Further cooperation is urgently needed between the public and private sectors in order build global resilience to climate change and the growing threat of natural catastrophes, according to reinsurance giant Swiss Re.
Reporting from the World Economic Forum 2019 event in Davos, Switzerland, Swiss Re said that public-private partnerships, such as the Caribbean Catastrophe Risk Insurance Facility (CCRIF), are key to helping countries becoming financially stronger and preparing for the effects of climate change.
There is enormous potential for more collaboration between the public and private sectors, Swiss Re claimed, having previously reported that the global economy has less capacity to absorb shocks than it did ten years ago.
This has largely been caused by a change in market ownership from private to public players, which has resulted in several unintended side effects, Swiss Re said, including crowding out long-term investors such as re/insurers, which are a central component of system resilience.
A more supportive policy environment would enable the private sector to play a bigger role in building resilience and to help alleviate government-contingent liabilities.
For example, Swiss Re recently reported that re/insurers could play a key role in narrowing the global pension gap – which is forecast to grow by 5% annually to $400 trillion by 2050 – by providing risk-transfer solutions for underfunded private pension schemes, and annuity products to encourage more discretionary saving for retirement.
At the same time, new asset classes and products should be developed to address issues such as the large infrastructure financing gap, which is estimated to reach $97 trillion through 2040.
This would help to unlock the global re/insurance sector’s roughly $30 trillion of assets under management for investments in critical infrastructure projects that support the low-carbon economy.
Additionally, Swiss Re argued that further progress towards a common classification system for sustainable finance is needed, outlining whether an economic activity is environmentally sustainable.
Through close collaboration between the private and public sectors, policymakers should establish a risk-based regulatory framework for environmental, social and governance (ESG) investments and increase the importance of ESG in financial analysis, the reinsurer said.
“New approaches, policies and a shift towards long-term thinking are urgently needed to create a more resilient future,” Swiss Re’s Chief Executive Officer (CEO), Christian Mumenthaler, said in a statement.
“Building a solid macro-economic environment and resilient societies is in the interest of both the public and private sectors – recent market volatility only underscores this need,” he continued.
“With no time to spare, let’s combine our knowledge and resources and partner up to help reduce threat of climate change, create next wave of economic growth and, in doing so, secure the future for generations to come. The question is: will we act fast enough?”