World Economic Forum - Global Agenda Council on Insurance and Asset
Management
Statement on Prerequisites for Large Scale Private Investment in Climate
Solutions
Need for private finance and investment
The insurance and asset management industries have a strong interest in the success of climate
change mitigation and adaptation strategies. Insurers around the world today cannot escape the
impact of natural catastrophes and extreme weather events. Also, the stability and sustainability
of economic growth may be adversely affected were global warming to lead to increased
frequency of natural catastrophes, or create water or food shortages in the future.
Critical to the response to climate change is finding sufficient financing and investment for the
development and deployment of greener technology, especially low carbon energy. With public
finances in many countries under great pressure, now is the time to mobilize private investment,
specifically long-term capital managed by responsible financial institutions. With over USD 54
1
trillion of assets under management , the global insurance and pension industry represents an
important source of capital for potential “green” investing. Nonetheless, policy makers must
recognize that insurers and pension managers are fiduciaries, investing on behalf of policyholders,
shareholders, and pension funds, and are therefore looking for predictable returns commensurate
with risk. Currently, global policy and regulation remains too uncertain, making adequate risk
assessment challenging for many of the most important large scale climate solutions, including
energy efficiency, renewable energy, reducing emissions from deforestation and degradation
(REDD+) and Carbon Capture and Storage (CCS). Moreover, continued large scale subsidies for
fossil fuels tilt the investment incentives against those sectors.
Our Call for Action
To create the necessary environment for investing in climate solutions, we strongly urge policy
makers in Durban and in the world’s largest economies to: (1) make specific progress in five key
areas and (2) establish high level and technically experienced working groups to lay out a clear
road map for delivering a “Green Investment Revolution” within this decade.
Five Urgent Policy Imperatives to Unlock Institutional Investment for Climate Solutions in
the Current Decade
1. Establish a Green Climate Fund (GCF) and mechanisms to mobilize adequate
private sector investment. One of major outcomes of last year’s climate talks in Cancun
was agreement to form the GCF to channel the substantial financial commitments made
in Copenhagen and Cancun toward climate solutions in developing countries. Concrete
steps must be taken to involve sufficiently experienced private sector technical and
strategic input to ensure that the mechanisms enable rather than immobilize or
discourage finance from institutional investors. Explicit consideration should be given to
the role of risk in the flow of private funds. Insurers are risk based investors, and
insurance regulatory regimes apply risk-based capital approaches. One of the policy
challenges of the GCF in mobilizing private finance and investment will be to develop
mechanisms to mitigate risks, especially policy and political risk.
2. Establish a Predictable Macro Environment for Green Investing. To unlock
investment it is important for the world to create stable policy and regulatory
environments for energy conservation and conversion of national energy systems to
renewable energy. This must include stable and predictable pricing and tax regimes to
1
Source: Joachim Faber, Global Agenda Council on Insurance & Asset Management, Low Carbon Economy Paper
allow for the necessary risk assessment for long-term large scale energy finance.
Timetables to reduce subsidies that favor fossil fuels over renewables are a priority,
including necessary countermeasures to reduce hardship to vulnerable populations,
followed by the agreement of a predictable price for carbon.
3. Create a favorable climate for early adoption of energy saving technologies. Many
energy saving technologies for buildings, lighting, and commercial use have strong
economic logic but are not deployed due to high transitional or upfront costs. Removing
barriers to adoption and providing transparent and predictable tax treatments and
adequate mechanisms for finance will facilitate adoption and will help make investment
more predictable.
4. Commit to rapidly expanding “Climate Bonds” as a new and liquid fixed income
asset class. Insurers and pension managers are the world’s largest investors in bonds.
Bonds, where the proceeds are used for climate solutions, could become an attractive
asset class if the payment terms and credit quality are attractive. Approximately USD 16
billion of climate bonds are currently issued, mostly by multilateral financial institutions - a
tiny figure when compared to the $500 billion per year deemed necessary by the
International Energy Agency to hold the increase of global average temperatures below 2
2 3
degrees Celsius , or the 91 trillion of total outstanding bonds in the world . The largest
economies and multilateral financial institutions can and should move quickly to expand
climate bonds at least five-fold by 2015.
5. Move quickly to establish a large scale long term funding mechanism for Reducing
Deforestation and Degradation of Forests (REDD+). REDD+ was promoted in
Copenhagen and Cancun as a near term strategy to achieve big reductions in emissions
while other strategies are put in place. Several countries and provinces are willing to
adopt REDD+ as part of low carbon growth strategies rather than clear their forests for
mining, ranching, or palm oil. However, large scale long term commitments require a
financially able counterparty who can commit to pay for REDD+ performance and
ultimately for carbon. Currently there is no institution (or market) that can sign multiyear
contracts for REDD+ performance (or carbon) at anywhere near the scale needed.
Establishing a Road Map for a “Green Investment Revolution”
The Council urgently calls on policy makers and industry leaders to lay out a Road Map for a
“Green Investment Revolution”. This discussion should begin at the World Economic Forum
meeting in Davos in January and be maintained during other public and industry settings
throughout 2012.
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The Global Agenda Council on Insurance and Asset Management
For several centuries, insurance has helped individuals devise mitigation strategies for risks that
often cause extensive human and property losses, strain business activities and deplete wealth
accumulation rapidly. Through collaboration with policy-makers, supervisors, international bodies
2
Source : Institutional Investors Group on Climate Change (IIGCC) 2011 Press Release « World’s largest
investors, worth $20trillion step up call for urgent policy action on climate change », 19 October 2011
3
Source : The Asset Allocation Advisor, Values of the World Stock and Bond Markets, Dec 2010,
http://www.aametrics.com/pdfs/world_stock_and_bond_markets_dec2010.pdf
and technical experts, today’s insurance industry is constantly experimenting with innovative and
more effective ways to provide protection, and is a quintessential stabilizing force in society.
The Global Agenda Council on Insurance & Asset Management, as truly multistakeholder expert
group, seeks to identify key issues that the industry faces, by exploring possible mechanisms,
necessary regulatory alignment, global market development, new business practices and public-
private solutions that define a new industry landscape. It also addresses how insurers and asset
managers, under a friendly regulatory and investment environment, can make broader
contributions to society.
More information on the World Economic Forum’s website :
http://www.weforum.org/community/global-agenda-councils
For further information, please contact Abel Lee at abel.lee@weforum.org
List of Council Members
Joseph Bae Managing Partner, KKR Asia, Hong Kong SAR
Peter Beshar Executive Vice-President and General Counsel, Marsh & McLennan
Companies (MMCo), USA
Volker Deville Executive Vice-President, Allianz SE, Germany
Joachim Chief Executive Officer, Allianz Global Investors, Germany
*
Faber
Sam Ghosh Chief Executive Officer, Reliance Capital, India
Daniel M. Economic Counsellor, International Association of Insurance Supervisors (IAIS),
Hofmann Switzerland
Donald P. Chairman, Prudential Corporation Asia, Hong Kong SAR
+
Kanak
Kurt Karl Chief US Economist, Swiss Re Financial Services Corporation, USA
Howard James G. Dinan Professor; Professor of Decision Sciences and Public Policy,
Kunreuther The Wharton School, University of Pennsylvania, USA
Seraina Maag Chief Executive Officer, North America, XL Insurance, USA
Paul Mattera Senior Vice-President and Chief Public Affairs Officer, Liberty Mutual Group,
USA
Michael Head, Economic Research, Munich Re, Germany
Menhart
Shinichi Okabe Chief Consultant, Tokio Marine & Nichido Fire Insurance Co., Japan
Geoff Riddell Member of the Group Executive Committee and Regional Chairman, Asia-
Pacific, Middle East and Africa, Zurich Financial Services, Hong Kong SAR
Therese Chief Executive Officer, National Association of Insurance Commissioners, USA
Vaughan
+
Denotes Council Chairman *Denotes Council Vice Chairman
Disclaimer: The views expressed in this Statement are purely those of the members of the Global Agenda
Council on Insurance and Asset Management and neither reflect the views of the World Economic Forum
nor the institutions with which the members are affiliated.