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Statement to the 2nd UNEP Conference on Environmental Issues in the Financial Services Sector with Particular Reference to the Insurance Sector

Tokyo, 2 December 1997 - It is a distinct pleasure to welcome you to this second Conference of the UNEP Insurance Initiative on "Environmental Issues in the Financial Services Sector". I want to thank many of you for helping us to structure the agenda. I would also like to take this opportunity to express my thanks to the members of UNEP Insurance Steering Committee for all their efforts and to the "Insurance Industry Initiative for the Environment" for co-sponsoring this event.

This morning, we have over 200 participants from leading insurance companies and financial service institutions from Japan and other countries. This level of interest among insurers demonstrates the importance your industry places on issues like environmental risk management, green investment and particularly environmental issues like climate change prevention and mitigation.

People often ask "why is the insurance sector increasingly active in the environmental arena since this industry is not an active polluter?" Well, as you know, there are several answers to this question. I shall emphasize three.

First, environmental risk is business risk for the insurance industry. The sharp increase of claims related to environmental disasters and extreme weather events has shown that there is a need for the insurance industry to find manageable answers to problems ranging from local environmental pollution to global climate change. Loss-prevention is more advantageous for insurers than paying out avoidable claims.

Second, as a major investor, the insurance industry has a responsibility for managing long-term savings prudently. Possible impacts of climate change and other environmental risks on their pension and life investment portfolios cannot be ignored, as some of the sectors in which you invest are particularly vulnerable to environmental problems. Conversely, the growing trend towards environmental investment offers opportunities for the establishment of specialized "green" funds.

The third reason, of course, is one that is common to many business sectors - not only the insurance sector. Insurance companies own huge physical assets. For example, about 500 million square feet of building space in the United States alone. This corresponds to an energy bill of about $750 million each year. Insurers have an opportunity to green their internal operations by reducing energy consumption through the use of energy-efficient heating and cooling, lighting, and computer system. Experience means that this is an investment that pays off in a very short time-frame. Another spinoff of greening operations, of course is the important signal that it sends to the marketplace.

The main objective of today's meeting - is to facilitate a dialogue and exchange of views among insurers especially here in Asia. As you know, a tremendous amount of effort is currently under way in assessing and managing the relationship between the environment and the financial services sector. It includes further work by the insurance and re-insurance sectors in quantifying sectoral and regional risks. It also includes greater targeting of investment funds towards the multi-billion dollar market in green goods and services.

For over 20 years, UNEP has worked closely with industry in developing environmental management strategies. In 1991, we started working with a small group of commercial banks to try to understand that industry's "niche" in the environmental agenda and so UNEP's Financial Services Initiative was born.

Two years ago the "UNEP Statement of Environmental Commitment by the Insurance Industry" was officially launched in Geneva. Since the launch, more than 70 insurance companies from 25 countries have signed on to the statement. They have committed themselves to incorporating environmental considerations into their operations and are adopting best practices. I believe that this is a very impressive take-off and I hope that you can keep up the speed with which you are introducing and implementing the environmental agenda in your industry.

Over the past two years we have also raised awareness of and interest in this Initiative to the point that broad appeal within the industry led to the formation of the association of insurers in July this year. The initiative has grown from a small group of individuals being asked to advise UNEP to an industry-led, industry-driven programme that operates in close collaboration with UNEP. UNEP remains an integral part of the process and provides the important environmental dimension, but does not on its own run the initiative. This is an excellent example of the kind of catalytic role UNEP is best suited to play and which I hope will be replicated in the future, with other sectors.

Many of your companies have concluded that insuring risks and preventing accidents go hand-in-hand with a precautionary approach to environmental issues. You also recognize that your efforts to protect human life and property and prevent catastrophic events can play a vital role in safeguarding the environment for future generations.

UNEP does not expect the insurance industry to act as an environmental police force, monitoring and enforcing compliance of customers. However, we do believe that, as key economic actors, the more you know about environmental risks and opportunities, the better. The more you begin to view the environmental sector as a profit centre, through new and innovative products, or to prevent losing money, by better managing environmental risks, the better. The more the financial services sector integrates environmental considerations into its everyday practice, the closer we will all move towards understanding the economic imperative which underlies sustainable development.

Many in the business community are asking just how far the green agenda will be pushed forward. Many on the environmental side continue to say that business remains an obstacle to progress. Instead of confrontation, we need to build partnerships, to find solutions together. That is not a hollow slogan, but a call for greater input and participation in shaping the process and clarifying the rules. We need to hear from you on an on-going basis. I think, the more we talk, the greater our understanding will be of the similarities in our concerns.

Let me take a moment to illustrate my point by talking about the very "hot" topic of global warming. The discussion about climate change is often cast as one between capitalists and idealists. Given the spectre of increased natural disasters in a warming world, the insurance sector has joined forces with UNEP and others, to dispel the myth that the economic costs and potential human costs associated with inaction are likely to be far greater than the supposed economic costs of reducing emissions now which are being put forward by the fossil-fuel related sector.

With annual revenues of over $2, trillion your concerns are hard to ignore. Natural disasters represent 85 per cent of insured catastrophe losses globally, or $12.4 billion in 1995. These losses are on the rise. For example, average yearly inflation-adjusted insured losses from windstorms increased by twenty-fold between the 1960s and 1990s. According to the Reinsurance Association of America, nearly 50 per cent of the insured losses from natural catastrophes during the past 40 years have been incurred since 1990.

The increase in such losses is certainly due, in part, to demographic trends. However, you are increasingly concerned about the possibility of a linkage between climate change and the frequency and intensity of catastrophic windstorm, wildfire, hailstorm, mudslide, flooding and drought events, and rightly so. Your sector is also at risk from climate-change impacts on human health, such as the predicted spread of malaria and other vector-borne diseases, urban heat catastrophes, and food supply disruptions.

Recent news of the widespread fires in Indonesia caused, in part, by environmental factors like deforestation and drought, and the threat of major weather-related disasters due to El Nino are the kinds of events that insurers fear will become more frequent if society continues to emit greenhouse gases into the atmosphere at the current rate.

The first public statements by insurers on the topic of global climate change date back nearly a decade. Munich Re, the world's largest reinsurer, was among the first voices. Swiss Re published a report in 1994 stating that "the phenomenon of climatic change is not some vague threat [...] Human intervention in the natural climatic system could accelerate global climatic change to such an extent that society might no longer be able to adapt quickly enough".

Already last year in Geneva the UNEP Insurance Initiative decided to take a proactive stand with respect to climate change and issued a first position paper on "Insurance and Climate Change" in which you called upon Governments to agree on early and substantial reductions of greenhouse gas emissions. This was the first time ever that a leading industry voiced its concerns about the drastic economic impacts global warming can have if we do not succeed in reducing the emissions of greenhouse gases. Later this week you will launch your second position paper at a special workshop in Kyoto.

As we all know, the battle for climate protection is far from being won.

I challenge you and your companies to remain vigilant to the issue and, when the time is right, I hope that you will consider joining forces in a cross-sectoral 'Global Business Coalition for Climate protection'. The Insurance sector along with the tourism sector, banking, and others can be an effective counterweight to others who counsel inaction.

We are convinced that the greening of the financial services sector is of critical importance in building sustainable development. It is imperative that environmental considerations be integrated into how business decisions are made, day in and day out because it makes solid business sense. The UNEP Insurance Initiative is a very good example in proving that a partnership between public and private sector can work together and produce some impressive results.

Monday 22 Dec 1997
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