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Take Five: Eye of the Storm

This week’s major stories impacting ESG investors, in five easy pieces.  

Insurers provided a timely reminder of the cost of climate change in a week where policy engagement topped the investor agenda. 

Who knew? – Swiss Re Institute’s assessment of natural catastrophe losses managed to be shocking and predictable simultaneously. Thanks largely to Hurricane Ian, insured losses for 2022 already top US$115 billion, continuing a trend of 5-7% average annual increases over the past decade. Such extreme weather events are becoming more frequent and costly. “When Hurricane Andrew struck 30 years ago, a US$20 billion loss event had never occurred before – now there have been seven such hurricanes in just the past six years,” said Head of Catastrophe Perils Martin Bertogg. But ‘secondary perils’ also left their mark, such as the rains that flooded Australia in Q1, costing US$4 billion, or France’s severest-ever hailstorms (€45 billion). Swiss Re pointed out that insurers only cover 45% of economic losses, raising concerns about a vast and growing protection gap. Like many in the sector, Swiss Re has been refining its fossil fuel investment policies as well as its forecasting capabilities, moving in line with the IEA’s Net Zero by 2050 scenario. But the slow pace of change both individually and collectively lends credence to campaigners’ claims that regulatory action is needed to help insurers help themselves.

Plastics, Bertrand – The European Commission revealed more of its circular economy (no, not that sort) plans this week, including rules to reduce packaging and increase use of recycled plastics. Reception for these positive steps was offset by concerns that lobbying had pared back accompanying measures, and there are similar worries globally about the role of large corporate producers and users in shaping extended producer responsibility legislation. The issue extends to UN-backed talks this week in Uruguay aimed at establishing an international legally-binding instrument to end plastic pollution, where a key agenda item will be to determine how best to represent the views of all stakeholders.

If you can’t beat ’em – Scheduled between COP27 and COP15, the Principles for Responsible Investment’s Barcelona bash could hardly help focusing on investors’ environmental priorities – but equally welcome was the high profile of social issues and increased recognition of the importance of talking to governments. The PRI’s new Advance engagement initiative, which aims to raise corporate standards on human rights, explicitly includes policy advocacy, while its conference agenda reflected an appreciation of the need to engage policymakers as much if not more than corporates. The soon-to-be-launched Nature Action 100 collaboration says advocacy will be core to its activities, while a report on stewardship in Australasia says the area will “evolve and become more prominent” among responsible investors. A redressing of existing imbalances is long overdue.

Paris for plants – Investors should find many opportunities to hone their advocacy skills in Montreal over the next two weeks, with the UN Convention on Biological Diversity launching the second half of COP15 this weekend. The Finance for Biodiversity Foundation has assembled a delegation of 26 financial institutions, including Aviva CEO Amanda Blanc, who will argue for a robust post-2020 Global Biodiversity Framework, and alignment of private and public finance with its goals, as outlined in a new position paper. Debate at the summit will also be informed by State of Finance for Nature report published earlier this week by the UN Environment Programme, which not only makes the case for increased investment in nature-based solutions, but also highlights up to US$1 trillion in nature-negative subsidies and other public sector support.

New year, same battles – There is likely to be an upsurge in lobbying in Brussels in the new year after the European Council issued a position on the proposed Corporate Sustainability Due Diligence Directive that has been seen as watering down its key goals on protection of the environment and human rights. Not only do member states wish to limit its reach largely to corporate oversight of upstream business relationships, but their negotiating position allows individual countries to decide the extent of compliance required of financial institutions. As one interested observer noted, “A lot of work ahead in the coming months”.

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