- 07 March 2006
The Climate Group speaks to John Coomber, Member of the Swiss Re Board of Directors and former CEO, about climate change and the financial services industry. Since the 1990s Swiss Re has taken a lead on reducing operational emissions, developing new products and services for a carbon constrained world and raising awareness on the climate issue.
In March 2006 you joined The Climate Group's board of trustees and also sit on the Leadership Council. Can you tell us why you support the work that The Climate Group is doing?
Climate Change is the number one risk in the world ahead of terrorism, demographic change and other global risk scenarios in my view. The Climate Group is one of many organisations trying to change behaviours in order to mitigate and diminish this risk and it is a team which is getting results. It has been quick to prove that it has an excellent outreach on both the political and industry level. Being able to unite these two areas to tackle climate change is essential and I believe that The Climate Group is well placed to assist this process. I hope I can contribute in some way to advancing its mission.
Swiss Re has a strong track record on climate change. What are your feelings about the responsibility of business generally to make a positive contribution to solving the climate change problem?
A Business Leader's prime responsibility is to the business, to create successful products and services and make profit. They work within the framework of regulation set by Government. They do not have responsibility to support the arts, fund sporting events, build colleges or engage in other socially oriented activities. However, for a variety of reasons most major corporations do have active programmes for contributing to communities where they are situated or where they sell their products. So I do not see responsibility as a matter of social conscience although that would be of itself very desirable. I do see a normal business responsibility to anticipate the commercial changes which will be stimulated by Global Warming including rising energy costs, the possibility of Government actions and the changing preferences of customers as they make environmental considerations a buying factor.
Is there a strong business case for taking positive action?
The US Department of Commerce estimates that, of America's USD 11 trillion economy, USD 3 trillion is directly affected by weather. All business, globally, for the reasons just referred to will be affected indirectly to some degree. Without doubt the increased variability of weather will impact the planning of the next generation of products. There is a first mover advantage to those who correctly anticipate change, and adapt product, and a risk of obsolescence to those who do not.
What is the significance of 'leadership' on climate change within the business community? Will other businesses really follow suit when they see the good things that others are doing?
The views of respected leaders in politics or business raise questions and present challenges to businesses which have no policy towards environmental sustainability. Their Boards must decide if and in what way to adjust their corporate agenda. Eventually all businesses will be obliged to follow suit either by regulatory or market pressures.
Looking at Swiss Re specifically, what do you think are the most important things which have been achieved on climate change whilst you have been CEO?
In the last few years I believe that Swiss Re has been able to both consolidate and extend its climate change programme and I would choose three examples to illustrate this.
Firstly, we have become an active contributor to the dialogue with governments on climate change. This is particularly the case in the UK and USA through platforms such as the G8/World Economic Forum Climate Change Roundtable.
Secondly, where we have been able to establish quantitative relationships, we have started to account for climate change risk in our reinsurance pricing.
My third example is that of our Greenhouse Neutral programme which we initiated in 2003 and thereby turned our conviction into action by addressing our own carbon emissions. We also had the hope that others might be encouraged to follow suit. I might add that our actions in this field have been of continued interest to our employees world-wide and have received their strong support.
Swiss Re has put a lot of work into awareness building and advocacy both amongst the business community, government, and the general public. Why do you think this is so important?
Swiss Re tries to research all emerging risks - a process we call "foresight of risk" - and in the early 1990´s Climate Change was prominent in our list of concerns. There were essentially four steps in our approach to this challenge; raising awareness, furthering understanding of the risk through research, changing our own corporate behaviour and adapting products and services.
Raising awareness leads to multiparty and informed debate and is critical. We do not imagine our internal analysis on any subject beyond improvement and this is especially true of such a complex subject as Climate Change. In particular we wanted to learn from academia, Government and other businesses. As the evidence of fossil fuel induced climate change became compelling we moved from awareness to advocacy seeking to promote solutions.
These efforts have been made because, quite simply, we are convinced that climate change represents a major risk to our business, that of our clients and society at large - it's as simple as that.
Swiss Re has developed various low carbon products and services. What was the thinking behind this, what has the uptake been and how will they make a difference?
Swiss Re identified climate change as a long term issue as early as 1994 - we were of the opinion, from that early stage, that constraints on emissions would come and would present business risks and opportunities. We also understand that addressing climate change presents a challenge to our clients. In 2001, Swiss Re therefore established a team to develop products and services to assist our clients in dealing with emissions reductions. This team worked with various aspects of Swiss Re's business profile - insurance, trading/derivatives and asset management. Uptake initially was slow partially because of the lack of a regulatory imperative. More recently, with the ratification of Kyoto for instance, interest and development has accelerated.
What are the challenges when considering climate change in investment decisions and how are these being overcome in line with Swiss Re's overall policy on climate change?
First of all, it is important to understand the nature of Swiss Re's investment portfolio. Approximately 90% of our investments are fixed income owing to regulatory requirements and respecting the long term nature of our liabilities. Approximately 2% are in real estate where we have been pursuing a leading edge environmental policy for many years, and 2% are in other alternative asset classes including a dedicated portfolio for supporting sustainability leaders. For the remainder, our equity portfolio, we endeavour to avoid sustainability laggards and to differentiate stocks within a sector. I would not advocate to generally exclude an entire sector, for instance the oil & gas industry. Our economy will have to rely on oil & gas for years to come and many companies in this sector are now leading developers of alternative energy resources.
I believe the global investment community will increasingly focus on the economic benefits of alternative energy resources, clean technologies and energy efficiency. Their interest will be very influential as it will bring these topics firmly on the agenda of the world's major corporations. A challenge for investors of course is that investment horizons are often shorter in duration than their perception of the effects of climate change.
On the economics, do the numbers say we have more to gain from sitting this out or from taking action now?
There are many reasons why it is proving difficult to develop a coordinated response to Climate Change but high among them is that action involves cost today whilst the full consequences of climate change and the impact of corrective actions will only be apparent after the termination of the careers of today's political and business leaders. But there are economic considerations which impact on business now:
> the risk of rising energy costs
> the sustainability of current energy supplies
> the threat of regulatory and fiscal action
> customer awareness and consequent buying behaviour
Already companies pursuing a carbon efficient business model speak of cost savings and an increasing number of customers are showing preferences for environmentally friendly products. These patterns can only accelerate over time.
Ultimately business cannot sit this out, change will come, the longer delayed the more dramatic. As always those companies which possess the skill and imagination to anticipate change and the courage to invest in it will be the economic winners.
What would you say are the key priorities for action in tackling climate change and do you think we will rise to the challenge?
There are priorities in all areas be it concrete adaptation and mitigation measures, or how these measures are to be implemented. However, when I consider the situation I find two inescapable key goals: emission reduction and clean energy.
We must set targets and make realistic plans to meet them. This is for Government to decide and business to deliver. As to the likelihood of success, I am a determined optimist.
The views presented in the Viewpoint Series are not necessarily representative of the views of The Climate Group.