The transition economy has arrived, and institutions around the world are recognizing the need to shift to a more sustainable model of existence for society and the planet. Earlier this year, under the umbrella of our Virtual Transition Economy event, Alchemy Crew brought together researchers and leading industry figures to discuss some of the most important areas of change.
If you haven’t already, be sure to check out Insights from our Emerging Risks and Mobility Webinar in which we explored the nature of ‘disruptive actors’. Also worth taking a look at is our examination of how healthcare is changing in the age of digitization, which you’ll find in the summary of our Virtual Transition Economy Health and Wellness session.
Today, we’re shifting our focus to the Transition Economy Sustainability webinar. In this presentation and Q&A session, key topics raised included opportunities for the implementation of new business models, challenges around climate literacy, and the difficulty of implementing meaningful sustainable change in the ocean freight sector. We would like to thank Nicole Anderson for facilitating the session of the day.
ESG challenges and a lack of preparedness
The ESG (Environmental Social and Corporate Governance) asset space is growing rapidly, with some sources estimating the market will hit $53 trillion in value by 2025. Nevertheless, ESG remains a moving target, causing headaches for businesses hoping to improve their ESG ratings or invest in responsible funds.
This is because asset managers, investors, and providers all take their own approaches to ESG and how to prioritize individual issues. Some stakeholders prefer low carbon solutions while others reward diversity initiatives or holistic approaches, for example.
This has led to a serious systemic data management challenge. There are already several hundred ESG rating providers, creating a vast flood of information to digest for anyone wishing to engage with ESG. Unless a better-integrated system is developed, the effectiveness of ESG will remain limited, perpetuating global gaps in climate preparedness — Deloitte estimates that only 3-5% of insurers are completely prepared to respond to climate liabilities or physical transition risks.
Disseminating true climate change opportunities
It’s widely accepted that environmental, social, and corporate governance structures need to play a key role in the way that corporations respond to climate change. However, a narrow focus on the estimation, ownership, and reduction of emissions can obscure opportunities for new products, services, and investments.
That’s a view shared by Mark Carney, former Governor of the Bank of England, who thinks of climate change as history’s “single biggest investment opportunity”.
So, how do we uncover those opportunities and move to a new market mindset when it comes to climate change? In the insurance and reinsurance space, one answer is to turn to the UN’s Principles of Sustainable Insurance framework.
A core tenet of the framework is that insurers should work together with clients to raise awareness of ESG issues, manage risks, and develop solutions. It follows that insurers, rather than viewing climate and emission disclosures as purely risk-related, should partner closely with clients and aid them in transitioning to new business models.
Sustainability as a service and opportunity — learning from a real case study
Alchemy Crew’s sustainability workshop facilitated by Nicole Anderson closed with the exploration of a case study within the sphere of Green Shipping to illustrate how ESG considerations, combined with real-time asset-level data could impact the global ocean industry.
Right now, the fishing, shipping, and marine industries have a long way to go when it comes to sustainability. For example, because intensive shipping results in the transfer of invasive pollutants, ocean corridors present a serious hazard to biodiversity. Moreover, 73% of shipping businesses make no attempt to report their climate risks, yet growing ESG requirements will soon impact the entire marine value chain, from shipyard construction through to end-of-life ship breaking and recycling.
Given the scale of these challenges, could underwriters and capital allocation firms be the conduit for change? Instead of expecting the necessary innovation to come solely from capital-intensive maritime firms, workshop participants learned that maritime insurers and lenders could play a vital role in transforming the industry.
Through the application of medical-grade imaging technology, combined with IoT tools located in ships or ports, a consortium is currently developing a more complete picture of asset-level ESG risks in the maritime sector. Once commercialized, this solution could incentivize transformation in myriad ways — for example via the issue of catastrophe bonds, cleantech leasing programs, fossil fuel dependency risk analysis, and climate maritime accounting modeling.
Considerations to design a net-zero world
The sustainability conversation was interactive and thought-provoking, leading to excellent contributions around net-zero commitments and how impact data can be collected, scored, and packaged. Overall, the session was able to cover a significant amount of ground, including the problems with ESG, the most significant sustainability challenges faced by organizations in different sectors, operational readiness, and how preparedness can become an opportunity.
Thanks to all those who contributed and attended the discussion.
Even if you weren’t able to join, we’d love to hear your thoughts on the sustainability insights listed here — please leave a comment or send an email.
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