Reduced exposure

The latest assessment report by the United Nations Intergovernmental Panel on Climate Change indicates that global temperatures will rise beyond 2 C during the 21st century, assuming that no immediate action to rapidly cut emissions is taken. The report also shows that extreme weather conditions, such as severe heatwaves and droughts, are becoming more common.

While China alone cannot solve what is effectively a global issue, its actions have enormous potential to help environment protection positively. The country's goals to peak carbon emissions before 2030 and achieve carbon neutrality before 2060 aim to substantially reduce global greenhouse gas emissions to limit global temperature increase. In addition, green development is highlighted in its current economic plan and its overall stance impacts the environmental, social and governance goals of many international and local businesses, which creates a positive knock-on effect. China is playing an increasingly significant role in promoting green development and environmental protection, regionally and internationally.

Since 1980, natural catastrophes have caused trillions in losses and cost the lives of almost a million people according to Munich Reinsurance's database. However, only about one-third of these losses were insured. This figure does not include indirect losses caused by extreme weather, such as the breakdown of supply chains, banks experiencing a surge in loan defaults, or power plants having to scale back production. In fact, risks should be more properly controlled in advance.

For many members of the public and in the business and manufacturing sector, reinsurance may be an unfamiliar concept. However, it has been used as an important financial instrument in managing natural disaster risks for decades, and can contribute in assisting global green development.

For example, reinsurers can provide climate resilience solutions, which are private or public-private risk transfer schemes, to cover losses from severe weather events. We also notice an increasing interest from banks and asset managers to develop business-driven partnerships to manage the climate-related long-term risks. Examples are mortgage or real estate portfolios.

At the same time, the carbon emission goals set by the Chinese government not only require businesses to transform their operations in a more sustainable direction, but also create new opportunities for the international financial industry.

China is by far the biggest photovoltaic market not only by installed capacity but also by the numbers of produced and exported PV panels. This is an opportunity for the global insurance industry to work with Chinese manufacturers to bring the local Chinese solutions to the world and contribute to more efficient green energy generation through solar power and other low-carbon technologies. China, with its vast land, has many options to generate green energy, from the offshore wind farms along its coast to the sun solutions in the west of the country. These will require intelligent and new ways of energy transmission and energy storage systems.

The insurance industry is working closely with the research community and in continuous dialogue with leading technology providers, to better understand their need for risk solutions and to help new climate technologies make their breakthroughs in the market. This enables institutional investors to successively expand their investments in renewable energies and climate start-ups.

We believe the Chinese market offers strong potential for climate-friendly economic growth with its vivid environment of new technologies and fast-changing risk scenarios, and we see that many global businesses are keen to invest in and equip themselves with the latest risk control know-how, data and modelling abilities to meet new demands in China.

The co-creation of ideas, solutions, and investments in new and climate-friendly technologies will be essential to further bolster China's climate change efforts. Addressing climate change is a challenge for all of us and one that the insurance sector is very much committed to, through the contribution of expertise and knowledge. As with all risk management, preparation and collaboration across industry, business, governments and societies is critical. Together we can all be part of the solution.

The author is a member of the Board of Management of Munich Reinsurance Company. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

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