By Amy Barnes, Head of Climate and Sustainability Strategy, Marsh

COP28 was the first global climate gathering since the publication of the UN’s first Global Stocktake, which shows the window is closing to limit climate change to 1.5 degrees. In the event’s final hours, nearly 200 parties agreed to ‘transition away’ from fossil fuels, signifying an important moment for global climate negotiations.

Aside from international policy, key milestones for this year’s summit included the operationalisation of a loss and damage fund to address the cost of the devastation caused by extreme weather events such as drought, floods, and rising sea levels. The announcement of a $30 billion clean tech investment from the UAE and the unanimous agreement to triple renewable energy capacity also sent a clear signal that governments across the world are willing to support decarbonisation. Overall, COP28 was a clear signal for businesses on the global direction of travel. However, this doesn’t change the fact that the world needs to focus on resilience and adapt to the changing climate.

New technology brings new risks

Much focus at this year’s COP was on embracing technology to tackle climate change. Indeed, the final draft of the agreement called for the development of removal technologies such as carbon capture, utilisation and storage, which are drawing increasing interest from investors.

We need new solutions and tools to support innovation. For insurers, this means opportunities as well as challenges. Existing risk assessment and pricing tools are typically based on historic data.

New technologies create additional demands for the insurance industry to understand and insure innovative solutions, helping to de-risk them so that investment can flow. While the insurance industry is making progress, there is more to do to support technologies and materials that can help with decarbonisation. Cross Laminated Timber (CLT), for example, is a low-carbon building material that can be challenging to insure, as a lack of data means it can be perceived as inherently more risky than conventional materials.

Advancing adaptation

Previous climate conversations have tended to focus on mitigation efforts, so the growing emphasis on adaptation and resilience at COP28 was welcome. But it needs to happen on a much greater scale, at every level. Businesses are already grappling with the effects of climate change – adaptation must be top of the agenda.

Crucially, climate risks increasingly extend beyond a company’s own assets to their supply chains and the infrastructure on which they depend. Companies must consider how assets in their value chain might be affected by a changed climate whether by the potential for damage, e.g. from flood or fire; the need for changes to operational systems and controls, e.g. the need for more frequent asset inspection in areas with extreme heat; and finally, an organisation’s ability to respond when things do go wrong – e.g. will they still have access to fire water in a drought.

Once the risks are understood, organisations can identify resilience measures and the adaptation window in which action should be taken.

Moving forwards towards climate action

Now business has the signal it needs to invest, the insurance industry needs to make it easier for climate action to be the default choice for rational actors. Decarbonising the world economy is both possible and necessary, and we should approach the New Year with renewed energy about our role as enablers. After COP28, the direction of travel is clear. Now the real work begins.

For more information regarding our involvement at COP28, please listen to our recent podcast ‘key significance for risk management amidst increased focus on climate adaptation’. In this episode I’m joined by Nick Faull, the Head of Climate and Sustainability Risk and Innovation at Marsh, Scott Williams, the ESG coordinating director for Marsh India, the Middle East, and Africa, and Swenja Surminski, Managing Director, Climate and Sustainability at Marsh McLennan. We discuss learnings from the conference and what these mean for businesses and their risk managers, share some of the actions that organizations are already taking or should be considering, and talk about expectations for 2024.

About Amy:

Amy leads our global Climate and Sustainability strategy.  Prior to this Amy held a number of leadership roles with Marsh’s Global Energy, Power & Renewables business. Amy has a respected depth and breadth of experience assisting some of the largest and most complex companies manage risks.  This experience enables Amy to have a deep understanding of a wide range of clients’ risk management approaches and can offer a number of perspectives to insurance and risk management discussions. Connect with Amy on LinkedIn