more viable plan to address climate change.

“The global community has historically taken a localized approach to climate change, which has proven largely ineffective because it lacks the power of consensus and public-private partnership,” Mumenthaler said.

“Goodwill pledges will only get us so far, and carbon pricing alone isn’t sufficient to effect the large-scale transformation needed to put us on the path to a low-carbon future.”

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Instead, Mumenthaler argued that the global business community should recognise the profit potential in the transition to a zero-carbon world, and work collaboratively to support this change.

He noted that reinsurance especially, with its diversified portfolio and ability to transfer risk, can help to mitigate the negative effects of climate change and remove financial volatility from carbon-free ventures such as renewable energy and emissions reduction.

“By transferring risk to reinsurers, enterprises can raise capital, secure loans, begin hiring and start innovating,” Mumenthaler explained.

“If an event occurs that could potentially threaten or disrupt operations, the “insured” receives a payout so it can continue operating seamlessly. With the assurance of uninterrupted cash flows, investors and lenders have greater confidence.”

Risk knowledge is a key asset in this endeavour, he added, as it provides the insights to fully understand the opportunities associated with novel technologies, and enables the kind of risk-taking essential to drive innovation and investment.

“It seems that 90% of what we read about the climate crisis addresses the problem itself, while only 10% puts forward concrete, feasible solutions,” Mumenthaler said. “For every sector and every carbon-emitting source, we need to assess what technologies are available to bring down emissions and remove carbon dioxide from the atmosphere, what gaps need addressing and how to channel investments in the most impactful way.

He added: “The business community needs to lead the way to a net-zero carbon world because it has the power of capital to fulfil the World Economic Forum’s mission: to improve the state of the world.

While Swiss Re believes businesses should be viewing climate transformation as an opportunity, Mumenthaler observed that companies are also coming under increasing pressure from clients and shareholders to demonstrate their sustainability performance.

As a result, corporates are turning to reinsurers to mitigate sustainability risks such as extreme weather, excessive greenhouse gas emissions, chemical spills, drinking water pollution, the impact of negative environmental, social and corporate governance (ESG) activity by suppliers and competitors, and regulatory restrictions.

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