By the time I attempt to write a sequel - on how Climate Change is impacting the insurance regulations in the US - everything that seemed linear turns non-linear. What is driving this? IPCC’s code red for humanity; Russian invasion of Ukraine and the Security and Exchange Commission’s (SEC) disclosure of climate rule. It does not stop here. The narrative gets more complex with degrowth, colonialism and Office of Management & Budget (OMB) - something lesser known than the Federal Insurance Office (FIO). These have varying implications which go beyond the USA.
SEC and the Climate rule
Here is a sample from a cross section of responses on the proposed way forward:
The US Securities and Exchange climate rule “rather disappointed”, says INSEAD Professor & Author Claudia Zeisberger. “Yes the industry did get what it wanted/ asked for; yes we have a baseline of rules for public companies". But I worry that this bare-minimum of disclosures will become the standard and hence the maximum going forward. And will it be enough to move the needle on climate change... or rather slow progress down?”
Alperen A. Gözlügöl & Wolf-Georg Ringe believe: “These disclosures should encompass private companies that are of relevance for the net-zero transition. Such disclosures can be a powerful tool in shedding light on the polluting private companies that have so far been in the dark as well as serving as a disciplining mechanism”.
Likewise, Louie-Woodall expresses serious concerns about the ‘money pipeline’ in Manifest Climate: “The world has moved from the era of voluntary climate reporting to the age of mandatory climate-related disclosure. But this does not on its own guarantee that investors, supervisors, and other stakeholders will get clearer signals from companies - and especially financial institutions - on their climate risks and opportunities. Without a continuous effort to promote standardized reporting of what underpins the metrics that banks and other financial firms use to populate their transition plans and climate disclosures, the problem of white noise will persist”.
Moreover, Shiva Rajgopal ponders on the best way out of this impasse. “Climate reporting may be the third-best, not even the second-best, way of focusing corporate minds on the climate problem. But we live in a world where Congress does not seem to want to act on the climate problem, the political right will fight the new SEC rules as outreach, the Supreme Court wants to curb the Environment Protection Agency (EPA)’s mandate and consumers cannot get out of oil because we have not offered them a viable alternative or the incentives to switch to something greener.”
Equally profound is David McRobert’s observation: “Disclosure by itself won’t force companies to speed up their climate goals. But it will make the reporting more consistent and comprehensive, and [should] make it easier to spot discrepancies between a company’s marketing language around climate and its actual business operations. The disclosures will also be used by investors to make better-informed judgments about the risk of investing in high-carbon companies.”
“This would also boost US president Joe Biden’s climate agenda which isn’t doing so hot. His big climate spending package has been stalled in Congress for months. The war in Ukraine has the White House begging oil companies to drill more”, says David.
First time in history: OMB formally accounting in the Federal Budget for risks of climate change
How can I not thank Darius Nassiry for pointing in the direction of the ‘Office of Management and Budget’ (OMB). In a nutshell, what it is saying loud and clear is to get rid of fossil fuel.
Climate change threatens communities and sectors across the country, including through floods, drought, extreme heat, wildfires, and hurricanes that affect the U.S. economy and the lives of everyday Americans. Estimated damages from a subset of these events have grown to about $120 billion a year over the past five years. Future damages could dwarf current damages if greenhouse gas emissions continue unabated.
The Federal Government plays a critical role in helping American families, businesses, and communities recover from the impacts of extreme weather events -often acting as an insurer of last resort. Growing damages from extreme weather events would add new pressures on the Federal budget and taxpayers.
To better understand and address these risks to taxpayers and the Federal budget, last May, the President directed the Office of Management and Budget (OMB) to develop and publish annually an assessment of its climate-related fiscal risk exposure, as well as develop new methodologies to quantify climate risk within the Federal government’s economic assumptions.
Today, for the first time in history, OMB is formally accounting in the Federal Budget for risks of climate change. OMB is publishing two new assessments, Federal Budget Exposure to Climate Risks and a new section in the Long-Term Budget Outlook focused on climate change. The first of these chapters is supported by an OMB white paper. Additionally, OMB and the Council of Economic Advisers have released a white paper that outlines how better modelling of the broader economic impacts of climate change can help to quantify economic and fiscal impacts of climate change and climate action. Hopefully the modellers are listening as the president brings off the balance sheet risks on to the federal balance sheet.
De-growth et al
It’s been fifty years since the Club of Rome gifted us ‘The Limits to Growth’, however, we remain obsessed with growth. The indigenous people remind us - It is time to learn to walk with respect on Mother Earth.
Even if technology could decouple growth from climate impacts, we don’t actually need higher levels of GDP to achieve a thriving society. Costa Rica matches the US on wellbeing outcomes with only 20% of the GDP per capita. In fact, growth in global GDP has, since the 1970s, correlated with a decline in human progress as measured by the Genuine Progress Indicator. Happiness and welfare correlate with economic growth only up to a level and after that growth yields diminishing returns, and more and more growth does not improve them. The heterodox option is a degrowth transition to a post growth economy, calling for ‘a planned reduction of energy and resource use designed to bring the economy back into balance with the living world in a way that reduces inequality and improves human wellbeing’. Global systems must radically change to provision universal welfare using a fraction of today’s resources and energy. (The Degrowth Opportunity by Jennifer Wilkins).
“It is no longer responsible to discuss climate mitigation without reference to degrowth. Calls for the development of degrowth have strengthened", says Jennifer Wilkins. Whether it will be yet another far more severe zoonotic disease, a nuclear war or a persistent energy crisis as the world gets pushed towards renewables that triggers degrowth or will it be a voluntary act - is anybody’s guess. The global north having usurped the global carbon budget must take the corrective lead and become a role model.
“Colonialism” has finally made its way into the IPCC’s sixth assessment report. The panel’s working group two report, which looks at the impacts of climate change on people, lists colonialism not only as a driver of the climate crisis but also as an ongoing issue that is exacerbating communities’ vulnerability to it.
How good are the SEC disclosures? How far and effectively do they cascade? Is the world ready for degrowth? Will the global north become a role model for the south. Or will it be business as usual? I just spot Philipp Ullmann’s LinkedIn post appealing Munich Re not to support the East African Crude Oil Pipeline (EACOP) – “that will soon rip through Uganda and Tanzania causing unprecedented damage to local livelihoods and the environment”, he fears. As of now the waters look muddied. Or is it the oil spill?
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.