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Willis Towers Watson at COP26

COP26 was widely billed as perhaps society’s biggest opportunity so far to slow climate change. Willis Towers Watson in partnership with the Resilience Hub hosted a number of events during the United Nation’s 26th Conference of the Parties (COP) in Glasgow.

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Learn more about each event:

Risk matters: making resilience add up in a Net Zero transition

As global leaders and their negotiators gathered on the second day of climate talks in Glasgow, Willis Towers Watson kick started the Resilience Hub programme at COP26, with a robust conversation between thought leaders from insurance, risk analytics, academia and central banking who tackled the issues that are most pressing as countries and communities build resilience to a changing climate.

Diana Fox Carney moderated the session with questions that included:

  • What role does risk analytics play in building resilience and what innovations and new approaches to risk management are emerging?
  • How are central banks and regulators responding to the need for resilience?
  • How can insurance bridge the huge protection gap in lower income countries?
  • What is at stake when there is a lot of uninsured risk, and how can we begin to turn that around?
  • What is the role of governments and financial institutions and the importance of public-private partnerships?
What does resilience mean?

Dr Nicola Ranger, Deputy Director, UK Centre for Greening Finance and Investment, University of Oxford: “The climate emergency is already here. A lot of the discussions here at COP26 about how we get to Net Zero, but we also desperately need to address the risk that people already face. In the past 18 months of covid its shown us that it cant just be about climate we have to build resilience in a much more systemic way.”

Ekhosuehi Iyahen, Secretary General, Insurance Development Forum: “When you speak to negotiators, the question of adaptation is pressing. It is the loss of lives, it is the loss of livelihoods, it is devastation to economies. And there is an urgency to think about how do we strengthen the understanding around risks that we are faced with as a community, as a society, as an economy, as people, and how do we develop solutions.”

Elsie Addo Awadzi, Deputy Governor, Bank of Ghana: “In Ghana were seeing that climate change is happening very quickly and hitting us where it matters -- agriculture cycles are disrupted, rainfall patterns have changed considerably and were seeing droughts, floods and massive displacement of communities. This is affecting not only the production cycles but also the value chains. These are real problems for central banks, and they are being fed these into our assessment of risk.”

Hopes from COP26:

Andy MacFarlane: “My hope would be increased awareness of the value and impact of natural assets in risk reduction or carbon sequestration become more recognised.”

Ekhosuehi Iyahen: “Better public private partnerships to work with those countries that are at the forefront of the climate crisis. The challenge for the insurance industry is to do the difficult things there are other channels for action beyond the negotiations.”

Nicola Ranger: “The first step is to bring in risk and the insurance industry is brilliant at that. But those metrics capture the risk to your own asset or investment we also need to consider the impact on society. We need to move from risk to understanding how we align financial flows with adaptation and resilience goals and have that on the same par as aligning with Net Zero goals.”

You can read the full summary here.

  • Moderator, Diana Fox Carney
  • Elsie Addo Awadzi, Deputy Governor, Bank of Ghana;
  • Dr Nicola Ranger, Deputy Director, UK Centre for Greening Finance and Investment, University of Oxford;
  • Ekhosuehi Iyahen, Secretary General, Insurance Development Forum;
  • Andy MacFarlane, Head of Climate, AXA;

Beyond carbon: a new way to measure climate transition risk & value resilience

Challenges to the climate transition are broad-ranging from policy and finance, to consumer incentives and technology, especially to fill the gaps in power systems around the world that the recent energy crunch has exposed.

Market signals that help move the capital required to bring about the economic and social transformations are at the heart of determining whether the world will achieve Net Zero targets.

One clear signal coming out of COP26, was that the race to Net Zero must gather pace 196 countries unanimously reaffirmed their commitment to 1.5˚C warming target, with a science-based 45% reduction in emissions by 2030 to meet that target. Furthermore, the term Net Zero appears for the first time in a UN climate agreement.

Investors are at the centre of this structural economic transformation. The Glasgow Finance for Net Zero Alliance, led by the former Governor of the Bank of England and the UN Special Envoy for Climate Action and Finance, announced that $130tn of assets under management were now aligned with Net Zero.

But how do investors know they are on track to meet their Net Zero targets? Market signals are helpful but if assets are mispriced against future expectations of earnings, that mismatch could lead investors down a path that diverges from Net Zero. This view could be further distorted by focusing on carbon as the dominant metric to measure climate risk simple de-carbonisation starves the hard-to-abate industries and countries of capital when they are the ones that need the capital in order to make the necessary changes. There is a very low correlation between carbon metrics and financial risk from the climate transition.

In October, Willis Towers Watson launched the Climate Transition Index published by Qontigo which is aimed at helping investors bring clarity to their investments so they can better understand the impact that policy and market changes will have on their portfolios.

On Finance day at COP26, Willis Towers Watson announced that its LifeSight DC master trust would be a key investor in raising an expected $1bn by the end of 2021 in the first fund that tracks the Climate Transition Index, with voting and engagement provided by EOS at Federated Hermes.

During our event to mark that launch, Beyond carbon: a new way to measure climate transition risk & value resilience, we assembled partners and thought leaders in transition risk to explore these issues.

  • David Nelson, Senior Director, Climate Transition, WTW
  • Craig Baker, Global Chief Investment Officer, Willis Towers Watson
  • Arun Singhal, Managing Director, Qontigo STOXX
  • Bruce Duguid, Head of Stewardship, EOS at Federated Hermes
  • Lord Adair Turner, Chairman of the Energy Transitions Commission.

Read more about the panel session here.

Analytics matters: the bedrock of resilience

Physical risk analytics underpins resilience but how do risk modellers, policymakers and investors source and compare information?

In recent years, we have witnessed the rapid development of global data and modelling capabilities to help quantify and monitor physical climate risk and support improved resilience decision making much of it driven by methods and tools developed for the insurance industry. We are now entering into a new generation of models and data inform and guide more effective risk reduction strategies and capture the complexities of the risks of climate change.

On Adaptation, Loss and Damage Day, Willis Towers Watson gathered experts from across the global risk community to take on this topic during Analytics Matters: the bedrock of resilience.

As greater integration of climate and catastrophe models will be required over the coming years, by developing a common understanding of the scale of future risk we can better quantify risk and value actions and investments today to improve decision making for adaptation that will enhance resilience in the decades ahead.

This extended session began with the launch of the Global Resilience Index Initiative, which aims to provide the common language of risk needed to catalyse greater investment and innovation in resilience, before two panel sessions and a special showcase on risk modelling.

Key takeaways:
  • Industries must work together to curate, validate, share and utilise open-source datasets to create consistency and improve transparency in the risk quantification process;
  • At COP26 there were many discussions around mitigation and adaptation, analytics are central to how we build a greater understanding of risk;
  • Risk analytics need to deepen in the most vulnerable countries, while resilience is always local and governments need to use the tools that are developed by industry, which is why open platforms are so critical to scale and increase accessibility;
  • It is vital to understand future climate impact as underestimating risks not only has an impact on the financial sector but is a societal risk too. Therefore, the initiatives showcased during this event supports the need for global public good.
  • While focus has intensified on aligning financial flows with Net Zero, financial flows need to also align with resilience resilience plans rather than just Net Zero plans will be the logical next step for the regulator. Insurance sector can help with that but needs to look more at how risks are systemic and amplify each other.
  • COP27 should be the adaptation COP and collaboration between stakeholders can make that happen.

Read the full summary of the event here.

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