The ABI’s climate change initiative has persuaded key insurance companies to abide by a set of principles that will be the template for a new way of working. Andrew Holt reports

?The launch of the ABI’s ClimateWise initiative at its conference last week is the first real industry attempt to deal with the huge challenge of climate change.

In this, the ABI can say it has achieved something fundamental that is a template for how companies confront the issue going forward. While there are some questions that need answers, the overall perception is very positive.

The initiative has succeeded in signing up 37 companies to a list of criteria they must abide by (see box). Convincing all the insurance big hitters, including Allianz, AXA, Aviva, Royal Bank of Scotland, Zurich, Lloyd’s, and reinsurance giants such as Swiss Re and Munich Re to sign up is a significant achievement.

It is no wonder that the Prince of Wales should have enthused at the launch that “the insurance sector is now in the vanguard” of dealing with climate change. Although he qualified this by highlighting there is still a lot more to do.

The Prince of Wales’ Business in the Community initiative has been behind ClimateWise since the planning stage, so the Prince has seen at first hand how the industry has been focused on the issue.

For AXA chief executive Peter Hubbard, the challenge set to the industry is part of the appeal of the initiative. “The principles set a framework for us to take up this exciting challenge of changing behaviour, raising awareness and encouraging new ways of working.”

Hubbard is not indulging in hyperbole here. If truly successful, this initiative will change how insurance works. The principles themselves boil down to three areas: establishing greater risk awareness on carbon emissions; pursuing greater ethical investments and producing more green policies and rewarding customers for using green friendly products.

On risk awareness, this is only an extension of what insurance companies are already doing, so should not be onerous. John Coldman, chairman of reinsurance broker Benfield, says it is crucial to embed the risk of climate change into his company. “The challenge is to get it into the whole DNA of our organisation.”

On the investment side, Andrew Torrance, chief executive of Allianz Insurance, is in an ideal position as a major institutional investor. Torrance stated that the insurer was investing in more renewable energy sources. And as a global group it can make an impact beyond its UK operation.

The overriding aim of the initiative is to put the issue of climate change on the boardroom agendas of insurance companies.

For Luke Savage, director of finance, risk management and operations at Lloyd’s, this is key. “We believe that Lloyd’s senior management team has recognised the significance of climate change. Going forward, we will provide disclosure as part of our annual reporting on Lloyd’s progress which will be in line with best practice,” he says.

But what happens if companies fail to reach the criteria they signed up to? Will they be kicked out of the initiative? Tom Woolgrove, managing director of HBOS General Insurance, says there is no room for slackers.

“We have been clear that ClimateWise must realise significant behavioural change. Every signatory will be required to report annually on their compliance with the principles. And every year an independent audit will be published to share best practice and show gaps, where they exist.

“Ultimately, if companies do not deliver meaningful results they can no longer be part of ClimateWise.”

For some like Sir Crispin Tickell, a former environment adviser to Margaret Thatcher, the flaw in the ABI’s initiative is its failure to connect with the government.

“This is moving in the right direction, but there is a flaw in making the transition into policymaking which needs to be done for it to be truly effective,” he says.

Conservative MP and chairman of the all party insurance and financial services group John Greenway agrees. “This [initiative] deserves a thumbs-up. It is leading by example. But there needs to be decisive action from the government, otherwise we will see the same catastrophic events occurring over and over again.”

The ABI says that not having government backing is not from the lack of trying. Tom Woolgrove adds: “We have been getting more robust with the government. Our language has hardened and we will be more robust.”

So what about the criticism that this project is all hot air and even a case of being too little too late? ABI director general Stephen Haddrill says: “We may get criticism. But the simple fact is that individual companies have been doing a lot in this area. Now we want to raise our game and establish a best practice across the market.”

The last word goes to the ABI’s assistant director, property and creditor Jane Milne, who sums up the situation. “We are doing this not for altruistic reasons, but for self interest, albeit enlightened self interest.”

What insurance companies are doing

AXA: It believes that it has a responsibility to inform its SME customers on issues of risk and, on the basis of its 2006 research, has produced a booklet, Preparing for Climate Change, a practical guide for small businesses. This offers general advice on how to manage the risks that climate change presents such as floods, storms, freeze, heat wave and disease. Its core is an ABC of what businesses can do to reduce risk

Allianz: From October, all electricity supplied to the company will come from renewable sources via suppliers E.ON and Scottish and Southern. The company is working with the Carbon Trust to reduce energy consumption by 10% in 2007. Currently 25% of all paper, cardboard, glass and plastic waste is recycled but efforts continue to improve these volumes.
Lloyd’s: The report Adapt or Bust addresses the issues and impact of climate change and the steps the insurance industry might take to
prepare for the increasing volatility of
climate change; it brings the latest science from academia into the insurance world. The Lloyd’s report What Next on Climate Change was produced following a successful 360 Live Debate attended by more than 200 executives from insurance, business, government and science.

Swiss Re: In April 2007 Swiss Re announced the successful close of the $447m European Clean Energy Fund, one of the largest funds of this type in Europe. The fund, a UN-accredited investment vehicle, provides capital to European clean energy projects. It also grants carbon credits or tradable renewable energy certificates.