Stockholm (NordSIP) – The dual exposure to climate risk that insurance companies have through their underwriting activities and their portfolio investments adds another level of complexity to their approach to net-zero targets. In some cases this can lead to accusations that the right hand does not know what the left is doing, for instance when the underwriting side caters to new oil and gas projects or the investment side of the business maintains shareholdings in firms that are increasing physical climate risk. Conversely, insurers’ in-house expertise in assessing physical risk can be a real asset when steering a course through the risk and return maze of climate investing. We asked Margrethe Assev, Chief Sustainability Officer at Norway’s Storebrand to help us understand how they keep all these spinning plates properly balanced.
Over its more than 250-year history Storebrand has expanded beyond its insurance origins to encompass pensions, savings and banking services, which puts the firm in a good position to provide insight on how they handle these different perspectives on climate investing. The company was one of the founding members of the United Nations-convened Net-Zero Asset Owner Alliance in 2019. The firmwide approach is to integrate climate and sustainability criteria in its business activities right across the board. Assev summarises the overarching strategy on the investment side of the business: “We make decisions in line with scientific consensus and aim to reorientate capital flows towards low-carbon, climate-resilient and transition companies. At the same time, we avoid investments that contribute heavily to climate change while using our ownership position to stimulate ambitious climate practices at portfolio companies.” Assev adds that they believe that addressing climate and sustainability will lead to better long-term risk adjusted returns for Storebrand’s clients, and they take time to educate the latter on how they can contribute to a low-carbon future.
An eye on physical and nature related risks
Having physical risk expertise in-house is an asset to both the insurance and asset management side of the business. Assev explains: “Understanding climate risk and nature risk is essential to our business. Asset management assesses the physical risks for companies, and also asks to what extent they are resilient to transition risks. We aim to understand whether the company relies on nature-based services, and whether these systems are at risk.” Assev is looking forward to the imminent launch of the Taskforce on Nature-related Financial Disclosures (TNFD) framework, which will further enhance this decision-making process for Storebrand.
Climate resilience and adaptation considerations also play a part in most investment decisions. Assev elaborates: “When our real estate managers assess buildings climate and nature risks make up a central part, including understanding the local weather systems and climate change trajectories. We just finished a taxonomy-aligned building near Oslo in Norway. It uses solar panels to generate energy in-house and incorporates nature-based solutions like lava stone and vegetation to mitigate the negative impacts of extreme weather events.” For the insurance side of Storebrand, these are familiar themes, as Assev explains: “Understanding physical risk is a core undertaking of an insurance company. In our underwriting and pricing, we differentiate based on climate-related risk factors such as the risk of flooding. We have established a function in the company that focuses specifically on helping our customers implement risk reduction initiatives.”
Underwriting and investments cover the bases
For Assev, the different business units’ approaches to climate and nature risks complement each other: “Asset management participates in global initiatives directed towards understanding and mitigating climate and nature risks. For example, Storebrand Asset Management signed the Finance for Biodiversity Pledge in May 2021. Through this initiative, we committed to collaborating with other investors, engaging with companies and assessing and reporting on matters related to biodiversity impact. Our insurance business is more focused on local adaptation and transition strategies, working to reduce climate-related risks and costs for our customers. While the scope and milieu of climate-related activities for asset management and insurance differ, we value the complementary aspects of these activities. We need climate response at all levels and branches of Storebrand to achieve tangible progress towards the transition.”
Alongside effective risk management, Storebrand’s climate strategy involves identifying return-seeking sustainability investment themes that can help speed up the transition, as Assev explains: “We aim for 15% of all assets under management to be invested in solution companies by 2025. Most of these solutions are climate-related, centred around investment themes like renewable energy, technologies for sustainable city development, circular economy and recycling, electric public transport, water management, energy efficiency, sustainable materials and technology, and responsible consumption and production.”
Climate crisis hits home
The crucial importance of all these physical risk management processes was brought home earlier in August 2023 with the heavy rainfall and subsequent severe flooding caused by storm Hans in Norway. “As an insurance company we work hard to support our customers that are affected by the recent extreme weather,” says Assev. “At the same time, we are increasing our efforts to reduce and mitigate the consequences of similar events in the future for us and for our insurance customers. This summer’s weather, with fires in the south of Europe and floods and heavy rainfalls here in Norway, should be taken as a sneak preview of our future and should increase the sense of urgency for all investors. Climate and nature risks are no longer a hypothetical scenario. It is now even more important to see nature as part of the solution, not only in nature reserves or in the wilderness but also in our cities, and work to restore nature where natural carbon or water sinks have been destroyed.”
The sustainability and climate strategies of the global insurance industry remain under scrutiny, with the Net-Zero Insurance Alliance (NZIA) struggling to maintain a coherent approach. However, Storebrand’s longstanding firmwide commitment to sustainability themes appear to have helped it maintain a steady course that makes good use of the range of complementary skills brought together in its underwriting and investment teams.