- Climate Proof
- Posts
- US Insurance Regulators' Climate Resilience Agenda, Gaps in Climate Disclosures Frustrate Adaptation, and More
US Insurance Regulators' Climate Resilience Agenda, Gaps in Climate Disclosures Frustrate Adaptation, and More
The National Association of Insurance Commissioners has a plan to tackle escalating climate risks
Louie Woodall
February 26, 2024
AI-generated via DALL-E
US insurance commissioners put climate risk and resilience on their 2024 agenda, think tank data highlights corporates’ failings on climate disclosure, Biden administration bankrolls ocean resilience, and Copernicus’ new data atlas is our Innovation of the Week!
Last week, Climate Proof caught up with Impax Asset Management and WHEB Asset Management to discuss climate adaptation as an investing theme. Check out the article HERE and become a premium member to receive features like this every Thursday.
US Insurance Regulators Prioritize Climate Risk
Climate risks may not respect state borders, but US insurance regulation does. Long-standing legal precedent, enshrined in legislation, means that each of the 50 states is responsible for regulating and taxing the insurance businesses within their jurisdiction. There is no US-wide federal insurance regulator.
The risk of such a system is an uneven playing field in insurance regulation and oversight. On climate matters, some states could take a hardline view and scrutinize companies’ investments and underwriting practices with an eye to reducing their contribution to the carbon economy, whereas others could disregard climate risks entirely.
In practice, state-based regulators can and do coordinate their oversight work through the National Association of Insurance Commissioners (NAIC), a US-wide standard-setter to which all state authorities subscribe. This month, the group laid out its 2024 priorities. Top of the list: getting to grips with climate risks, natural catastrophes, and resilience.
We are at a watershed moment on climate and resiliency. Insurance continues to be a crucial backbone to communities throughout the US. In the aftermath of recent wildfires, windstorms, and atmospheric rivers, insurance has helped improve lives by aiding recovery. But that can only occur if insurance is available and reliable
To pursue this goal, the NAIC has proposed a National Climate Resilience Strategy for Insurance, which aims to “bring together and formalize resilience actions” before and after climate disasters strike. A central pillar of the strategy is data collection and utilization by the NAIC itself, which should in turn facilitate improved decision-making by state regulators and the firms they oversee. For example, the NAIC will run a national data collection on the availability and affordability of insurance across the US, so that state regulators can better understand trends around the country.
One tangible product the NAIC hopes to launch soon is a Climate Risk Dashboard, which can be used to “measure and evaluate protection gaps.” This is intended to be the first of several “new resilience tools” the NAIC releases, which are likely to run the gamut from training to risk assessment. Climate Proof will endeavor to find out more, so watch this space.
Another NAIC activity planned for this year is the development of “scenario analysis resources” for state authorities, which can be used to gauge the resilience of insurers to climate shocks. The NAIC further intends to incorporate climate stress testing and scenario analysis into its routine financial analysis and surveillance.
This spasm of activity may or may not be related to the current leadership of the NAIC. The president, for now, is Connecticut Insurance Regulator Andrew N. Mais, whose department issued a bulletin to carriers in his state on dealing with their climate risks back in 2022. However, I suspect the NAIC’s climate work will continue when leadership is turned over to North Dakota’s Jon Godfread, who while leery of ESG, has spoken in favor of environmental factors being considered as “part of sound underwriting and actuarial principles.”
Adaptation’s Patchy Climate Disclosure Pain
It’s become somewhat of an awkward annual tradition. Carbon Tracker, the climate financial risk think tank, has for the last three years now published analysis of companies’ financial statements and the extent to which they consider climate-related matters.
This year’s edition will make uncomfortable reading for some, and unsurprising reading for others. In short, Carbon Tracker finds that of the 140 companies it assessed, 60% do not provide “sufficient transparency about the impacts of climate matters in financial statements, or auditors in their audits thereon.” Furthermore, fully 81% do not include the quantitative assumptions and estimates used to flesh out their climate risks.
It’s a familiar story to long-time Carbon Tracker fans. The initiative has consistently found that most companies do a bad job when it comes to embellishing their reports with the data and insights that investors need to appreciate the scope of their climate risks.
What does this mean for climate adaptation and resilience financing? For one, if investors don’t know how portfolio companies are exposed to climate shocks, they won’t know what solutions could work to improve their resiliency. If a bunch of investees came out tomorrow with a slew of data revealing their vulnerability to water stress, this could signal to a chief investment officer that it makes sense to plow assets into water management, reclamation, and desalination technology. No data, no signal.
Another issue is that if we have only a partial view of companies’ exposure to climate shocks, then we will drastically underestimate the amount of financing needed to keep the economy humming in the face of worsening extreme weather and chronic climatic changes. Yes, the UN has compiled data on the climate adaptation financing gap, but this is focused on developing countries and the needs of governments and communities. What’s the adaptation financing gap across the S&P 500? We don’t know, we can’t even ballpark it, because so few of these companies provide meaningful information on their exposures, as Julie Gorte of Impax Asset Management told Climate Proof last week.
Of course, this climate data gap is precisely why regulators are busy putting together mandatory climate-related disclosure requirements for companies. In the US, it sounds like the responsible authority — the Securities and Exchange Commission — will be putting its final rule on this to a vote at the end of March. If approved and adopted, we’ll be one step closer to understanding the adaptation financing gap in the corporate world.
Biden Backs Ocean Resilience Startups
The White House just can’t stop investing in climate resilience, and for communities on America’s coasts the latest slug of federal money is a gift that could safeguard their future prosperity.
Last Tuesday, the Department of Commerce (DoC) and National Oceanic and Atmospheric Administration (NOAA) debuted a US$3.9mn award scheme as part of the latter’s Ocean-based Climate Resilience Accelerators program — one of the (many) pillars of President Biden’s Investing in America agenda.
Through this scheme, organizations in Alaska, California, Florida, and eight other states are receiving money to promote climate tech focused on coastal, ocean, and Great Lakes data, info “essential” for the building of “tools, products, and services that address climate resilience needs and create a climate-ready nation.”
The Resilience Accelerators program was established under the Inflation Reduction Act (IRA) to nurture public-private partnerships that support entrepreneurs focused on “marine-based climate resilience theme areas.” These areas include ocean renewable energy, coastal and ocean carbon sequestration monitoring and accounting, hazard mitigation and coastal resilience, and ecosystems services.
The 16 accelerators receiving awards will use the cash to support fledgling businesses. They may also provide seed capital to these businesses so they can bring new marine resilience products to market.
Last week’s announcement concludes the first phase of the program. Each of the 16 awardees is receiving US$250,000 in development funding. All are also invited to apply for phase two funding, which will see a total of US$55 million doled out for the implementation of up to five accelerators.
You can read all about the 16 awardees HERE.
This wasn’t the only climate resilience funding initiative out of the Biden administration last week. On February 21, DoC and NOAA also announced up to US$1mn in multi-year funding opportunities for remote communities in Alaska that need to build climate resilience and food security.
Indigenous and tribal peoples near the Arctic are on the front lines of climate change, and are already seeing habitats and wildlife transforming in response to greater warming. Many native communities depend on a frozen landscape for travel, hunting, and food — and the loss of sea ice limits the subsistence lifestyle of groups such as the Yup’ik, Iñupiat, and Inuit. The new funding will be spent via the Alaska Fisheries Science Center Indigenous Engagement Program, and go to build capacity in remote Arctic communities in collaboration with existing Indigenous Knowledge networks. Some will also help incorporate Indigenous Knowledge into NOAA’s existing science, thereby adding to the government’s know-how on fighting climate risks.
An initial US$500,000 is being made available this fiscal year, with more funding to be unlocked down the line.
This Alaskan funding is an example of the kind of “just” climate finance often spoken about by policymakers and NGOs, but all too rarely seen in practice. This approach insists that Indigenous peoples impacted by climate shocks be involved in the process of developing the resilience and adaptation solutions used to defend against them.
💡Innovation of the Week💡
“Data! Data! Data! I can’t make bricks without clay!” So cried Sherlock Holmes in The Adventure of the Copper Beeches. It’s a lament that climate risk professionals in government and business have often had cause to repeat.
However, it’s not just the quality and availability of climate data that’s the trouble — how it's structured and displayed matters, too. After all, when was the last time a dense Excel spreadsheet communicated to you the significance of such-and-such climate risk? Let’s be real, graphical information (like those famous “warming stripes”) packs a bigger punch than columns of ones and zeroes.
This understanding may be one motivator behind the new Copernicus Interactive Climate Atlas, which is being pitched as a game changing resource for climate policymakers. Copernicus is the European Union’s Earth observation program, and its climate change service (C3S) is tasked with providing open access to climate data and tools for scientists, policymakers, consultants, and more. The new Atlas allows users to interact with the Copernicus databases in new ways, enabling global and regional assessments of historical data and of forward-looking climate projections under different warming scenarios.
Overall, the Atlas provides access to 30 variables and indices, including the basics — mean temperatures, rainfall, humidity, etc. However, it also covers datapoints, like monthly count of days with maximum temperature above 40°C and annual consecutive dry days, that are of interest to the climate adaptation crowd. These insights into how specific climate physical risks are already manifesting — and are likely to manifest in future — could be helpful when it comes to planning specific adaptation and resilience outlays by governments and private investors.