Abu Dhabi, UAEThursday 23 May 2019

Insurance companies – an unlikely ally in the fight against climate change?

Tackling this problem requires decisive action and few businesses have more to lose

Extreme weather, rising sea levels and melting glaciers are just a few signs of the threat the environment is under. Getty
Extreme weather, rising sea levels and melting glaciers are just a few signs of the threat the environment is under. Getty

A couple of weeks ago, the Intergovernmental Panel on Climate Change (IPCC) released a special report urging governments and industries to work together to keep global warming below 1.5C. According to the organisation, a critical point has been reached. If no effective action is taken in the next few years, the damage to the planet will be irreversible.

In spite of the wealth of evidence accumulated and shared since 1988 by the IPCC and many other expert groups, why do many people still not seem to care about the dramatic consequences of climate change? That is a question that heads of state, political, philanthropic and academic leaders are still scratching their heads over.

One of the first explanations is that, despite what many of us might think, being informed about an issue rarely leads to people adopting the right behaviour. If this were the case, no physician or health professional would ever smoke. As much as we like to portray ourselves as rational creatures, this is not how human brains function.

Second, for a long time, the negative consequences of climate change remained quite abstract for many of us because they were not perceived as immediate. There was therefore very little incentive to make change happen.

However, things have changed over the past decade – and not for the better. Extreme weather, rising sea levels, melting glaciers, an increase in respiratory diseases and a growing number of climate refugees − these are some of the many reminders that climate change is no longer a future possibility. It is now a solid fact of the present that has resulted in dramatic and visible consequences. This is why the majority of the world’s leaders now believe that fighting climate change and creating a sustainable future are top priorities.

The problem is that there is a clear gap between what leaders want and the way the overwhelming majority of people live. For much of the world’s population, protecting the environment is an unaffordable luxury.

In developed nations, most people answer “yes” when asked if they care about the environment. For fear of ridicule or social stigma, very few people would dare to say “no”. Psychologists call this bias “social desirability”.

Despite this pressure to say the right thing, the truth is that many people will not have given a great deal of consideration to matters of ecology, simply because they will have been too busy working, looking after their families and getting on with the often tricky business of everyday life.

Finally, because the immediate rewards – which the human brain always favours over deferred benefits− of eco-friendly behaviour are few, many people use the cost of changing established habits as an excuse not to put it into practice. From the dangers of cycling in major cities to the comparatively high price of electric cars, reasons to keep doing the same things in the same old ways are easy to find. It is also often said that taking individual steps towards a cleaner, more energy-efficient future are useless if the rest of the world is not acting accordingly.

So have we already lost the war against climate change?

Perhaps it’s not too late. The work of Professor Richard Thaler from the University of Chicago, the 2017 winner of the Nobel prize for economics has influenced numerous governmental and private organisations, allowing them to better understand how humans beings make decisions, and how to help them adopt behaviors that are beneficial to individuals and society at large.

Last week William Nordhaus from Yale University was one of the winners of the 2018 prize for “integrating climate change into long-run macroeconomic analysis”. Mr Nordhaus is a strong advocate of a global carbon tax as an efficient way to address climate change.

One thing is for sure, a systemic approach that brings individual behaviour and macro-economic policy together is our only hope of meaningful change. Here, the insurance sector could play a vital role.

According to the insurance firm Swiss Re’s latest study, “global economic losses from natural disasters and man-made catastrophes reached $337 billion in 2017”. This is an all-time high. Insurance and re-insurance companies carry much of the financial burden of the consequences of climate change, providing cover for homes, schools and businesses.

The insurance industry wields considerable power and influence. Last month Axa signed the Tobacco-Free Finance Pledge, a global initiative calling upon leaders from the public and the private sector to divest their tobacco assets. Meanwhile, Allianz Capital recently invested $3.5 billion in clean energy, and Swiss Re announced in July that it will stop insuring companies with more than 30 per cent exposure to thermal coal across all lines of business.

It is in the best interest of insurers to safeguard the properties it provides cover for against ravages of climate change. Let’s hope that it can successfully lobby fossil fuel producers and companies that use their products to change their habits before it is too late.

Professor Olivier Oullier is the president of Emotiv, a neuroscientist and a DJ.

Updated: October 16, 2018 05:37 PM