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Risk Management
Climate risk

Sustainability risks can bring sustainable growth

Posted by on 04 May 2021
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Karen Tan, Chief Risk Officer, Reinsurance Asia, Swiss ReBeyond compliance, how can sustainability be a growth opportunity? In the past year, many governments in Asia committed to work towards carbon neutrality, and regulators across Asia are introducing guidelines and mandatory reporting. Karen Tan, Chief Risk Officer, Reinsurance Asia, Swiss Re, walks us through these recent developments and shares her vision for a sustainable industry.

As risk managers, ensuring our organisations' strategic and operational resilience is at the core of what we do. This means that we not only scan the horizon for potential risks, but also look out for the opportunities associated with these risks to enable long-term business growth. This approach is especially pertinent to the topic of sustainability, which presents both risks and opportunities.

Sustainability is not a new topic, but it has gained much more attention than before, all thanks to the actions taken by the public sectors in Asia. In 2020 alone, governments in Mainland China, South Korea, and Japan have all pledged their commitment towards carbon neutrality. New Zealand became the first country in the world to announce mandatory reporting requirements on climate change risks for its financial industry. The Monetary Authority of Singapore published Guidelines on Environmental Risk Management, to be implemented by June 2022. The guidelines set out comprehensive expectations for financial institutions, including putting in place a robust environmental risk management framework and stress testing portfolios for environmental risks. The overarching message is clear: financial institutions need to start taking concrete actions to ensure sustainability, if they have not yet done so.

As a result of all the governmental and regulatory attention, sustainability is fast becoming a compliance risk for financial institutions. Many organisations find themselves on a steep learning curve, having to expand their knowledge and capabilities on sustainability, especially on climate change, in a short time to meet regulatory expectations. In this rush to play catch-up, many financial institutions may miss out on opportunities they can leverage for their own growth.

In our interactions with clients, we observe a range of motivations driving organisations to act on sustainability. One of these drivers is "value creation", which is our motivation at Swiss Re as well. We apply an environmental, social, and governance (ESG) lens to develop commercial opportunities that create long-term value for us as well as our partners, while at the same time advancing societal resilience. This includes developing products and solutions that fulfil sustainability needs. Some examples in this context include insuring new risk pools arising from the decarbonisation of economies (such as offshore windfarm insurance), supporting clients in assessment and mitigation of climate change risks in their portfolios, and providing innovative solutions which promote inclusive insurance in the life & health business.

Through intense global collaboration, more and more organisations are embracing the opportunities and value that sustainability can bring. I have had the pleasure of exchanging notes with many senior leaders in the financial industry on ways to incorporate sustainability concerns into investment and risk management practices, while unlocking commercial value in the process. For example, we share with our clients how Swiss Re's Sustainable Business Risk framework helps guide underwriting decisions. Many clients are also looking to create sustainability-related products and solutions to meet market demand, and Swiss Re has been providing technical expertise and insurance capacity to support (e.g. Solar Revenue Put power generation insurance).

Government actions play a valuable role by providing the needed impetus and facilitating actions on sustainability. As a next step, I believe that regulators across jurisdictions should work together to reach a globally aligned approach to sustainable finance, including the development of common standards on areas such as sustainability reporting and green taxonomies. This will not only reduce ambiguities for companies doing business in multiple jurisdictions, but also enable us to achieve the economies of scale we need to create sustainability products and solutions.

Public-private partnership is key. I am confident that with the concerted efforts by both sectors, we will make meaningful progress on our joint efforts on sustainability and climate change, mitigating risks, unlocking opportunities, and enhancing resilience for society, the financial sector, and for our own organisations.

Hear from Karen Tan at RiskMinds Asia!


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