It’s not enough to just be green

A Green Deal cannot work without regulation. At the same time, the rules cannot stifle market dynamics or weaken competitiveness: sustainable economic growth in Europe is indispensable to its playing a leading role in combating climate change.

The EU estimates that annual investments of EUR 180-290 billion are required to realise the Paris climate targets. Insurers can provide the capital to develop a sustainable infrastructure. They are already one of the greatest advocates of the energy transition, having invested just under EUR 6 billion in sustainable energy projects. The sector wants to increase its contribution, making it the ideal partner: in 2018, German primary insurers increased the value of their infrastructure investments by almost a third to EUR 32 billion. Public-private partnerships fit with the insurance business model with its long-term horizons. However, there is currently a dearth of such projects – particularly in Germany.

The definition of sustainability lacks precision. The introduction of a practicable classification system and new standards, for example concerning green bonds, would provide more clarity and transparency for investors and consumers. A certain amount of flexibility when implementing the provisions is equally important. Different sustainability investment strategies can be advisable depending on an insurer's size and specific situation. The motivation must be business-based as opposed to a politically-motivated diversion of capital flows. The right approach is to consistently adopt the “polluter pays” principle through a proportionate pricing system for carbon dioxide emissions.

A sustainability-based investment strategy can provide good returns and help reduce investment risks. It would thus make sense to consider environmental aspects in investment decisions; after all, German insurers are looking for new investment opportunities for an average of EUR 13 billion every day. However, their investment decisions must invariably comply with the overarching legal regulations of the Insurance Supervisory Act and Solvency II.

Insurers accept the ecological challenge – however, the top priority has to be the security of customers’ contributions: sustainable investing is more than ecologically correct. Secure and profitable investments are imperative for insurers so they can meet their long-term commitments to customers. That does not change when ecological criteria play a bigger role in investment decisions.

The climate change we see today does not come from current emissions: they are a legacy of the past. We must therefore address the consequences of the unavoidable part of climate change in addition to supporting climate preservation. When heavy rain and hail start to pose a growing threat to property, construction planning and building law will have to change – now. The later we start, the greater the economic losses in the future. Once the consequences have occurred, it will be too late. Most construction planning predates scientific discoveries about extreme weather events and climate change.

Information and prevention are vital to containing future losses and insuring natural hazards both now and in the future. Insurers do all they can to keep the public informed of the dangers inherent in extreme weather events and natural catastrophes. The experts must step up and raise awareness of hazards and corresponding avoidance measures. Germany needs to start gathering information on natural hazards and making it accessible to the public through a central online portal. Other countries are already doing that. The insurance community is calling for a nationwide natural hazard portal with accompanying information campaigns. It has already demonstrated how that could work in practice through the feasibility study “Kompass Naturgefahren” (natural hazards compass). Localised information about the dangers of flooding, heavy rain, lightning and overvoltage or storm and hail should be a given in a digitalised society.