Green cold war or climate anarchy? The insurers’ view
The insurance industry is warning of possible geopolitical scenarios about climate change. When money is at risk, insurers speak and the world will listen carefully.
Credits to Alexander Konoplyov
Last week, I bumped into Shifting powers: Climate cooperation, chaos or competition?, a report recently published by the Lloyd’s of London in partnership with the Cambridge Centre for Risk Studies. Having spent a segment of my professional life in the insurance industry, the name of the author incentivized me to read more.
In case you are not familiar, the Lloyd’s of London is one of the largest and best-known insurance companies in the world. It does not insure individual clients: it insures the insurance companies who insure individual clients – like you and me. When the Lloyd’s speaks, it has an echo in the whole sector.
Why is the insurance industry so relevant in the first place? Because, as Steve Hansley wrote, it is like a huge poker game. It is betting it can take in more money — and use that money to make more money — than it has to pay out. It employs thousands of people who determine what the risk/reward ratio is and make sure it always favors the insurance industry.
In other words, the insurance industry has enormous powers. And as uncle Ben in the Spiderman series once said: “With great power comes great responsibility”. Imagine all insurance companies in the world deciding to stop insuring businesses that extract fossil fuels. That will be the very final “goodbye” to coal and oil.
Will this happen? I doubt it because insurance companies are in the market to make profits and would never voluntarily stop doing that. Instead, they are looking to global leaders and diplomatic agreements for the pathway forward. But we know that these decisions take ages and are often flawed. It is the chicken and the egg story.
This is why I wanted to dig deeper into the report Shifting Powers. In short, it is all about risk modelling and using potential but plausible scenarios to identify geopolitical risks associated with climate change.
Under the assumption that no technology breakthroughs occur in the next decade (instead, existing technologies develop at the current rates), the report suggests the world could go down one of three pathways:
1. Green Globalization (cooperation) – world leaders collaborate towards a stable and global transition driven by a shared belief that decisive and focused action is needed to tackle climate change. The world is on track to meet climate goals.
2. Climate Anarchy (chaos) – state interests prevail as actors struggle to mobilize on the scale and speed needed to shift the dial on climate change. Self-interest takes the form of protectionism and mercantilism, pushing the world on a dangerous emissions trajectory.
3. Green Cold War (competition) – like-minded states coalesce around major powers to form ‘climate blocs’, with competition between blocs for energy, technology, and market dominance. The world splits into two or three rival camps that create regional trade barriers, producing emissions that land somewhere between the two extremes of the first two scenarios.
Where are we heading now? Matteo Ilardo, risk researcher at the Center for Risk Studies at Cambridge University, told Bloomberg Green that the world seems to be heading to the Green Cold War scenario. Luckily, he added, there is still time before the world is committed to that path.
We have already heard the warning many times from the scientific community. That was not enough. Maybe the conservative insurer’s geopolitical outlook could make individuals, companies, governments take global warming more seriously. Once again, the ambition – limit global warming to 1.5°C – is set and clear: now is time to act.
