It will team up with a world-leading, multidisciplinary team to unlock opportunities for the UK to lead in greening finance and financing climate-friendly solutions. 

The consortium, led by the University of Oxford Smith School of Enterprise and the Environment, was selected by UK Research and Innovation to establish the Centre, with £10m initial investment.

Other members of the consortium include Imperial College London, the Met Office, the World Bank Group, COP 26, and the Alan Turing Institute. 

The Centre will begin its work at the start of April 2021 ahead of COP26.

Read more about the UK Centre for Greening Finance and Investment here.

The Committee on Climate Change (CCC), an independent non-departmental public body formed under the Climate Change Act of 2008 to advise not only the House of Commons but also the devolved parliaments of the nations on how best to tackle the climate crisis, is chaired by a Tory, Lord Deben. It has highlighted that current policy on buildings continues to lag behind what is needed. An emission reduction of up to 18% overall could be the result of an effective retrofitting of homes to make them more energy efficient – more than three quarters of the emissions in question are from domestic homes. The same conclusion that retrofitting of houses is crucial has been echoed by Onward, a centre-right think tank that produced a paper entitled Costing the Earth on the subject of tackling climate change, as well as the Green Alliance, who argue for scaling up the domestic supply chain for “deep retrofit” (costed at £300m) and investing an additional £1 billion of public capital every year which they calculate will mobilise a further £3.5 billion in private investment.

The Green Alliance also proposes Natural Infrastructure Schemes to create a market in avoided costs. These would, for example, reward land owners for activities that reduce flood risk, improve water quality and sequester carbon like planting trees and creating wetland habitats. There are calls for market-based solutions from all quarters, even from organisations traditionally seen as centre-left.

Meanwhile, a lot of the more ambitious proposals on reforestation are coming from the centre-right. Take the proposal for a “Forest of Britain”, a single, unbroken, two-mile wide line of protected natural habitats from John O’Groats to Land’s End, via the east of Wales. Or a Nature in the City Act, something which would contain a range of measures to protect declining species and enhance the built environment including implementing a programme of ‘rewilding’ of public green spaces, apportioning a certain area of each park to the stewardship of local schools or wildlife trusts and introducing payments to local authorities for the provision of environmental services. Both of these ideas came from Policy Exchange, perhaps the leading centre-right think tank in the UK.

With there being a consensus being reached between left and right on not only the need to tackle climate change but on a lot of the means of doing so, the path toward the most sustainable economic recovery from the Covid-19 crisis possible begins to come into focus.

Insurance frequently gets a bad press for not covering what consumers want or for charging prices that force more to self-insure. Indeed, over the last 20 years, only one third of total global economic losses have been insured – so over $2.5 trillion uninsured! The coronavirus Covid-19 has again highlighted potential gaps in cover: businesses may be unable to claim on business interruption policies if there is no actual physical damage to insured premises.Insurers provide a crucial role in society though, and have already reported losses in excess of US$25bn for Covid-19. They contributed massively to rebuilding cities post-catastrophe, like New Orleans following the devastating [$50bn insured] loss from Hurricane Katrina in 2005.

Climate change is next year’s problem?

Most non-life (re)insurance policies cover risks for a period of 12 months. Some classes of business do align insurance with specific projects (such as Contractors’ All Risks Insurance), but insurers have been more reluctant than others in risk finance (such as mortgages or bonds) to offer greater durations of cover. Don’t forget that claims on some policies (e.g. liability insurance) may attach years after the expiry date of the policy, especially for claims involving occupational diseases and environmental pollution. So-called “short-tail” policies, like Property, tend to capture claims very quickly, so pricing tends to be more reactive to actual claims experience.

Insurers exposed to greater frequency and severity of “weather” losses caused by climate change can reflect this increased exposure by adjusting next year’s annual premium. But this does not incentivise any change in behaviour in the customer, other than to shop for a cheaper deal elsewhere.

What’s the incentive?

Policyholders already have some tools at their disposal to influence the price they are charged. Crude measures, including limiting cover or increasing excesses may reduce premiums, but they don’t encourage greater uptake of insurance cover itself. Building resilience, building back better [post-loss] or adaptation are all tools that can negate the impact of climate change. Unfortunately, individual adaptation may not be enough; community solutions are required to shore up flood defences, enhance infrastructure and build preparedness. All of this requires local or national government intervention and may not be reflected in individual policyholder’s insurance premiums. It may just be the difference between being insured or not.

A paradigm shift in product design is required. Rather than pricing based on the rear-view mirror, climate-ready insurance requires a systems- and outcomes-based approach. This will incentivise adoption of carbon net-zero goals. Big data, machine learning and artificial intelligence will all enable insurers to harness technology to offer new products and services in this space.

How are corporations responding?

Reputational risk is now one of the biggest risks faced by businesses. Asset owners and portfolio managers (such as through organisations like the IIGCC) are responding to investor demands to better align their holdings to meet the goals of the Paris Agreement, follow the latest science and allow them to become “net-zero investors”. Similarly, there has been an acceleration in the number of companies publicly agreeing to transition to a low-carbon economy. Organisations like Science Based Targets are encouraging companies to commit to reducing Greenhouse Gases (GHG) emissions by set percentages and target dates. 

All of this leads to peer pressure on other companies to be seen to be aligning with investor demands; failure to do so could lead to increased litigation exposure for Directors and Officers.

What can insurers do?

Insurers’ biggest challenge is to remain relevant to the needs of their customers. The “Protection Gap” [being the difference between the total economic cost and insured loss covered] has been well-studied and its impacts are different for developing and mature insurance markets; the gap is not closing and “non-damage business interruption” (where business interruption cover is excluded when there is no first-party damage) is an increasing exposure. Innovative products that support carbon net zero goals could provide opportunities for insurers to do more than provide post-loss financing options to the few that can afford the limited cover available.

You can help!

Icebreaker One is working with insurers, brokers and other stakeholders to develop new climate-ready insurance financial products that support carbon net-zero goals. These could be changes to or extensions of existing policies or new policies using shared data with pre-emptive licences. What gaps exist in existing policies? What new products could be developed using new technology to make them insurable for the first time? Can the greening of infrastructure risk, perhaps supporting the circular economy, aligned with real-time sensor technology be the next big thing?

Join us here and help us deliver a net-zero future!

Judging by the UK government’s first announcement on how to make the economic recovery from Covid as green as possible, we may have to scale down our immediate expectations. On July 22nd, a joint announcement between Number 10, the Department for Transport and the Department for Business, Energy and Industrial Strategy was made, laying out the government’s £350 million plan to “cut emissions in heavy industry and drive economic recovery from coronavirus” (GOV.UK). Upon investigation, there are several things wrong with the plan.

The first one is obvious and doesn’t require any further digging: £350 million is absolutely nothing. The Lib Dems have laid out a £150 billion green Covid recovery package, and while it is light on specific details, the overall figure is a lot closer to what it will take to get this moving in the right direction. A £350 million pound plan might as well be a zero pound plan in the grand scheme of things.

Worse than that, some of the specific items in the £350 million plan have a very Dominic Cummings vibe about them. For instance, £15 million of the project is dedicated to a “New National Space Innovation Programme” which will “monitor climate change across the globe” and will look to protect local areas from the impacts of extreme weather by identifying changes in the environment. Often the government’s green Covid recovery package has the feel of something played around with in Number 10 and then hastily chucked out; a Special Advisor’s toy to have fun with as opposed to a serious plan for reaching difficult emissions targets.

Trying to be positive about some aspects of the green recovery plan, there is a large chunk set aside for Carbon Capture and Storage that could lead to something positive in the coming years. There is also part of the £350 million set aside for construction tech, which given retrofitting houses to make them more energy efficient needs to be part of any UK green recovery plan, is welcome. The money in there for R&D around electric cars is comforting. Yet again, one has to come back to the paltry amounts we’re talking about here: £10 million for the construction tech and £10 million for electric cars R&D are simply not serious amounts of investment in either important area.

One can try and be as forgiving as possible here and say that the £350 million plan announced in July is simply the government’s starter for ten, and much more will be coming down the pipeline. They will do more thinking and put more resource towards this once the UK-EU trade negotiations are no longer in the way, surely. I can only hope that this is the case.