Sustainability Trends

How do we protect growth in a world of ‘new normals’? 

An opinion piece by John Coomber, ClimateWise Chairman and former CEO of Swiss Re

November 21, 2011

Last Friday the Nobel Prize-winning Intergovernmental Panel on Climate Change (IPCC) approved a new report on ‘Managing the Risks of Extreme Events and Disasters for Climate Change Adaptation’. This is compelling reading both for those interested in climate change science, and for those working everyday to protect future economic and social activity.

The IPCC report leaves me in no doubt that the number one risk facing the world is climate change. Yet it also points to a whole range of solutions which, provided we work together to deliver them in time, would serve to make this risk vastly more manageable. What does this mean at a time when we are so concerned about economic stability and growth? A perspective from the world of risk management may be apposite.

Good risk management involves taking action to remove undesirable and avoidable stress factors from the equation wherever practical. For over 300 years, insurance markets have helped people chart a more resilient course through a world in which they have had to take risk, of various extremes, into account. Without this financial safety net, individuals, businesses, and even governments would not have been able to bear the risks inherent in the trade and development that has shaped our progress.

Throughout this period, the parameters of these extremes have fallen within – more or less – manageable ranges of uncertainty. We can think of this as the ‘normal’ state of affairs. However, during the 40 years I have spent in the insurance industry, it has become increasingly clear to me that we now face the prospect of an utterly ‘new normal’; the chance of a 5°C rise in global average temperatures is considerable over the next century if carbon emissions escalate on current projections.

The planet hasn’t been that warm for 30 million years. So in risk terms, we must contemplate unpredictable outcomes and should expect major shifts in weather patterns, such as rainfall and more extreme weather events. The prospect of such fundamental change forces us to confront the vulnerability of the many complex systems we have come to rely on like financial hubs in coastal cities, global agricultural belts and international supply chains.

But despite solutions being well understood, the global response to climate change to date is lethargic and totally out of proportion with the scale of the threats we face. In good risk management terms, this latest science demands that we ask ourselves whether the risks of climate change are acceptable, or whether they are so great and so undesirable that we should act to remove them from the equation.

To my mind, there are many mega-trends that will re-define our way of life in in the coming decades, including demographic change, the dominance of cities, redistribution of the world’s economic activity and resource scarcity. In this context, the severity of the potential impacts of climate change and the uncertainty connected to exactly when and where those impacts will be felt are so great that we must surely conclude that these risks are more than we are prepared to accept.

Insurers can help to forge and promote solutions by using our industry’s core expertise to better understand and communicate climate risks and to manage those risks down to an acceptable level.

To do so, our global industry must work together with key corporate partners, financiers and policy-makers alike. ClimateWise already exists as a collaborative mechanism in the insurance industry from which to build. Under my predecessor Andrew Torrance’s guidance, ClimateWise has in a few short years expanded its membership beyond its UK base and advanced its aspiration to become a leadership group on climate change within the global insurance sector.

At our annual summit in London today, insurance industry leaders will sit down with our counterparts in key sectors such as energy and utilities to explore how we can better support their efforts to deliver low carbon growth. The conversation will undoubtedly cover a range of roles the insurance industry can play. In the past few months, for example, ClimateWise members have been working to shape attractive investment opportunities in long-term low carbon infrastructure. Similarly, we have been applying our expertise in risk management to the challenge of protecting people and businesses in the developing world from climate risk.

Climate variability will always be with us, but climate change doesn’t have to be. So as Governments are rightly focused on rebuilding our economic system, there is no better time to reconfigure that system so that the unacceptable risks of climate change are taken off the table. In doing so, we give ourselves better prospects of adapting to the other changes that will shape the world’s progress in the 21st century.

A Logical Framework for Climate Leadership or The Logic of a Carbon Budget  

An opinion piece by Mike Brown, Chief Executive, Nedbank Group; Mark Cutifani, Chief Executive, AngloGold Ashanti. Both are members of the South African Corporate Leaders Group on Climate Change.

The UN climate change negotiations that South Africa is soon to host (28 November to 9 December in Durban) can seem rather confusing. They cover very complex political and scientific territory on which international negotiators have been trying for no less than 17 years to reach agreement.

Their primary challenge is to come up with a globally fair, ambitious and binding agreement to reduce man-made greenhouse gas emissions and thereby avoid condemning future generations to dangerous and potentially catastrophic levels of climate change.

Despite the complexity we think it is possible and important to simplify the climate policy landscape. As representatives from two big South Africa companies, we want to put forward a framework that was developed by the Cambridge Programme for Sustainability Leadership in the hope that it will be improved upon through public dialogue and will then provide a platform from which leaders from all sectors can act with speed and determination.

The framework proposes four steps that logically follow from each other:

Firstly, significant and mounting scientific evidence indicates that human emissions of CO2 are causing the climate to warm and, if not arrested, could lead to dangerous levels of climate change. International consensus has converged on the fact that we should not allow the global average temperature to rise more than 2°C above the pre-industrial norm (we are already today at +0.8°C). Going above this would place too many parts of the world at too great a risk. At the last big UN climate change meeting, which took place in December 2010 in Cancun, 193 countries (including the US, China and South Africa) signed the Cancun Agreement that explicitly confirmed this 2°C target.

According to scientists this means that, having emitted carbon more or less commensurate with economic growth since the industrial revolution, humanity now has a strictly limited ‘carbon budget’ that may be emitted in future. To emit more than this would seriously jeopardize our chances of keeping below the 2°C threshold (which incidentally many believe is not low enough to prevent significant changes to the climate which would affect low-lying states and other vulnerable areas). It seems to us that the idea of a global carbon budget makes simple, logical sense and gives us all a clear target to work with. Interestingly, the recent National Climate Change Response White Paper also employs the carbon budget concept as a means to specify desired emission reductions consistent with a national emissions trajectory.

How big a carbon budget do we have? It is estimated that if we want no more than a 25% risk of exceeding the 2°C threshold we have a budget over the next 40 years of around 680 gigatonnes (Gt) of CO2 or 680 billion metric tonnes.

How much CO2 are we emitting currently? In 2010 we emitted around 35Gt globally. Simple arithmetic reveals that, if we emit at our present rate (instead of growing it at 2,5% per year as we did over the last decade), our global carbon budget will be exhausted in less than 20 years. That is a hugely challenging piece of information. Yet we believe it is critical that leaders in all sectors acquaint themselves with the basic science behind it – or at least accept the fact that the great majority of esteemed scientists working on climate change regard this as a reality.

The second logical step, having understood and acknowledged the reality of humanity’s fixed carbon budget, is that the world’s governments must divide up that budget in a fair manner amongst the nations. This is the current task of the United Nations Framework Convention on Climate Change (UNFCCC), who will run the 17th Conference of the Parties (COP17) in Durban. There are a number of ways one can calculate each nation’s fair share and different countries, of course, have different preferences depending on their past emissions, their future development needs, their population, etc. These differences must be addressed but ultimately what matters is that the global budget is shared out. We assume that, in spite of current difficulties, this will be done because it has to be done for the sake of future generations.

What share of the global carbon budget can South Africa expect? That depends on which calculation method one uses, but a range between 0,5% and 2% has been suggested – bearing in mind South Africa currently contributes about 0,58% of global GDP and 1,29% of carbon emissions. Our relatively heavy emissions of CO2 in the past counterbalance our need to develop. If one assumes South Africa is allocated 1.5% of the global carbon budget that means a national budget of 10,2Gt of CO2 to be emitted from now until 2050. We currently emit more than 0,45Gt per year, so at that rate we have less than 23 years before we must effectively cease emitting CO2. Given the currently high carbon intensity of our economy, this is another challenging piece of information.

The third logical step is that this South African carbon budget must be shared out amongst all its people and companies – including energy suppliers and large energy users – in order to maximise socio-economic benefits. This requires a participative and well-informed discussion amongst relevant stakeholders. Tough as well as creative decisions will have to be made and policies and laws will be needed to enable the allocation. We see no reason why the process of agreeing an allocation of the national carbon budget cannot be run in parallel with the on-going international negotiations, but it needs to be informed by the global carbon budget framework. Indeed a strong national agreement would greatly enhance our government’s international negotiating stance.

Lastly, at the level of the individual business one needs to ask, “How can we continue to create value for all our stakeholders given the steep reductions in carbon emissions that have to be made to stay within our carbon budget?” At the organisational level we see great value and potential benefits in early planning for the transition to a low-carbon economy.

We believe business leaders have an important role to play in all four steps outlined in this framework.

• We should call for and support continued scientific research, particularly of likely regional and local climate impacts and potential responses.

• We should support the international negotiations to find a binding global agreement. To this end we have worked with other global business leaders to contribute to and endorse The 2°C Challenge Communiqué, written by the Corporate Leaders Network for Climate Action (CLN) and delivered to the world’s governments today.

• We should engage constructively with government and civil society in South Africa to develop a plan for reducing South Africa’s emissions while continuing to deliver on our social goals.

• Finally, we need to do what business does best – come up with innovations and invest in better ways of doing things to create lasting value in the economy.

We fully acknowledge that reducing South Africa’s emissions to stay within our carbon budget will be very challenging, but we believe that the consequences for future generations of unmitigated climate change will be far worse. That is why we urge everyone to join us as we take up this tough but absolutely crucial task.

This article was first published in Business Day, 20 October 2011

Healthy People, Healthy Planet 

An opinion piece by Martin George, Director of Group Development and Chair of Bupa's Sustainability Committee

Sustainability. It can mean different things to different people. The traditional view is that it applies to protecting the Earth; changing our laws, our businesses or the way we eat, work and play so that the planet can still support us into the future. But a truly sustainable society is about more than the environment. It includes accessible health and social care systems, employment chances for all, and old age filled with opportunity. It’s our responsibility to ensure society creates the conditions for our children to have a better quality of life than us. The future of society is reliant on healthy people and a healthy planet.

Threats to the planet pose a direct risk to our health. Lack of clean air and water, dwindling natural resources, insecurity over food supply, and climate change will all have a significant impact. We’re happier when we spend time in the natural environment, and nature provides us with the food and fuel we need to exist. At the same time, societies around the world are also grappling with the twin challenges posed by rapidly ageing populations and the spread of modern lifestyles characterised by unhealthy eating habits and low levels of physical activity.

Fundamentally, we all wish to lead fulfilling, healthy lives. It makes it easier to provide for our families, and spend time on more rewarding activities. As with the health of the planet, human health can be better improved through prevention – leading a healthier life, as opposed to being treated later, when confronted by illness and disease.

According to the World Health Organization, 80 per cent of all people who have a chronic disease could have prevented it. The risk of developing a chronic condition such as diabetes, cancer, heart disease and lung disease can be reduced by healthier eating habits, being more active and smoking less. Healthy behaviours also typically support a healthy planet. Simple changes, such as cycling instead of driving, can have far - reaching benefits.

This is why at Bupa we’re evolving our approach to healthcare. Encouraging healthy behaviours can improve our own health, the viability of health systems around the world and support a healthy planet. We’re committed to empowering millions of people around the world to make positive changes that make them healthier and happier, and support a healthy planet. By encouraging healthier people we can create shared value for society and our business.

July 2011