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September 10, 2007 
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Risk Watchers: The Influence of the Insurance Industry
As Green to Gold readers know, I see the "Green Wave" moving through the business world as driven by two major forces: (1) the natural world and real resource constraints, and (2) the players or stakeholders who are asking companies tough questions about environmental performance.
In this issue we turn our attention to a stakeholder group that operates behind the scenes — the investors and risk assessors who provide the capital and risk management that underpin our global economy. This group traditionally did not consider itself a player in the green business discussion; these companies tended to think, "Hey, we don't have smokestacks, so we don't have any environmental issues, right?" But that was before environmentally driven risks, particularly those associated with climate change, loomed large on the horizon. As astronomically expensive natural disasters hit with greater frequency, insurers are seeing more clearly what they stand to lose — and trying to do something about it. 
The insurers that take on the world's risks, and specifically the reinsurance industry, are now acutely aware of natural world pressures and the need for their customers (and more importantly, their customers' customers, the business community) to change. These companies have been tracking the overall cost of natural disasters for many decades and the average expense is rising every year. A couple of years ago Swiss Re, the world's largest reinsurer, saw its net income fall a staggering 41%.
Swiss Re connects this trend directly to climate change. Here's a dry but telling quote on the risks to the business thanks to increasing climate volatility: "The effects of global warming are likely to aggravate the loss situation. Weather events that have hitherto been restricted to extreme regions [are] spreading to other parts of the world. Insurers have modified their catastrophe simulation models...in the light of...an increasingly volatile climate."So what are insurance companies doing about this issue? They wield their influence with a light touch, for the moment — but this is bound to change. In this issue, we'll take a look at the pressures in broader terms and at some of the strategies these players use (instead of focusing as we usually do on your own green strategies). It's just good business to know what your influencers are up to. ~Andrew Winston, Founder, Winston Eco-Strategies, Co-author, Green to Gold (Read his "Eco-Advantage" blog here.) Comments or questions? Join Andrew and other readers online at the Eco-Strategies Forum. Banding Together to Influence the Discussion 
Like boats lashed together to ride out a storm, major insurers are closing ranks to manage the rising environmental tides. The U.N.'s Insurance Working Group, made up of 16 industry players from nearly as many countries, noted in its inaugural report that since triple bottom line performance is essential to company value over the long term, "sustainable insurance" must take environmental, social, and governance issues into account. And given the big money at stake here, insurance firms aren't shy about making their collective voice heard. Representatives of the global insurance industry — along with a range of heavy-industry emitters — endorsed a global industrial emissions-reduction pact.
(A quick plug: Another way insurers influence the discussion is to act like another Green to Gold "player": think tanks and academia, by putting out papers and research. I sit on the Advisory Council for the Marsh Center for Risk Insights, which just launched this past week, to bring together thinking on emerging business risks.) Trying to Profit: Insurance Innovation 
Global insurance firms are enormous corporations in their own right, and are no less vulnerable to environmental risk. That's why Swiss Re has made sustainability one of its four core business considerations. As climate change continues to dominate the sustainability discussion, Swiss Re has taken a number of steps to reduce its own emissions portfolio (for specifics, view this PowerPoint presentation). But risk management isn't the only factor at play here - there's money to be made as well. The company's biggest competitor, Munich Re, is engaged in a range of potentially profitable climate-management activities, from investing in alternative energy to project finance to micro-investments.
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Wielding the Stick: Raising Rates 
Companies are only just beginning to create products that actually change the rates for companies based on environmental risk assessment. In 2003, for example, agricultural insurers declined to insure farmers who planned to grow genetically modified crops. Again, this practice is still fairly new, but it will almost certainly become a bigger force in the years to come.
The Final Word: A GREEN Insurance Program The carrot counterpart to the "stick" is actually lowering rates for more sustainable companies. One new initiative is trying this out: The recently launched GREEN insurance program screens its customers for sustainability so it can offer better insurance deals. (Full disclosure: one of the players in this initiative, DOMANI Consulting, is a strategic partner of my advisory firm). In Green to Gold, we mention suppliers as an emerging green force on their customers — we will see more of this influence for sure. From Our Inbox... Jury Still Out on Cemex CSR In response to our item on Cemex's use of GPS with its delivery fleet (Creating Green Value with New Technologies), an anonymous reader pointed out that the story is a full six years old — a bit outdated for a "newsletter." Here's what Andrew had to say.  We want to hear from you! Email us your comments or questions, and we'll feature the best of them here.
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Eco-Advantage Salon Tour! Andrew's Eco-Advantage Salon Tour is coming to a city near you. Watch here for information on our next locations, dates, and participants. Did You Know? Even if you're a bit late to the party, you can still access past issues of Eco-Advantage Strategies by visiting our online archive. Find Peers and Partners If you haven't already joined the fastest growing online sustainable business community, create a profile now and start connecting. Books & Media "No executive can afford to ignore the green wave sweeping the business world. [Co-authors] Esty and Winston show how to make sustainability a core element of strategy-and profit from it." -Chad Holliday, CEO, DuPont Solution Providers |
This work is licensed under a CreativeCommons License. Copyright Sustainable Life Media Inc. 2007
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