How the insurance industry can invest in climate sustainability

Climate-friendly impact investments and those promoting resilience to the damaging effects of climate change are environmentally responsible ways for insurers to allocate their capital, suggests one insurance expert.  

Aside from charging premiums for policies, insurers turn a profit by investing their premium money into other assets. Insurers can make a positive impact on the environment through “impact investments,” which are made with the intention of generating positive, measurable social and environmental impact alongside a financial return. 

“We’ve got more than 21% of our total investment portfolio now that’s in impact investments — that’s $2.6 billion,” says Chad Park, vice president of sustainability and citizenship at Co-operators. “So that is [an] investment that addresses a specific and measurable environmental social challenge, while also providing a market rate return./

“We’ve got things like renewable energy projects, cooperative housing, long-term care homes, food security projects, and so on.” 

In compliance with the federal government mandating all financial services to come up with carbon reduction metrics by 2030 and 2050, many insurers may consider reevaluating their investment-allocation strategies toward sustainability. 

“We have set a new target…to get to 60% of our portfolio being in either impact or climate transition investments by 2030,” says Park. “And then also getting to net zero emissions in our investment portfolio by 2050, which a lot of other financial institutions have committed to as well.” 

In other asset categories, like equities, insurers can help the climate by picking companies that are serious about reducing emissions. “We’re actually creating a way of screening and ultimately encouraging companies in higher-emitting sectors to commit to net zero emissions, to start tracking [and reducing] their emissions…and to implement good governance practices,” said Park.  

As risk experts, the industry is well-positioned to understand — and help clients and key stakeholders understand — the impacts of climate change, Park says. And this in turn helps promote the benefit of investing in climate solutions. 

“The key role insurers can play is helping all stakeholders to understand [climate] risk, and leading by the example of what we’re doing in our own operations, in our own communities, and in our own investments,” says Park. 

As private investors and risk experts, insurers can support municipalities across Canada to be better prepared for the risks of climate change, Park suggests. 

“We call it resilience investing,” he says. “We can actually help make Canadian communities better-prepared for the risks of climate change…through our investments [in resilient infrastructure].

“Generally, we think of governments as the ones who should invest in those types of projects. But the reality is that the risks are getting significant. As that happens, taxpayers alone aren’t going to be able to bear all the costs needed to protect our communities. 

“We’re asking ourselves: how can we use our capital to support municipalities across Canada in building more climate-adapted infrastructure to lower the risks of catastrophic flooding, wildfires, droughts, heat waves and so on?” 

Feature image by iStock.com/arthon meekodong