Insurers, corporates must join forces to manage climate risks and enhance sustainability

Corporate risk management must involve more proactive approaches to climate and regulatory change; insurers’ expertise and data capabilities can play a pivotal role

IN the wake of rising extreme weather events, our conversations with customers indicate that more companies view climate change mitigation and net-zero commitments as imperative and non-negotiable. Change is unfolding on all fronts, and this is why it is important to explore how the remit of corporate risk management is evolving beyond protection against unexpected events.

The Covid-19 pandemic has heightened the sense of urgency among governments and businesses around sustainability - the widespread impact of the pandemic brought home the fact that a global crisis will leave no individual or business unscathed.

Governments are also moving beyond rhetoric to mandating action. In 2021, the Hong Kong Monetary Authority and the Singapore Exchange announced climate disclosure rules for listed companies, while the Asean Taxonomy Board released the Asean Taxonomy for Sustainable Finance - introducing a common language for the financing of sustainable activities.

Corporates are rallying to the cause not just because it is the right thing to do, but because extreme weather events have far-reaching business consequences, from facility closures to production delays and disrupted supply chains.

Corporate risk management today must adopt more proactive approaches to climate and regulatory change; and the insurance industry's expertise and data capabilities can play a pivotal role in enabling, or even accelerating, this process.

Insurers: multi-dimensional role

The insurance industry's role in advancing corporate sustainability efforts is multifaceted. Natural catastrophe cover remains critical. Our research shows that in 2021 alone, natural catastrophes resulted in US$270 billion in economic losses, of which only US$111 billion were insured. As the frequency of extreme weather events increase, insurers must continue providing and enhancing the protection that enables communities and businesses to bounce back quickly from disasters.

With Asia among the most vulnerable regions to climate change, while being a major contributor to global warming, insurers' efforts at developing a more sustainable economy will be especially crucial in this part of the world.

The insurance industry is already rallying to help corporates assess risk resulting from weather-related hazards due to global warming. For example, Swiss Re's Climate Risk Solutions helps companies identify key perils driving their climate risk exposure, and also quantify the near-to-long-term impact of climate change on their portfolios.

Data: the defining resource

Data will be the key to helping businesses predict, analyse, and prepare for emerging and unanticipated risks, especially if harnessed and used effectively, 

Insurers are adept at pulling together data from disparate sources and analysing this information to understand the signals it sends. This enables us to help corporates assess and mitigate the impact of climate change by providing a more accurate picture of rapidly evolving environmental risks. Data can also facilitate the development of more sustainable business models and strategies by increasing certainty around these ventures.

Supply chains are a prominent example of where corporates stand to benefit from insurers' unique ability to connect their data with our resources and risk expertise. Insurers can go well beyond simply providing coverage for potential climate-linked supply chain disruptions: it is now possible to leverage data to better predict and plan for these disruptions before they occur. This significantly mitigates the risks of severe bottlenecks or shortages and the chances of businesses being forced to fall back on expensive alternatives at the last minute.

Swiss Re's recently launched Supply Chain Resilience solution is an example of this. It enables corporations to control their data and build a digital twin of their entire supply chain across complex, multi-tier networks. They are then able to access risk insights and models from Swiss Re and partners to gain visibility into multiple scenarios that illustrate the potential impact of disaster events and vulnerabilities across their supplier network. By pulling data from diverse places and translating that information effectively, the platform provides transparency to businesses, allowing them to make informed decisions regarding insurance and risk mitigation and prevention strategies. This ultimately allows corporates to take control of supply-chain risks.

Innovative forms of protection, such as our parametric insurance solutions - that leverage third-party data to trigger coverage if and when predefined event parameters are met or exceeded - allow corporates to purchase cover against natural catastrophes such as earthquakes and typhoons, to supplement their traditional insurance policies. 

Harnessing data can transform a company's ability to manage their business functions and address emerging dimensions of climate risk. In the environment we now face, the eventual champions will be those who successfully incorporate sustainability into their risk management and business strategies.

A better bigger picture 

We are also committed to playing a larger role in driving the shift to a greener future. Our partnership with German commercial bank Nord/LB on a US$500 million ESG co-investment programme is aimed at encouraging more investment into renewable energy projects; it underscores our belief that enhanced assessment of the risks around these projects is the key to ensuring they remain funded, viable and protected over the long-term.

Ultimately, by placing sustainability at the heart of our insurance business and sharing in our customers' sustainability ambitions, we can collectively effect and enable change well beyond our own industry. It is time for insurers to proactively partner with our customers by sharing our insights and expertise to help them mitigate new dimensions of business risk.

This also presents us with the opportunity to co-create solutions with our customers that can enhance not only their risk management approaches, but also their ESG commitments. Being able to advance on both these fronts is, I believe, what will define corporate resilience at a time when sustainability has never been more vital. 

The writer is CEO Asia Pacific of Swiss Re Corporate Solutions.

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