February 12, 2020 by Adam Malik
If recommendations from a report released last year on sustainable finance are going to succeed, the property and casualty insurance industry is going to play a key role in making it happen, said one expert.
There is a lack of corporate disclosure around the risk of climate change, warned Barbara Zvan, chief risk and strategy officer at the Ontario Teachers’ Pension Plan. This information is needed to make decisions when it comes to sustainable long-term investments.
Sustainable finance, she told attendees of the recent CatIQ Connect conference in Toronto, rolls up various elements like flow of capital, risk management, the financial process, governance and how assets are valued to incorporate climate change.
Zvan is also a part of the federal government’s Expert Panel on Sustainable Finance. It released its final report on what Canada needs to do to keep pace with the rapidly changing standards of global investment in June. She went through its highlights and pointed out specific areas in which the P&C can play a role.
For example, she said, one recommendation calls for environmental performance labelling and disclosure for buildings and other major structures. Zvan described it as something mirroring Toronto’s DineSafe program, in which any establishment serving or preparing food is inspected by the city. Businesses are issued a pass (green), conditional pass (yellow) or a closed (red) notice, which is posted at the entrance of the establishment to let patrons know how the business fared in its inspection. So taking that example to the insurance side of things, buildings could be assessed similarly when it comes to in environmental risk
“How about green for low flood risk? Or green for the fact that it’s actually resilient to different physical risks? Or green for the fact that it’s close to net-zero?” Zvan said. “This is something the industry could put out there to help people understand what kind of buildings … they’re using and living in.”
She was presenting under the topic of Leadership & Financial Solutions to Climate Change that included Bill Murphy, national partner of risk and sustainability services at KPMG LLP and Roger Beauchemin, president and CEO of Addenda Capital Inc., who each offered finance and investor perspectives.
Something else the insurance industry can do is provide input on key initiatives as they arise. “Government is not going to fill in all the gaps,” she said. “It really needs the industry to engage and help them understand, how do you make a labelling process, for example.”
Zvan applauded the property and casualty industry for being ahead of others when thinking about climate change. “P&C was the one industry that was all over this when we started talking to you,” she said. “So you’ve been at the forefront of the thinking. You’ve had your losses for the last 10-plus years, thinking about how to model climate change, how to think about it [and] the risks going forward.”
However, “The other thing we heard a lot about from this industry is that you’re often engaged way too late,” Zvan said. “We heard … this industry wants to be involved much earlier, for example, when new infrastructure is designed to improve the insurability. You guys have the best knowledge around the physical risk and can really help through that.”