sectoral economic costs and benefits of ghg mitigation - IPCC

Oliver Zwirner
One instrument that has passed the experimental stage and that does more than focus strictly on
the requirements of climate change is environmental or sustainability rating. Environmental or
sustainability-based investment funds want to identify the companies in each sector that are most
aware of the challenges of sustainable development because they assume that these companies
will be better adapted to future conditions. Companies with a good sustainability rating also
appear very well suited to the kind of long-term investment strategies pursued by life insurance
and pension funds in particular. There are some indications that the shares of these “sustainability
leaders” are in many cases already among the best performers in their respective branches.
The development of new technologies to tackle the greenhouse gas problem requires financing.
More and more venture capital shares will be offered on the market. The insurance industry will
often be unable to exploit these opportunities because, in order to guarantee investments, the
proportion of assets invested in shares, particularly high-risk shares, must remain limited and is
generally subject to statutory control. However, where development is carried on by larger
companies, the insurance industry can participate indirectly.
2.2 Real Estate
Financial service providers generally own quite a large stock of housing and office buildings that
is rented out (In the USA, insurance companies own US$59 billion in real estate, in Germany
Euro 28 billion; GDV 1998).
This building stock will be heavily affected by greenhouse gas abatement measures given the fact
that in Germany, for example, 31.3% of final energy use is for space heating (UBA 1997, p. 57).
As a real estate proprietor, the insurance industry will be affected by all greenhouse gas
mitigation measures that relate to buildings. The investment required is likely to be considerable.
This may create financial problems for real estate owners if the investment costs cannot be
recouped through higher rents or lower energy costs.
For some buildings, the adaptations required to meet new environmental standards will not be
financially viable and the value of the building will be eroded.
3 Insurance
3.1 Weather-related claims
It is often pointed out that the insurance industry will be confronted with much higher claims as a
result of storms, floods, sleet, hailstorms, etc. from socio-economic trends. The increase in
greenhouse gas concentrations in the atmosphere may aggravate the situation. The reverse then
also applies: comprehensive measures to limit greenhouse gas concentrations can also help to
slow down increases in weather-related claims. In principle, the expectation is that an active
policy of greenhouse gas mitigation will result in fewer weather-related claims compared to a
“business-as-usual” scenario. An increase in potential claims compared to “old” atmospheric
conditions is still likely given that the signatory states to the Climate Convention are prepared to
accept an actual increase in greenhouse gas concentrations compared to the beginning of the
twentieth century.
Moreover, the impact of comprehensive greenhouse gas mitigation in terms of limiting claims
will only be seen in the long term. Over the decades to come the loss in the GHG-mitigation
scenario will probably be the same as in the “business-as-usual” scenario. Only after that will the
GHG-mitigation measures result in a lower loss level than the “business-as-usual” scenario.
Consequently, short and medium-term measures to adapt to climate change in such a way as to
limit claims must be taken in parallel to the GHG limitation measures (e.g. avoiding development
in vulnerable areas, tightening up and monitoring building regulations).
265