Aon has stated that it will reach net zero by 2030, but the company will also play a significant role in helping its clients achieve similar ambitions.
As public figures from Greta Thunberg to Sir David Attenborough have reminded us at Cop26 this week, we all have a part to play in tackling the climate crisis. As for businesses, well, they have a bigger role than most, whether it’s cutting down emissions themselves (analysis by the Climate Accountability Institute in 2019 found just 20 companies contribute to 35% of all energy-related carbon dioxide and methane worldwide), engaging with responsible investment or setting best practice for their employees.
Yet, setting out a strategy for sustainability isn’t easy. Therefore, it’s essential to have right advice when establishing a blueprint for a greener future.
Aon have been at the forefront of advising clients on sustainability for over 15 years. The professional services firm – which has stated it will reach net-zero by 2030 – frequently helps a wide range of clients on their carbon-neutral journeys. Here’s why companies should be making the environment and sustainability a key part of their long-term strategy – and why responsible investment could benefit both business and the planet alike…
Why is Aon committed to helping businesses on sustainability issues?
“Climate change will amplify both existing physical risks and the risks stemming from the transition from fossil fuels to renewable energy systems,” says Elizabeth Henderson, Head of Climate Change Analytics at Aon’s Reinsurance Solutions. “Insurance and financing products will be required to facilitate an orderly and just transition, and so our teams match risk to sources of capital with the aim of reducing volatility, while using data and analytics to help facilitate the creation of new markets.”
Many people would assume the insurance industry has nothing to do with the climate crisis…
Not so. According to research from Aon, the global economic impact from catastrophes total more than US$4trillion and losses in the 2010s exceeding those from the previous decade by 65%.
Recent extreme events highlight the need for financial institutions to adopt a view of risk that takes the impact of climate change into account.
The insurance industry is also taking a hit too, with ‘secondary perils’ (such as a storm surge following a hurricane) comprising 60 % of all insured losses so far in the 21st century. “While extreme weather events are still relatively rare, it’s the increasing frequency and severity of losses that are coming from poorly-modelled perils like severe storms, flood and wildfires that are eroding earnings in the (re)insurance sector,” adds Henderson.
What are the dangers of being uninsured?
With extreme weather events occurring more frequently, it could mean the business you’ve built up over many decades could be wiped out overnight.
Although the insurance industry covered 64% of global catastrophe losses in 2020, not all regions of the world have adequate insurance support. For example, in developing economies, insurance might cover as little as 16% of the total losses from extreme events. This protection gap highlights the need for insurance protection to offset the increasing volatility from these events. More is needed from the insurance industry and through government and development banks to align insurance modelling and capital with these increasingly frequent events.
What does Aon hope is achieved at Cop26?
Businesses may have the best intentions when it comes to the environment, but this means nothing unless it’s enshrined in regulation. It’s hoped that the aftermath of Cop26 will see governments and international organisation craft new (and tougher) legislation and guidelines for businesses, so they perhaps face extra audits and rules for unsustainable assets (e.g. holding a car-fleet account with petrol vehicle manufacturers).
“The insurance industry is playing its role too, as we help organisations focus on their climate disclosures,” says Henderson.
What is responsible investment and how can it help clients achieve their sustainability goals?
Broadly speaking, responsible investment involves allocating funds to investments which meet certain ethical, social or governance (ESG) standards.
Until relatively recently, the more conservative elements of the financing sector considered environmentally-focused investing as a niche and/or hippie interest.
Yet, data by global research agency Morningstar last year shows that it could be outperforming traditional funds. Its study of 745 ethical funds found that they matched or surpassed returns in all categories (bonds, shares etc) when compared with 4,150 traditional counterparts.
It also found that the average annual return for a sustainable fund invested in large global companies has been 6.9% a year (for the past 10 years) compared with traditionally-invested funds, which make 6.3% a year.
Responsible investing can also help protect and secure retirement income, as well as consolidating future investment returns.
How can Aon help businesses transition to net-zero?
“Aon offers a wide range of services which can help clients and investors develop ethical investment strategies, such as ESG integration, engagement and stewardship, as well as responsible/impact investing,” says Henderson.
Through schemes such as Aon’s Global Impact Fund, the insurers also provide one-off and stand-alone exercises, advisory partnerships, and ESG-integrated investment solutions.
Clients can also benefit from Aon’s specially-tailored education packages and sessions on new regulations, climate change, ESG investment risks and impact investing.
Henderson adds: “There’s a raft of analysis available: we can provide firms with climate change and ‘new normal’ economic scenario analysis – such as assessing how ESG risks can impact firms’ assets and liabilities – carbon footprint analysis, ESG portfolio risk analysis and fund manager ESG assessments”.
Meanwhile, Aon’s ESG Portfolio Dashboard can also offer standard reporting against any sustainability scheme objectives.
All advice is delivered by Aon’s trained professionals, with the calibre one would expect from a firm which was a global signatory to the UN’s Principles of Responsible Investing (PRI) and a founding member of ClimateWise group of insurance companies committed to working together to combat climate change.