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“Advancing adaptation through CLIMATE INFORMATION SERVICES –

Results of a global survey on the information requirements of the financial sector”

Remco Fischer (UNEP FI)

Geneva, December 13th, 2011

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Content

1. The study2. Reasons for and purpose of the study 3. Respondents4. Key messages I and II5. Climate Change: Affecting financial service providers differently

Insurers and reinsurers Lenders Asset managers

6. Information needs Regional orientation Sectoral orientation

7. Information formats8. Public-Private partnerships9. Further action

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The study, Advancing Adaptation through CLIMATE INFORMATION SERVICES …

was conducted by the Climate Change Working Group (CCWG) of the United Nations Environment Programme Finance Initiative (UNEP FI) and the Sustainable Business Institute (SBI)

as part of the project “Climate Change, Financial Markets, and Innovation (CFI)”, sponsored by the Federal Ministry of Education and Research (BMBF), Germany, and supported by the German “Climate Change Finance Forum”

builds on earlier studies of UNEP FI (“Adaptation and Vulnerability to Climate Change: The Role of the Finance Sector”) and SBI (“Jointly Developing Climate Information Systems: Requirements for the CLIMATE SERVICE CENTER (CSC) from the perspective of the financial sector”)

is a contribution to the international dialogue on climate research and observation as well as information services and adaptation strategies

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Purpose of the study International efforts of climate change mitigation will hopefully lessen climate change, but

significant impacts from climate change are unavoidable

Increase of weather extremes in the last decades show the need for more professional risk management and advanced adaptation

Therefore the study:

Examines how the business of financial service providers is affected by direct risks / physical impacts of climate change today, and how they expect that exposure to develop in the future

Identifies the respective information needs of these international financial service providers

Raises some of the key issues regarding improved climate information systems for better risk management and advanced adaptation - within and beyond the financial sector

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Respondents

The study provides insights into the perceptions of international financial service providers of five continents (65 respondents, approximately one third of all UNEP FI members)

Three different types of financial services

Insurance (11 responses) Lending (35 responses) Asset management (19 responses)

They are working with a wide rage of clients in all continents and in all sectors

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Key messages of the study I

Respondents consider

their own business as well as their clients‘ business as increasingly affected by the

direct risks / physical impacts of climate change and expect an increase of such

risks in the future.

the access to existing information on such impacts and their likeliness and/or

availability at all, as not sufficient.

more precise information on climate change (impacts) as essential for effective risk

management (for identifying, quantifying, and pricing risks).

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Key messages of the study II

International financial service providers (insurers, lenders and asset managers) consider

information at the regional level within a time horizon of 5 to 10 years and the

interpretation of the reliability of climate change (impact) predictions as most relevant.

climate change expertise as a relevant (emerging) competitive factor within the

financial sector.

the development of climate information services as a relevant private and public task.

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Climate Change: Affecting financial service providers differently

regarding the economic effects and perceptions of climate change impacts and risks, it is relevant to differentiate between different types financial service providers.

the individual financial branches differ significantly in terms of their types of risks (insurance, credit and investment risks) and time horizons (ranging from hours and days to years and decades).

accordingly, their information needs regarding climate change, also differ significantly.

predictions and analyses will have to be customised to the type, location, and customer base of the financial institution concerned.

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Insurers and reinsurers

Eleven insurers participated. They

recorded an increase in weather-related losses (10), and expect these to increase (11)

reported an accumulation of such risks (8), and expect accumulation risks to increase (11)

expect risks to change (8), and anticipate these changes will accelerate in the future (9).

Amendments to insurance products are happening (7) or will become unavoidable (11)

Insurers and reinsurers are developing new insurance products (9) or plan to do so in future (11)

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Credit and Surety Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Aviation, Marine and Transport Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Casualty and Liability Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Financial Lines Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Life Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Question 2 – relevance of climate change?

Motor Insurance

0.0

0.5

1.0

1.5

2.0

2.5

now 10 years 10 years later

Property Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Engineering Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Agroforestry Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Accident and Health Insurance

0.0

0.5

1.0

1.5

2.0

2.5

3.0

now 10 years 10 years later

Average Relevance of Climate Change to Risk Management and Transfer Activities Over Time

0.0

0.5

1.0

1.5

2.0

2.5

Now 10 years 10 years later

Rel

evan

ce

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Question 3 – insurer action: processes

Response to Climate Change in the Past 5 Years

13

18

18

22

26

26

26

31

31

34

35

0 5 10 15 20 25 30 35 40

Insurance-linked securities

Traditional reinsurance and retrocession

Claims management

Loss reduction measures

Risk survey

Risk mapping

Product development

Risk research

Loss prevention measures

Risk quantification and modelling

Risk underwriting

Lin

es

of

ins

ura

nc

e

Number of Respondents

12

Degree of Effectiveness per Government Action at a International Level

2.50 2.44 2.38

1.56 1.44 1.33

0.00.20.40.60.81.01.21.41.61.82.02.22.42.6

Weather Research Models Subsidies Drainage Irrigation

Government Action

De

gre

e o

f e

ffe

cti

ve

ne

ss

Question 8 - to do´s for government - internationally

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Lenders

Less than half of the respondents feel that “already today” their credit transactions are affected by: An accumulation of risks (17 out of 35) Changing risk patterns (15 out of 35), and Increased credit losses due to direct, physical effects of climate change (12 out of 35)

But about 80% feel climate-change-induced risks will be more important “in the future”

And about 80% will modify and/or extend credit risk assessment practice to address those risks

Lenders’ current practice on treating climate change

as a risk factor

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Asset managers

Analysts and asset managers rely on highly aggregated information, or self-reporting by companies

Asked about the integration of direct effects of climate change when conducting due diligence and stock picking

7 out of the 19 answered: “Yes, systematically always”. 9 out of the 19 replied: “Yes, but only in exceptional cases”

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11.04.23

Information needs

Less than half of the respondents feel they are sufficiently well-informed. Even for historical weather data, less than half (43%) feel adequately informed.

The majority of respondents rated historical weather data nearly as important information as climate predictions.

The highest importance regarding the significance of information is attached to the category “advice on reliability of predictions” (about 80% of respondents).

Climate change predictions for the local and regional level and the time horizon of the next 10 to 30 years are not available or reliable enough for many purposes of the financial sector and the available information is not in a user-friendly state.

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11.04.23

Regional orientation

Climate change is affecting the various regions of the Earth in different ways.

There is a large information gap for continents with a high number of developing countries, but the demand for better climate information refers to all macro-regions of the world, not only those where information infrastructure is less developed.

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11.04.23

Sectoral orientation

A key question for financial services providers is how exactly different client segments and economic sectors will be affected by climate change.

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Information formats

Respondents are interested in a wide range of different information formats:

Periodical reports about the effects of climate change on certain sectors and companies (61)

Best practice cases on tackling risks and opportunities in the financial services industry (60)

Periodical reports about the effects of climate change on certain regions (51) Further training (seminars / conferences) (33) Online services (FAQ etc.) (27) Ad hoc statements / Expert opinions (27) Periodical reports about the state of the art in climate science (27)

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Public-private partnerships

A portion of the required services can be generated privately – and therefore might be seen as a private good.

Reliable climate change information for risk management and adaptation measures within the private sector needs a long “value chain” of research, public climate (impact) models, open debates on and interpretation of quality and confidence of these models and their predictions as well as access to standardised (historical) weather information.

The respondents (62 of 65) expressed a broad and strong interest to collaborate with weather and climate data and information providers, research institutes, and other partners regarding the (further) development of various information services and formats: Sectoral and regional studies, Loss and catastrophe models and various databases

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Further action

The survey participants are particuarly unsure about the nature and implications of how exactly climate change related risks will affect their financial firms and their clients.

This uncertainty needs to be reduced. Predictions and analyses will have to be customised to the type, location, and customer base of the financial institution concerned.

Certainly the questions of how to design, organise, and finance a worldwide information architecture and related services drawing on public and private actors needs much more discussion and step by step development – bottom up from interaction on a regional and national level and top down from a global perspective.

It is time for a broader national and international discussion on the different roles and

responsibilities as well as types of co-operation of the public and the private sector actors – along the climate information value chain.