Climate change is a huge, complex, and often confusing issue, so it can be difficult to understand the impact on our own lives, or what we can do to make a difference.
But action is needed, as the threat is real, pressing, and growing all the time.
This summer global records were broken for the hottest day, hottest month and warmest sea temperatures, alongside wildfires, flash flooding and record low levels of Antarctic ice.
And the threat looms close to home too, with devastating impacts. Last year, France experienced 33 heatwave days resulting in more than 10,000 additional deaths. In Italy, the River Pô’s flow reduced by 50%, resulting in salination of nearby fields, and in the UK fire services fought 25,000 wildfires, four times the rate recorded in 2021.
The changing role of brokers and insurers
So climate change is clearly happening, and it’s having real-world effects, but the response is far less coherent. Governments around the world have started to come together to seek solutions, but the fightback also needs to start locally, and many commercial enterprises are looking to the insurance industry for answers.
“When you think about the current role of insurance brokers in the wider business world, I’m 100% sure that role will be very different in ten or twenty years’ time,” says François Lanavère, Head of Strategic Partnerships at AXA Climate.
He says that brokers have always looked at the systemic challenges their clients will face in the future, and climate change represents the most pressing of those today.
“If you can understand why climate change is happening, and the impact it will have, you can design your response proactively, rather than reactively. Brokers need to change their role, as there is a clear emergency to act, both for themselves and their clients,” he says.
Placing education at the centre
But before action comes education, which is why AXA Climate School has been established. The online learning tool was set up to help educate the business world on the risks that climate change brings to our societies and economies. With nearly 150,000 AXA employees having completed the course, it’s now been made available for free to brokers and their clients.
“The content in AXA Climate School is explained in simple terms, providing accessible training for companies and their employees to help them transition towards a more sustainable way of working,” explains Dougie Barnett, Director of Mid-Market and Customer Risk Management at AXA Commercial.
“It’s about making regenerative business practices universal. If climate isn’t on your agenda as a broker it should be, because it will affect your performance and results for decades to come.”
The importance of acting now
While most in insurance are at least aware of the physical impact of climate change, François argues that there is an additional pressure that brokers and their clients may not be considering – the reputational impact of not acting.
“Non-governmental organisations (NGOs) and shareholders are pushing for corporate transition, and litigation is driving that,” he explains.
“NGOs are suing boards of directors as well as the business, so there is an obvious directors’ and officers’ risk there, but the big one is on reputation and shareholder value. There is a direct link between green litigation and shareholder value.”
In addition, he says that regulation encouraging green practices will only increase from here. “Companies need to be prepared, but they are not,” he warns.
As a result, boards are increasingly losing their way in managing the issues climate change raises. According to a survey conducted by the European Institute of Business Administration:
• 85% of boards admitted they needed to increase their climate knowledge
• 46% said the board had insufficient, or no, knowledge of climate change’s impact on financial performance
• Nearly half (49%) said that climate change is only slightly, or not at all, integrated into the company’s investment decisions
These figures are despite 75% of boards believing that climate change is an important factor in their company’s future success. They know there is a problem, but they don’t know how to approach it and that, believes François, is where the insurance industry can step in.
Risk management is a key part of the solution
“There is a big opportunity to improve how we mitigate climate change, and how we get CEOs on board with this. They are concerned, but not confident in the ability of risk management to manage the change,” he says.
“And the people in charge of risk in businesses aren’t taking responsibility for climate change,” he says, pointing out that 65% are not playing a concrete role in ESG risks yet.
“The people in charge of risk should be responsible for this, but if we don’t involve them, they won’t do it. This is our role,” says François.
But before the industry can assume that role effectively, it must educate itself, and that is why AXA Climate School exists.
“Education is so important,” says Dougie.
“Through AXA Climate School, we’re able to provide education that makes it simple to have the conversations with customers. It can seem very complex, but you can bring it down to a level where you can explain the impact their business will experience, and AXA can support on getting the conversation started.”
He says that the industry needs to get out of the habit of short-term thinking and start looking at the impact climate change will have in five to ten years’ time.
“We can do all sorts to support brokers and their customers, but AXA Climate School is the starting point and it’s free of charge. If brokers take part, we can support them and their customers in their planning, and to help with that initial engagement we’ve produced a suite of materials to help brokers promote it to their employees and their clients,” says Dougie.
The need to adapt
And the core of that planning is already within the skillset of brokers. But rather than focus purely on the mitigation of risk, as the insurance industry has largely done to date, François advocates a far greater focus on adaptation.
“The risk team in a company will usually have someone in charge of mitigation, but who’s in charge of adaptation? Nobody really,” he says, which creates a real opportunity for insurance to add real value to its client base in the coming years.
“Adaptation is about diagnosing the impact of climate change on the assets and, once we understand that, putting in place the right frameworks before starting work on adaptation measures,” he says.
The traditional mitigation approach would see a company move its operations somewhere safer, but that option is less and less viable now. Instead, François suggests the industry should be encouraging clients to look at adaptation measures such as protecting the assets in situ, changing existing processes to create greater resilience and even trying to accommodate the known hazard, such as employing water pumps on site.
“There are many ways businesses can adapt to climate change risk,” says François.
“Make sure the adaptation is someone’s specific job. Do the research and then write the governance that can be shared with shareholders, who will be happy to know there is a plan in place, as will the insurer. Completing AXA Climate School will help any broker with this process.”
Looking forwards, not backwards
And as Dougie says, it’s all about getting out of the habit of looking backwards. The industry must become much more forward-looking if it’s going to help clients protect their assets in the face of the worst that climate change can do.
“We have to be more open to looking forward and making judgments,” he says.
“We have to employ the right people with the right knowledge, and we as insurers have to share our data and our predictions with brokers and their clients so everyone can plan properly.”
