14 FEBRUARY 2024, 16:00 – 17:00 (SGT)
The urgency to mitigate the impacts of climate change and transition to a net-zero economy is palpable and unprecedented. With each passing year, the effects of climate change become more noticeable and destructive, increasing the strain on our economies, societies, and ecosystems. Specifically, the transition to a net-zero economy is an imperative that requires us to reimagine our traditional models and systems.
Within this call to action, the insurance and banking sectors have distinct and significant roles to play. Both sectors are intrinsically linked to the economy's health, making their actions vital for driving the shift towards a net-zero future. Beyond their individual roles, their combined influence through inter-sector collaborations can be an encouraging force in accelerating this transition.
Historically, the insurance and banking sectors have enjoyed a synergetic relationship, particularly in Asia. The collaboration between these two sectors has taken many forms, with the most common being bancassurance. This partnership has expanded the reach of insurance services, contributing to financial inclusion and risk management while providing banks with diversified revenue streams.
Yet, this traditional collaboration has been limited and product-focused. Given the urgency of the net-zero transition, there's greater scope for these sectors to work together to influence sustainable behaviours and enhance green investments via their product offerings and underwriting process, and strengthen analytics, research, and risk assessment frameworks to reassess risks related to climate change. Through combined efforts, they can leverage their synergies, expertise, and vast reach to drive more significant progress towards a sustainable, net-zero future.
With this in mind, we would like to invite you to a panel discussion with senior representatives from the insurance and banking sectors, as well as the public sector, to explore the roles of the insurance and banking sectors on the journey to net zero, and the opportunities, risks and challenges for further collaborations towards net zero.
On the panel:
Summary
I. Introduction
The urgency of transitioning to a net zero economy is evident as climate change increasingly impacts our world. This situation demands a fundamental shift in traditional business models, especially within the insurance and banking sectors, which are vital for driving economic sustainability.
Historically, these sectors have collaborated through bancassurance in Asia, enhancing financial inclusion and risk management. Yet, this collaboration can evolve beyond product-focused partnerships to catalyse efforts to address the net zero imperative. By fostering sustainable behaviours, green investments, and enhancing analytics and risk assessments related to climate change, the insurance and banking industries can make significant contributions to the net zero transition.
Reflecting this need, the Global Asia Insurance Partnership (GAIP) convened a panel of senior executives from the insurance and banking industries alongside the regulatory sector in a panel discussion. The discussion delved into the collaborative efforts required to achieve net zero emissions, highlighting the importance of a unified approach that leverages commitment, communication, and collaboration to effectively combat climate change.
This note seeks to highlight the key points from the panel discussion.
II. The Role of Each Sector in Net Zero Transition
The discussions started with an overview of the essential roles that the insurance and banking sectors, as well as regulatory bodies, play on the journey towards net zero. Understanding their individual responsibilities on this journey is crucial for identifying potential collaboration opportunities to foster both financial and environmental sustainability for the future.
• Banking Sector: Banks are crucial in providing the financial backing needed for the net zero transition, which includes financing for green technologies, allocating resources to decarbonise supply chains, and supporting SMEs in their transition efforts. For example, HSBC's commitment to allocating up to $1 trillion from now until 2030 to support sustainable financing and investments. This initiative is aimed at assisting customers through their transition, emphasising the banking sector's thought leadership in guiding corporate clients towards implementing long-term sustainability plans.
• Insurance Sector: The insurance sector's contribution is twofold: similar to banks, it provides financial support through significant investable assets. Additionally, it leverages its risk management expertise to assess and manage climate-related risks more effectively. This capability can help businesses plan for and mitigate the impacts of climate change. The synergy between the banking and insurance sectors is evident in sustainable investment and the safeguarding of assets against climate risks, underlining the financial institutions' influence in steering corporate clients towards sustainable practices.
• Regulatory: The regulatory sector plays a critical role in steering the financial sector towards the net zero goal by providing clear regulatory guidance and establishing consistent standards. For example, by issuing a set of Guidelines on Transition Planning, the Monetary Authority of Singapore (MAS) hopes to foster climate resilience among financial institutions. These guidelines encourage engagement across the sector, advocate for a long-term outlook in stress testing and investments and underscore the importance of addressing broader environmental challenges beyond climate change, such as biodiversity loss. Furthermore, MAS's initiative to explore the regulatory treatment of life insurers' investments in sustainable infrastructure projects exemplifies the regulatory body's commitment to facilitating the financial sector's contribution to the net zero transition.
III. Future Opportunities for Collaboration in Transition to Net Zero
Following the exploration of the individual sector roles, the panellists then delved into how the insurance and banking sectors could join forces to accelerate the transition to a net zero economy, highlighting specific initiatives and examples that underscore the potential for impactful collaboration.
• Unified Sustainability Definitions and Standards: The necessity for a cohesive understanding and definition of sustainability metrics, terms and standards was emphasised, including consensus on definitions of what constitutes "green", "brown", and various transition shades in between. The panellists agreed that this is essential to facilitate easier alignment of companies' transition plans with global sustainability goals. This unified approach aims to eliminate confusion and create a standardised framework for sustainable investments.
• Enhancing Green Investments: Both sectors can collaborate on creating financial products and services that incentivise sustainable practices among consumers and businesses. This includes green bonds, sustainable loans, and insurance products that offer better terms for clients demonstrating strong environmental performance or commitment to sustainable projects.
• Climate-Related Risk Assessment: Leveraging each sector's expertise in risk analysis to develop comprehensive, innovative risk assessment frameworks. This collaboration can lead to a better understanding of climate-related risks, enabling more informed decision-making for investments and underwriting practices that support the net zero transition.
• Supporting Alternative Energy and Technology Financing: Collaborating to finance and insure renewable energy projects, new technologies for carbon mitigation, infrastructure upgrades for climate resilience and assets in the renewable energy sector. This effort can help accelerate the transition away from fossil fuels, particularly in regions heavily reliant on these energy sources.
• Promoting Just and Inclusive Transition: Working together to ensure that the transition to a net zero economy considers the socio-economic impacts on communities and workers in the fossil fuel sector, especially in emerging economies. Initiatives like re-skilling programs and community investment are essential for supporting workers in these sectors, ensuring that the move towards a net zero economy is inclusive and leaves no one behind.
• Blended Finance for Sustainable Projects: Utilising blended finance structures that combine private sector capital with public or philanthropic funding to make sustainable projects more viable, especially in high-risk or underfunded regions. This approach demonstrates how strategic collaboration can catalyse significant investments in renewable energy and climate resilience projects. The recently launched Financing Asia's Transition Partnership (FAST-P), a blended finance platform with the goal to raise funds for climate action in Asia, was an example raised on the potential of blended finance structures on the journey to net zero.
• Regulatory and Policy Engagement: Engaging with regulators like MAS and industry associations to influence and adopt policies that facilitate the transition to a net zero economy was identified as another key area of collaboration. This can include advocating for supportive regulatory frameworks, tax incentives for green investments, and policies that encourage or mandate sustainable practices.
IV. Risks and Challenges with Potential Strategies
The panellists rounded off the discussion with an exploration of the inherent challenges and potential strategies for fostering collaboration between the insurance and banking sectors in the transition to a net zero economy. Key challenges identified include the need for greater clarity in sustainability disclosures, the rapid evolution of technologies, proprietary data sharing, disjointed global regulations, and the formation of action-oriented forums. To address these challenges, panellists proposed several strategies:
• Enhanced Clarity in Disclosures: The panellists highlighted the pivotal role of clear and standardized sustainability reporting in enhancing transparency and accountability, facilitating the tracking and impact assessment of investments. The consensus was that standardized reporting frameworks could help mitigate the risks of greenwashing and ensure that investments genuinely contribute to sustainable initiatives.
• Adaptation to New Technologies: With technology rapidly evolving, the need to stay abreast of innovations becomes crucial. The creation of specialized teams within insurance and banking sectors dedicated to technological advancements can enhance the sectors' capacity to adapt their risk models and strategies, ensuring they remain relevant and effective.
• Data Sharing Mechanisms: The discussion acknowledged the complexity of sharing proprietary data while maintaining competitive advantage. The suggestion for developing frameworks or mechanisms that facilitate the sharing of valuable risk assessment information, aiming to lead to a more cohesive understanding of climate-related risks without compromising individual sector strengths, thereby enhancing the collective ability to support sustainable transitions.
• Regulatory Harmonization: The importance of regulatory bodies in ensuring a cohesive approach to sustainability and climate risk management was highlighted. Regulators could play a decisive role in aligning global regulatory frameworks, enabling a harmonization that is crucial for minimizing regulatory discrepancies and fostering a conducive environment for cross-sector collaboration towards net-zero goals.
• Action-Oriented Forums: The establishment of platforms for continuous dialogue and collective action was identified as a vital strategy. Dialogue events such as this panel discussion that brings together diverse stakeholders underscores the importance of creating spaces where financial institutions, regulators, and other industry players can converge to strategise on sustainability efforts. These platforms are instrumental in transitioning from discussion to actionable strategies that drive progress towards sustainability objectives.
V. What's Next
In wrapping up the discussion, the panellists highlighted four ‘C's:
• Collaboration: Emphasised as the foundation for achieving net-zero goals, collaboration across financial sectors, regulatory bodies, and the global community is pivotal. Collective effort is necessary to address the multifaceted challenges of sustainability.
• Communication: The importance of sharing information and developing clear and consistent standards was underlined. Open communication and transparency in sustainability initiatives and disclosures facilitate mutual understanding and align efforts towards common objectives.
• Commitment to Action: Panellists stressed the urgency of moving from discussions to tangible actions. Concrete commitments and the implementation of sustainability strategies are essential to drive meaningful change and progress towards a net-zero economy.
• Change: Recognising the necessity for change in attitudes, practices, and policies to meet sustainability targets. The willingness to adapt and innovate is crucial for overcoming the current challenges and ensuring a sustainable future for all.
