Amidst Changing Weather, Zurich Commits to Responsible Investment

Floods in Ambala, India, 2010 (credit: Harsh Mangal, Wikimedia Commons)The largest foreign insurer in the United States prepares for climate change and signs Principles for Responsible Investment†

It wasn't so long ago that "talking about the weather" was simply a euphemism for not saying much at all, when weather was just a fraught-free topic, a social lubricant, something for strangers to chat about. But in the midst of one of the most meteorologically extreme summers the world has seen in decades—with record-breaking heat, crop-destroying drought and killer floods—it has become clear that the weather is no longer a light topic. And it's changing because of climate change.

Earlier this month, the National Oceanic and Atmospheric Administration (NOAA) issued the 2011 State of the Climate report, "a detailed update on global climate indicators, notable weather events and other data collected by environmental monitoring stations and instruments on land, sea, ice and sky." The report's conclusions represents the first time that U.S. government scientists acknowledge that recent extreme weather events are likely tied to man-made climate change.

"2011 will be remembered as a year of extreme events, both in the United States and around the world," said Deputy NOAA Administrator Kathryn D. Sullivan, Ph.D. "Every weather event that happens now takes place in the context of a changing global environment. This annual report provides scientists and citizens alike with an analysis of what has happened so we can all prepare for what is to come."

RISK ANALYSIS, CLIMATE PREPAREDNESS AND RESPONSIBLE INVESTMENT

As the world makes the shift from climate change mitigation to climate change adaptation (a shift that White House science adviser John Holdren described as moving from "avoiding the unmanageable" to "managing the unavoidable"), "climate preparedness" is becoming a hot topic in the insurance industry.

Nick Wildgoose, supply chain product leader for the global corporate division of Zurich Insurance Group Ltd. (SIX: ZURN), Switzerland's biggest insurer, told Forbes Magazine in May that natural disasters are an increasing concern, noting the changing climate that has increased the frequency and intensity of major floods. "We look at 25 different risk areas," he said.

"Although some insurance products are familiar to most people, the important role played by insurance generally in society is not well understood," said Kevin Hogan, CEO of Global Life at Zurich. "Insurance helps protect people and companies from risks—unknown or unpredictable events or situations—and to better prepare for their future. Insurance…will continue to play an even more important role in these turbulent times," he said, adding, "It is likely that the importance of the insurance industry will increase in the coming decades and that new insurance solutions will be needed."

Zurich has been working with the global mapping company Esri to create maps of a variety of potential threats (flooding, earthquakes, income disparity, political risk), such as an historical earthquake map and a global storm intensity map.

But analyzing potential risk is only one part of the equation. As insurers prepare for the possibility of both more customers, increased coverage and more claims, it is important that asset management addresses the strategies of corporate social responsibility and sustainable investment. While Zurich offers insurance to help "protect people and companies from risk," the firm has also formalized their commitment to aligning their investments with social and environmental objectives by signing the UN-backed Principles for Responsible Investment (PRI).

RESPONSIBLE INVESTMENT: SIX PRINCIPLES

Created in conjunction with the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact, the non-profit PRI Initiative is a network of institutional investors, asset managers and service provides collaborating in an effort to put forth best practice in environmentally and socially responsible investment.

The PRI document states:

"As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following:

1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles."

"Zurich is committed to managing its assets as a responsible investor," said Cecilia Reyes, Zurich's Group Chief Investment Officer. "Being a signatory of the PRI will support us in achieving this goal. Working together with the investment community, we believe that a positive long term impact on society and the environment can be achieved." Reyes, who joined Zurich in 2010 after a post at ING Asset Management in Amsterdam, is responsible for managing the firm's USD 206 billion group investment portfolio.

IMPACT INVESTMENT: PREPARING EMERGING MARKETS

The signing of the PRI follows Zurich's announcement in March of a USD 100 million strategic investment in the Z Zurich Foundation, which "combines financial investments with Zurich's insurance and risk management expertise to generate a meaningful impact on pressing societal challenges that cannot be solved quickly."

The Z Zurich Foundation invests in strategic long-term partnerships that focus on sustainable disaster management and economic development in emerging markets. Current partnerships include International Federation of Red Cross/Red Crescent Societies, the world's largest group of humanitarian non-governmental organizations which leads and organizes relief assistance missions responding to large-scale emergencies; Practical Action, a U.K.-based development charity with projects in Peru, Kenya, Sudan, Zimbabwe, Sri Lanka and Nepal; and the Rainforest Alliance, a non-governmental organization (NGO) working on biodiversity conservation.

"Effects of natural disasters might increase in the next decades," the company stated in a press release about the Z Zurich Foundation investment. "Their economic impact will certainly increase since the world is more and more densely populated. Insurance against disasters as well as disaster response and prevention have to be improved."

To be sure, climate-related or not, many disasters are "natural." Responsible investment should be too. But until it becomes a fundamental part of human nature—and the nature of the private sector—signing the Principles of Responsible Investment is an excellent way for companies to help make it a natural part of doing good business.

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NOTES

National Oceanic and Atmospheric Administration. Back-to-back La Niñas cooled globe and influenced extreme weather in 2011. July 10, 2012. Accessed July 20, 2012.
Ibid.
Marc Gunther. The Coming Shift to 'Climate Preparedness'. Greenbiz.com. January 23, 2012. Accessed July 20, 2012.
Tom Groenfeldt. Zurich Insures Supplier Risk As Climate Change Increases Natural Disasters. Forbes. May 10, 2012. Accessed July 20, 2012.
Zurich Financial Services Ltd. Zurich invests USD 100 million into the Z Zurich Foundation and provides further evidence for the increasing social and economic role of insurance. March 22, 2012. Accessed July 20, 2012.
UN Principles for Responsible Investment. The Principles for Responsible Investment. April 28, 2006. Accessed July 20, 2012.
Zurich Insurance Group. Zurich becomes a signatory of the Principles for Responsible Investment. July 9, 2012. Accessed July 20, 2012.
Zurich Financial Services Ltd. Zurich invests USD 100 million into the Z Zurich Foundation and provides further evidence for the increasing social and economic role of insurance. March 22, 2012. Accessed July 20, 2012.

Correction: Zurich is not Switzerland's largest insurer, as originally stated. In the United States, it is the third largest insurer and the largest foreign insurer. Thank you Pavel Osipyants, Senior Media Relations Officer, Zurich Insurance Group, for the clarification. The correction was made on August 1, 2012. -- R.L.

image: Floods in Ambala, India, 2010 (credit: Harsh Mangal, Wikimedia Commons)

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