Climate change andthe role of finance and insurance:
With a focus on adaptation
Paul Clements-Hunt,Head, UNEP Finance Initiative
http://www.unepfi.org

Part 1
About theUnited Nations Environment
Programme’s Finance Initiative

What is UNEP FI?
United Nations Environment Programme Finance Initiative
UNEP FI is a unique public-private partnership between UNEP
and 177 financial institutions worldwide.

Mission: To identify, promote and realise the adoption ofbest environmental and sustainable practices at all levelsof financial institution operations.

✓Principles forResponsible
Investment

UNEP FI and the UNFCCC Negotiations
COP 8, New Delhi, 2002:

Climate Risk to Global Economy

COP 9, Milan, 2003:

Emissions Trading

COP 10, Buenos Aires, 2004: Finance for Carbon Solutions - The CDM
COP 11, Montreal, 2005:

The Future of Climate Policy

COP 12, Nairobi, 2006:

Adaptation and Vulnerability

COP 13, Bali, 2007:

Climate Risk & Opportunity for Financial
Services in a Global Economy

Key Publications
ClimateRisk

Emissions
Trading Renewable
EnergyCDM

The Future ofClimate Policy
Adaptation CarbonCrunch

Part 2
Activities of finance andinsurance on climate change

Great Weather Disasters (1950 – 2006)
USD billion (2006 values)
200

Strong upward trend:

180
160

Higher insurance
penetration

140

Growing property values

120

Coastal value
concentration

100

Climate change (flood)

80
60
40
200
1950

1955

Source: Munich Re

1960

1965

1970

1975

1980

Overall Losses

1985

1990

1995

2000

Insured Losses

2005

Climate Change:
Investment Analysts’ Report
Lehman Brothers – “The Business of Climate Change Challenges and Opportunities”; A research on the effects of CC to 16
industry sectors
UBS – “Climate Change: Beyond Whether”; Analysis of the effects
on CC to investment activities in general and its strategies going
forward
Citigroup – “Climatic Consequences: Investment Implications of aChanging Climate”; Selection of 74 firms (from 21 sectors in 18countries) identified as CC winners

Climate Change Investments
Allianz RCM’s Global EcoTrends Fund – EUR 1 billion portfolioof companies in renewable energy, pollution control, and clean water
Swiss Re European Clean Energy Fund – closed with a value ofEUR 350 million acting as anchor investor; maintains a CHF 500
million sustainability portfolio of its investments in alternative energy
HSBC Global Climate Change Index – tracks performance of 300
companies benefiting from exposure to climate change aligned
products and services; launched a Global Climate Change Fund forclients to invest in this index

Carbon Emission Markets
Swiss Re – engaged in worldwide emissions markets; structured
risk transfer products for carbon funds and compliance buyers, andsecondary carbon market trading
UBS World Emissions Index – first index to track emissions
allowances. Launched Nov 2006.
Merrill Lynch Green and Gold – Consultancy service forcompanies to develop a carbon strategy and voluntarily reduce theirfirms' carbon emissions.

Climate Change & Insurance
Swiss Re Climate Change Adaptation Program – insurance
against drought to small farming villages in India and Africa.
AXA – comprehensive insurance coverage for wind farms, which
generated USD14 million in premium revenue in 2006
CarbonRe – Carbon Delivery Guarantee Insurance for nondelivery in carbon credit transactions.
Allianz ECOmotion – first climate neutral car insurance which
neutralizes the annual CO2 emissions of the insured vehicle.

Carbon neutrality
Aviva – first insurer to carbon neutralise operations on a worldwide
basis
HSBC – first major bank and first FTSE100 company to becomecarbon neutralClimate Change Initiatives
AXA Research Fund – EUR 100 million to support academic
research on core risks to the human being and the environment
Munich Re – Founding member of Munich Climate Insurance
Initiative to develop insurance-related climate change solutions indeveloping countries
HSBC Climate Partnership – USD 100 million partnership with
the Climate Group, WWF, Smithsonian Tropical Research Instituteand Earthwatch Institute to respond to the threat of climate changeworldwide

Part 3
Climate change adaptation:
Roles of finance and insurance

Bali Roadmap:
Process for a post-Kyoto agreement
Adopted in Dec 2007 at the UNFCCC in Bali, Indonesia
Process to finalise a post-2012 international CC agreement
Current financial mechanisms and the Kyoto Protocol focused on
CC mitigation (eg, carbon markets, CDM/JI)
Half of Bali Roadmap focused on CC adaptation

Climate Change Adaptation Cost
Estimated global cost of adaptation by 2030
US$40bn for agriculture, forestry and fisheries, water supply,
human health and coastal zones
US$8-130bn for adaptation of new infrastructure
Insurance sector expected to play a key role in CC adaptation
Public-private partnerships (PPP) for climate related insurance
Mechanisms for improving risk management & disaster response
Open access to climate-related data sets
Details to follow…

Climate Change Adaptation
Public-private partnerships (PPP) for climate related insuranceClimate Change Adaptation
Mechanisms for improving risk management & disaster response
Alternative risk transfer (ART) products- Captive insurance companies- Weather derivatives
eg. World Food Programme buys WDs from Axa Re for disaster
relief in Ethiopia: Indexed payout $7m, premium $930k/yr- Catastrophe bonds (cat bonds)
Another example
Integrated property insurance
Conventional insurance: provided once property developed
Integrated: Insurers involved from infrastructure planning.

Climate Change Adaptation
Open access to climate-related data sets
Accurate & timely data at reasonable prices
Supports growth in weather derivatives & other risk transfer
products (especially in developing countries)
eg. Better weather data in rainfall insurance- reduce basis risk for clients- improve reinsurance rates

Credit Crunch: Its effects to climatechange financing & investments
Short Term: CC investment and financing is hit hard
Lower carbon price, falling oil priceIntense competition for capital: Sustainable projects lesscompetitive as its business models are based on future prospects
Political attitude: "let's save the world later“

Credit Crunch: Its effects to climatechange financing & investments
Medium Term: Where will the money go?
Cash hoarding cannot last long
Need for the finance & investment community to rebuild its
credibility and reputation
Opportunity for financiers & investors to re-evaluate their businessmodel. Opportunity to mainstream environmental, social andgovernance (ESG) factors integrated into core strategies, processes,products and services

UNEP FI’s Recommendations

Integrate climate change related risks & opportunities into
core financial operations
Engage with government decision makers
Reduce one’s own direct impacts contributing to climate change
and report annual emissions transparently.

Thank you for your attention
For more
information: Programme
United Nations
Environmentwww.unepfi.org
FinanceInitiative
climate@unepfi.org