Who would not agree with Ukrainian scientist Svitlana Krakovska: “Let me assure you that this human-induced climate change and war against Ukraine have direct connections and the same roots. They are fossil fuels and humanity’s dependence on them”. That insurers, like the rest of the financial world, end up being facilitators of this process ought to not surprise anyone either. As we navigate ourselves into dire straits, we seem to be enacting a theatre of the absurd.
Not everything people insure is benign. Insuring - and reinsuring - anything has its unintended consequences for the climate. With the growing realisation of the environmental and societal implications of insurance, insurers should distance themselves from anything that adversely affects overall sustainability. Globally, enlightened insurers are moving towards a principle of sustainable insurance, thereby attempting to create a more risk aware and resilient society dealing with climate change proactively.
Insurers are known for their expertise in pricing and quantifying risk - underwriting. Unfortunately, in the process, they not only end up insuring what contributes to carbon footprint but also investing their surplus funds into such businesses. So, ‘inadvertently’, they end up aiding and abetting climate change. Two camps are already emerging - players in the US who allegedly continue to support the fossil fuel industry; and the Europeans, who are increasingly distancing themselves from it. The line of divide, however, is not very clear and it remains a messy affair.
The American insurers remain largely wedded to Oil & Gas. Europe is a mixed bag, some like the Lloyd’s are still holding on. The executive in the US is keen to transform the insurance industry. However, American banks and asset managers unfortunately fund the biggest fossil fuel money pipeline. Much of European regulatory system is steadily aligning to the Paris Agreement and pushing for the green new deal. Asia is an overall laggard - given its heavy fossil fuel energy dependence.
A new report discovered that 30 of the largest asset managers have $550 billion holdings in oil, gas, and coal companies, all of which have fossil fuel expansion plans. That is $550bn invested in companies that are, quite literally, destroying our planet. "The “divestment versus engagement” debate is a big distraction. Asset managers are not engaging companies on the key climate issues when it comes to limiting global warming to 1.5°C. It’s also striking that they are actually sending the opposite signal because they are still buying new debt from fossil fuel developers. "Asset managers that provide fresh cash to companies that are ignoring climate science are purely and simply pouring more fuel in the fire.”
Ironically, insurers insure what harms its customers and also invest in the harmful businesses. Some oxymoron! The resulting fire is triggering what the UNFCC call the Triple Planetary Crisis.
Threats to biodiversity
Nearly 1 million species face extinction in the coming years, thanks to warming temperatures, deforestation, development, overfishing and other human activities. What do those disappearances mean for us?
“Biodiversity is a little like an airplane,” says Collin O’Mara, president and CEO of the National Wildlife Federation (NWF). “If you start taking out screws one at a time, you don’t know which one is going to make the wing or the engine fall off, but eventually the system is going to collapse.”
Butterflies, bees, birds and even some small mammals help pollinate more than 1,200 crops, having an impact on one of every three bites of food you eat. More than half of all plants depend on wildlife to disperse their seeds.
"As climate warms, millions of species are shifting poleward in a dramatic reorganization of life on earth. However, our understanding of these dynamics has largely ignored a key feature of life -- animals and other organisms must eat. The researchers have filled this knowledge gap by examining how the basic need for nourishment affects species’ movements.
“These dynamics will not only be in one place but globally,” Pinsky said. “That does not bode well for marine life, and this is not an effect that has been widely recognized.”
The Great Starvation is coming
While the world endured global supply chain issues and delays for over two years throughout the course of the Covid-19 pandemic, markets suffered, economies buckled, and there were real fears that it would mean potential shortages of essentials, and even food across the globe.
Such a fate is finally arriving with the Russian invasion of Ukraine impacting the planting, production and harvesting of wheat and other vital commodities in the region. Known as the "breadbasket of Europe", it does not only feed a few tens of millions in the neighbourhood, but at least hundreds of millions elsewhere in the world.
The result is set to be almost apocalyptic. At the time of this writing, data by the UN's World Food Programme (WFP) show that around 890 million people worldwide lack sufficient food consumption and subsist on an inadequate amount of calories needed. That number is constantly on the rise, and is a few hundred million higher than statistics from 2020.
As the billionaire astrophysicist and entrepreneur, David Friedberg, said in a widely-circulated video, the entirety of the planet's food supply operates on only a 90-day cycle which constantly replenishes. With people consuming produce made and exported from that previous cycle, any delay or obstruction to the current or next cycle greatly impacts the amount of food and commodities supplied to populations. In short, "humans run out of food in 90 days".
Crops are already seeing losses from heat and drought. Can genetic diversity - a return to foods’ origins - help combat the climate challenges ahead?
"The industrialization of agriculture in the last century boosted production around the world – but that success also made our food systems much more vulnerable to the growing climate crisis." "Modern agriculture depends on high-yield monocrops from a narrow genetic base that needs lots of fertilisers, chemicals and irrigation." But why does this matter?
Because a richer genetic diversity of foods, like we had in the past, will help make our crops more resilient to higher temperatures and changing rainfall patterns.
"The climate breakdown is already threatening many of our favorite foods." In Asia, rice fields are being flooded with saltwater; cyclones have wiped out vanilla crops in Madagascar; in Central America higher temperatures ripen coffee too quickly; drought in sub–Saharan Africa is withering chickpea crops; and rising ocean acidity is killing oysters and scallops in American waters.
All our food systems - agriculture, forestry, fisheries and aquaculture - are buckling under the stress of rising temperatures, wildfires, droughts, and floods. "Even in the best-case scenario, global heating is expected to make the earth less suitable for the crops that provide most of our calories." If no action is taken to curtail the climate crisis, crop losses will be devastating. No form of insurance protection will help pre-empt all this. Insurers and the rest of the financial services ought to promptly withdraw from these triggers.
"To put the situation into perspective, the spring planting season for wheat began weeks ago, at the end of March and beginning of April." Due to the war in Ukraine, there has reportedly not been an adequate amount of planting being undertaken, spelling disaster for the summer of 2022 and beyond.
When approximately 30 per cent of the world's total wheat supply – and 15 per cent of the world's total calories consumed – is cut off from export and the seriousness of the situation begins to properly set in within the coming months, the number of those stuck in food insecurity and potential starvation is predicted to enter the billions.
“Internationally, there are many conflicts over energy because, with fossil fuels, there is a lot of transporting of energy across international boundaries. Many countries rely on the import of fossil fuels.”
“We have found, based on plans we have developed for 145 countries, that every single country has enough renewable energy resources to power their own energy for all purposes.”
“Clean, renewable energy will never run out. "Fossil fuels will run out, and their prices fluctuate quite a bit due to changes in supply and demand, and they cause international conflicts." Countries can hold other countries hostage over energy right now.”
Not so clean energy
Clean energy transitions mean more mining - cobalt, lithium, copper, rare earths and so on, often found in remote underdeveloped areas where governance is spotty and conflict is endemic, highlights Rob Karpati.
Theatre of the absurd
Interestingly, colonialism and imperialism too have been fuelled by the pursuit of resources including fossil fuel and rare minerals. As the pendulum of history swung back - colonised have found place besides the colonisers. UK’s Home Secretary Priti Patel is the key architect of the proposed arrangement. Send back all asylum seekers, including climate refugees, to Rwanda! Africans and pacific islanders in particular have been the most affected by global warming with a bare minimal role in it. They will increasingly flee hostile geographies but thanks to an ingenious arrangement - could end up in Africa. The theatre of all climate tragedies.
Under the new Asylum Partnership Arrangement, people arriving in the UK irregularly or who arrived irregularly since January 1, 2022 may be sent to Rwanda on a one-way ticket to have their asylum claim processed and, if recognized as refugees, to be granted refugee status there. Climate refugees beware!
Global South versus Global North
At this point, no one can doubt the urgency of acting on climate, as the most recent IPCC analyses show the world far off course from a trajectory to 1.5 degrees Celsius - passing that point would greatly increase the likelihood of extreme heat waves and floods, while damaging coastlines and coral reefs. While wealthy nations like the US have largely driven this trend, the impact of climate change is being felt most acutely in countries that have contributed the least to global greenhouse gas emissions.
This injustice follows a litany of historical - and ongoing - wrongs, from the centuries of colonial plunder and enslavement that enriched Europe, and then the US, at the expense of the Global South, to the austerity measures of the 1980s and ’90s in response to the Third World Debt Crisis, which stifled development and locked many countries into decades of debt dependency. The results of that dependency are, along with the pandemic’s economic impacts, congealing into a new debt crisis, with 58 of the 65 of lowest-income countries somewhere between moderate risk of debt distress to full-blown default.
International Actuarial Association
The IPCC Working Group addresses the most up-to-date physical understanding of the climate system and climate change. "As Climate Science: A Summary for Actuaries describes: “It brings together the latest advances in climate science, combining multiple lines of evidence from paleoclimate, observations, process understanding, and global and regional climate simulations to get the clearest picture of past, present, and possible future climate.”
"Actuaries, it emphasises, as risk professionals need to understand the physical impacts of climate systems and climate changes." Such impacts will affect how risks are underwritten, priced, managed, and reported, whether for general, life or health insurance, pensions, other financial institutions, or social security. "It is important for actuaries to understand the magnitude of the potential changes, the uncertainty of their frequency and intensity, and the inherent volatility of such risks."
"Each of the physical changes analysed in the latest IPCC Working Group I report could have an impact on human well-being and the long-term sustainability of the environment." Within these changes, actuaries are particularly interested in the effect of climate change on floods, droughts, fires, storms, rise of sea level, air pollution and the long-term effects of climate change.
The Ukraine invasion has suddenly driven the US to drill more oil and gas. Thereby, furiously gnawing into the global carbon budget. The resulting greenhouse gases are bound to precipitate nasty climate outcomes, thereby affecting the insured, uninsured and uninsurable. "With climate losses now touching US$120bn per year and expected to grow if greenhouse gas emissions continue unabated." The burden of economic losses increasingly comes on the federal government. Not accounting for them would be a recipe for a bigger disaster.
Is there hope? Lesson from Africa!
With all eyes on Ukraine, we tend to gloss over protracted conflict zones from LDCs. Here is something inspiring and compelling enough to eject us out of the current theatrics.
In 2018, Burundi launched a vast national reforestation program to boost the country’s dwindling forest cover and reduce conflict after its recent civil war.
"Today, the formerly warring factions are working together on the reforestation project that is planting a variety of tree species." Shouldn’t this be a reason to celebrate ridding the absurdity, howsoever momentary?
Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.
Praveen Gupta is a Chartered Insurer. He was part of the core founding team at the Allianz AG non-life joint venture and founding Managing Director & CEO of specialist insurer QBE’s India JV. He now devotes time to teaching, writing and speaking - with a particular focus on Climate-related causes. You can track much of his work on www.thediversityblog.com. Praveen believes that the insurance industry has an urgent and vital role in restoring planetary health. He is an important global voice in that space today.