CO2 pricing and adequate regulatory framework key to Green Deal success

The European Green Deal needs the commitment of the business community and an adequate European regulatory framework to achieve its potential, concluded a recent German Insurance Association (GDV) webinar on the role of insurance in promoting sustainability. The webinar, moderated by Kirstin Zeidler, head of communications at the GDV, featured a debate with Ottmar Edenhofer, director and chief economist of the Potsdam Institute for Climate Impact Research, and Jörg Asmussen, chairman of the GDV management board. As Mr Edenhofer pointed out, the insurance industry was one of the first sectors to recognise the importance of sustainability to its business model. That was around the turn of the century. Since then, the debate has progressed beyond acknowledging the issue to taking steps towards a sustainable future. Hence the Paris Agreement and its commitment to carbon neutrality by 2050 or, still more ambitiously in the case of Germany, by 2045 as per the new Climate Change Act adopted in May. Mr Edenhofer made the point that bringing the net-zero carbon target forward by five years was “an enormously ambitious objective”. He also emphasised the importance of attaching a monetary value to environmental risks, something that he suggested the insurance industry could work towards in cooperation with science. Mr Asmussen elaborated on CO2 pricing – he sees it as “the key to achieving climate neutrality.” He observed that it would provide an incentive to meet investor demand, which currently outstrips the availability of green investments. Take government bonds as an example – in 2019, a mere 4% of global government bonds were green, falling far short of market demand. The German insurance sector, with investments worth €1,700bn, can play a big role in contributing to the market for environmentally sustainable financial products. In fact, 60% of the insurance portfolio is already managed in accordance with sustainability criteria, as Mr Asmussen observed. The impetus for that comes not only from insurers but also from the investors themselves. “We are seeing increased investor interest in sustainability criteria. Now, they are not just asking the usual questions about security and profitability, they also want to know how clean the product is,” commented Mr Asmussen. The answer to the question of cleanliness, at least in Europe, lies in the taxonomy system whereby investments are classified according to standard criteria. These criteria are scheduled for completion at European level by 2027. Complementary to CO2 pricing, as Mr Edenhofer noted, is a supportive regulatory framework. Standard, pan-European legislation is the best way to underpin a cohesive CO2 pricing structure. Moreover, both interlocutors agreed that it is in the interests of the insurance sector to lobby for this regulation. In that connection, Mr Edenhofer expressed the hope that the European Commission would take the lead when it presents its proposals to apply CO2 prices to transport and heating in buildings, by taking steps to attach accountability criteria to its objectives. Construction is currently one of the main carbon emitters, and Mr Asmussen lamented the current absence of sustainability criteria in construction law. He sees this as an area for improvement, particularly for new builds. “Build for the future,” as he put it. The upshot is, therefore, that the current challenge in terms of sustainability lies in the fine print. What should an effective CO2 pricing structure look like? How can policymakers ensure operating conditions are conducive to such pricing? How ‘green’ is a green product really? These appear to the key issues going forward. The motivation is there. Insurers and investors understand what is at stake, as shown, for example, by their investment preferences. This is reassuring, as time is now of the essence. As Mr Edenhofer noted: “It all comes down to the next decade.”

CO2 pricing and adequate regulatory framework key to Green Deal success

Want to read this article?

Read Next

Munich Re reorganises P&C underwriting in Asia Pacific, Middle East & Africa

Claims likely to increase as vessels remain stranded in Baltimore

Climate change to cause ‘massive economic damage’

Two-paced upstream energy market falls in favour of buyers

Energy insurer Paratus launches brokerage division

Munich Re reorganises P&C underwriting in Asia Pacific, Middle East & Africa

Claims likely to increase as vessels remain stranded in Baltimore

Climate change to cause ‘massive economic damage’

Two-paced upstream energy market falls in favour of buyers

Energy insurer Paratus launches brokerage division

Want to read this article?

Read Next

Munich Re reorganises P&C underwriting in Asia Pacific, Middle East & Africa

Claims likely to increase as vessels remain stranded in Baltimore

Climate change to cause ‘massive economic damage’

Two-paced upstream energy market falls in favour of buyers

Energy insurer Paratus launches brokerage division

Related Articles