INSURANCE AND CLIMATE CHANGE DISCLOSURE IN AUSTRALIA

Transcription

1 REPORT OCT 2015 INSURANCE AND CLIMATE CHANGE DISCLOSURE IN AUSTRALIA A review of publicly-disclosed climate change-related policies and statements of the Australian insurance sector

2 Thank you to both the peer reviewers: Ian Edwards has twenty years experience in national and international financial services and has worked across a broad spectrum of the international financial industry including public practice, investment banking and reinsurance as a chartered accountant. Ian is currently involved in a range of projects globally and within Australia specific to climate change adaptation and resilience strategies. By virtue of the magnitude of assets it manages and the nature of risks it covers, the insurance industry is in a unique position to act as a lever of change towards a low carbon, resilient future and the significant benefits this represents for insurers, communities and economies alike. Francis Grey, Consulting Economist, co-founder the Australian SAM Sustainability Index (AuSSI) Index, as well as founder, co-director, Economists@Large, The Australian insurance industry is at the forefront of bearing the costs of global warming. As a co-founder, and Head of Research, of the AuSSI index I have followed the progress and the lack of progress of the Australian insurance industry, with respect to global warming, since Whilst there are indications that privately the insurance industry understands their climate change risk, that risk is not publicly invited to the top table for strategic industry discussions. As a result insurance industry stakeholders, including government, are lulled into a false sense of security when Australia s top risk managers don t mention Australia s largest economic, security, social and political risk. Disclaimer While every attempt has been made to accurately review all publicly available information up to 15 October 2015, WWF apologises if there is any information in the public domain that was overlooked or misinterpreted. Cover image: istock.com / CreativeImages 2 Insurance and Climate Change Disclosure in Australia

3 INTRODUCTION Under the UN Framework Convention on Climate Change (UNFCCC), governments have agreed to limit the global warming average temperatures to 2 C. The IPCC warns that our current trajectory, which would use up the century s carbon budget within the next twenty years, will lead to estimated warming of C over the 21st century. Without rapid and significant efforts to limit emissions, the world will need to brace itself for climate shocks of increasing frequency and severity, resulting in social, economic and political impacts. In December 2015, governments from around the world will meet at the UNFCCC Conference of Parties in Paris with the aim of setting a framework for national governments to drive down carbon emissions. It is particularly important that Australia does its fair share given our contribution to global warming and our high vulnerabillity to climate change impacts. The CSIRO and Australian Government Bureau of Meteorology, describes projected climate change scenarios including increasing temperatures with more hot and fewer cold days; increasing number of extreme fire-weather days and a longer fire season; increase in drought frequency and severity, increasing frequency and intensity of extreme daily rainfall; increasing intensity in tropical cyclones and an increase in sea levels and in the frequency of extreme sea level events. Such events will substantially impact on human health, property, infrastructure, agriculture, forestry and much of our ecosystems which provide the services we rely on including, fresh water and food. This will negatively affect our economy and standard of living. Associated risks from climate hazards would be amplified by increased vulnerability and exposure, created, for example, by more and more concentrated coastal development. The insurance industry will be affected through increased claims, reputational damage, decline in insurance affordability, and an increase in uninsurable sectors or geographies. UK insurance company Aviva CEO Mark Wilson has said: Left unchecked, climate change and other issues arising from unsustainable development would affect the actuarial assumptions underpinning the insurance products that our industry provides, potentially rendering significant portions of the economy uninsurable and shrinking our addressable market. 2 The business model for insurance companies involves holding significant investments in part to meet solvency requirements in case of major claims. Insurers are increasingly exposed to climate change impacts through their investment portfolio 3 and their ongoing underwriting of new fossil fuel intensive projects. This is at the same time as insurers are directly losing money from the increased frequency and severity of natural disasters. It just doesn t make business sense. There is a compelling case for Australian insurers to publicly disclose their position on climate change, how they are managing their risks and to actively advocate for ambitious climate change policies that will ensure warming is kept below 2 C. Given the insurance industry s expertise in risk management, weather-related impacts and prominent position in the business community, insurance companies have a responsibility to reduce risks and costs to consumers. This includes advocating on policies that will mitigate against the worse effects of climate change and increase climate resilience to climate impacts. There is also an increasing expectation by customers and stakeholders that insurance companies publicly disclose their climate positions. Financial analysts might also be surprised at this lack of detailed climate policy and disclosure. We hope to see the Australian insurance industry sector more actively engaged publicly in future years. 1 CSIRO & Australian Government Bureau of Meteorology. (2014). State of the Climate Retrieved from 2 Aviva PLC. (2014). A Roadmap for Sustainable Capital Markets. Retrieved from Sustainable-Capital-Markets-updated.pdf 3 OECD: Insurance and Climate Change Disclosure in Australia 3

4 THE REPORT This research examines publicly-disclosed climate change related policies and statements of general insurers IAG, QBE and Suncorp. It compares these disclosures with selected international insurers (Allianz, Prudential Financial and AXA) and with the four major Australian financial sector peers (ANZ, Commonwealth Bank (CBA), National Australia Bank (NAB) and Westpac). Information is from public sources with particular emphasis placed on the most recent annual reviews and/or sustainability reports given their central status in disclosing material issues, corporate reporting and stakeholder engagement. CDP (formally known as the Carbon Disclosure Project) data is also assessed. While disclosure can be viewed as an end in itself, lack of disclosure does not necessarily mean that the issue is not understood or being appropriately managed internally. However it can provide a good proxy measure for how companies think about their risks and exposures, their level of corporate engagement in the bigger narrative on climate change and how companies are positioned and perceived by the public in relation to this issue. It should not be seen as an endorsement of any of the banks statements or disclosure as best practice. While the banks are further down the path on public disclosure there is still considerable room for improvement. However it can be acknowledged that the banking sector is genuinely trying to come to terms with the implications of climate change in a 2 C world on their future business. 4 Messervy et al (2014) Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings & Recommendations. Ceres Insurance Program. Retrieved from view 5 NB. Ceres is a not-for-profit U.S. organisation advocating for sustainability leadership mobilising a powerful network of investors, companies and public interest groups to accelerate and expand the adoption of sustainable business practices and solutions to build a healthy global economy. See The document also reviews aspects of international and local action by regulators and the local disclosure framework relevant to environmental risks. The report, Insurer Climate Risk Disclosure Survey Report & Scorecard: 2014 Findings and Recommendations 4, developed by U.S. based Ceres 5, has been a helpful guide to better understanding how the U.S. insurance industry is positioned on key issues around climaterelated risks and opportunities. We have used a similar framework for our assessment of Australian insurers and the peer group. The assessment framework used here reveals the greater extent of climate change-specific disclosure and commentary in stand-alone statements, annual reviews and sustainability reports by the Australian insurers over the peer group. In some cases there is no relevant statement or policy by Australian insurers to compare with those of the peer group. This report should be seen as a conversation-starter with the insurance industry, to be used in exploratory and collaborative engagement, with an objective of encouraging Australian insurers to raise the profile of climate change disclosure, their position on managing climate change risk, and helping their consumers better understand their climate risks and exposure. istock.com / EdStock Insurance and Climate Change Disclosure in Australia

5 BENCHMARKING TABLE The following benchmarking table (Table One) addresses the corporate disclosure of several important areas in corporate climate change governance, policy and practice. The comparison is based solely on existing public disclosure identified in mainstream reporting or climate specific statements. This approach inevitably introduces some inconsistencies into the analysis however it is the best proxy measure we have for the purposes of this comparison. We were guided by the Ceres report s questionnaire when framing our analysis as it encompasses a broad range of concerns including governance, policy, risk and opportunity, asset allocation and engagement with broader stakeholders. Deeper analysis of the questions and peer group comparisons is in Appendix. Table One: Benchmarking of Peer Insurers and Banks Allianz AXA Prudential US IAG QBE Suncorp ANZ CBA NAB Westpac A. Disclosure of climate risk oversight at Board/ senior management level Y Y Y L L L Y Y N Y B. Public disclosure of climate change statements Y Y Y L L L Y N Y Y C. Public disclosure of climate change related business risks Y Y Y L Y L Y Y Y Y D. Public disclosure of climate change related business opportunities Y Y Y L L L Y Y Y Y E. Public Acknowledgement of 2 C target Y Y N N N N Y N N Y F. Public disclosure of low carbon investment/ lending targets or divestment actions Y Y Y N N N Y Y Y Y G. Signatory to industry initiatives or Statements for Insurers on Climate Change: i) Climate Risk Statement of Geneva Assn. ii) UN Principles for Sustainable Insurance Y Y Y Y N Y N/A N/A N/A N/A Y Y N Y N N N/A N/A N/A N/A iii) ClimateWise Principles Y N N N Y* N N/A N/A N/A N/A Key Y: Yes - in annual reviews and/or sustainability reports, in many cases augmented by separate company statements; L: Limited - in specialised reporting e.g. CDP; N: Not found; N/A not applicable *QBE Europe only Insurance and Climate Change Disclosure in Australia 5

6 PRINCIPAL FINDINGS Based on the disclosure and information reviewed these are our principal findings: While the peer group generally discloses publicly their climate change policies/strategies through stand alone statements, annual reviews and/or sustainability reports, local insurers do not appear to disclose through these channels. It appears that no Australian insurer mentions the importance of a 2 C climate change target as an international consensus position or as an important climate threshold in any public documents. Disclosure by Australian insurers of climate change matters in annual reviews and/or sustainability reports seems generally less specific and detailed than that made by the peer group. Disclosure by Australian insurers of specific climate change matters are generally less specific and detailed than that made available by them in more specialised disclosure submissions or reports. There is no disclosure by Australian insurers of low carbon investment targets or statements around divestment in carbon intensive companies or products. There is signifcant scope for Australian insurers to augment their public position on the need for more ambitious climate change mitigation and communicating to consumers the risks and benefits of adaptation and mitigation. Recent actions by international and Australian insurance industry regulators demonstrate that they are taking a closer interest in key environmental, climate change risks and related disclosure (see section below), and this may lead to greater expectations on insurers to be more active in their public disclosure of risk. istock.com / Graham Melling Insurance and Climate Change Disclosure in Australia

7 INTERNATIONAL AND NATIONAL REGULATORY RESPONSES It seems that insurance and finance sector regulators are taking a greater interest in how insurance companies are managing their environment and climate change risks. Leading regulators in the US, UK and Australia are requiring insurers to improve their disclosure of these issues. For example the U.S. National Association of Insurance Commissioners (NAIC) has mandated disclosure for insurance companies general reporting requirements in key U.S. States including California, Connecticut, Minnesota, New York and Washington State. The NAIC which commissioned the Ceres report 6 mentioned above, has also recommended that regulators take further action, as follows: Require climate risk disclosure in all U.S. states; Release an improved Climate Risk Disclosure Survey; Advocate for quantitative evaluation of insurers climate risk management; and Provide insurers with comprehensive climate science resources. The Ceres report concluded there is a paucity of public climate change disclosure by insurers and this may have influenced regulators in other jurisdictions. The Bank of England s PRA issued a letter and questionnaire to leading UK based insurers in June It was designed to assist in developing a response to the UK Government s Climate Change Adaptation Report to inform the next UK Climate Change Risk Assessment to be laid before the UK Parliament in The questions require a considerable level of detail regarding the current and future impacts of climate change on the insurance industry s business planning horizon, as well as the role of the insurance industry and insurance regulation. Disclosure by Australian insurers should also be influenced by two significant items in the disclosure framework which capture environmental and sustainability issues. Ernst & Young (2015) 9 in its review of disclosure by ASX 100 companies outlines these: ASX Recommendation 7.4 of its Corporate Governance Council Principles and Recommendations: which asks companies to disclose whether they have any material exposure to economic, environmental and social sustainability risks and, if they do, how they manage or intend to manage those risks. 10 ASIC Regulatory Guide 247 with recommending the directors operating and financial review (OFR) includes a discussion of environmental and other sustainability risks where those risks could affect the entity s achievement of its financial performance or outcomes disclosed Retrieved from praletter pdf 8 Retrieved from Documents/ LTI-Public-disclosure-for-prudential-purposes-forinsurers-June-2015.pdf 9 Ernst & Young. (2015). Materiality and sustainability disclosure: Key insights from the ASX top 100. Retrieved from Publication/vwLUAssetsPI/materiality-and-sustainability-disclosure-keyinsights-from-the-ASX-top-100/$FILE/EY-materiality-and-sustainabilitydisclosure.pdf p Retrieved from 11 Retrieved from Regarding Australian regulatory authorities, on June 22, 2015 APRA wrote to the CEOs of general insurers regarding the public disclosure for prudential purposes. It stated that as a next step APRA strongly encourages each insurer to review its approach to public disclosure of prudential matters in light of this letter, with the aim of enhancing market discipline. 8 The Appendix to the letter provides more specific details and recommendations. Insurance and Climate Change Disclosure in Australia 7

8 WHERE TO FROM HERE RECOMMENDATIONS GOING FORWARD WWF-Australia encourages Australian insurance companies to develop a detailed and public statement on their climate change policies, risks and opportunities: 1 ENCOURAGE INTERNAL DISCUSSIONS at board and senior management level on how companies can position themselves on climate risk and climate policy more broadly and disclose specific climate change information in mainstream reports; 2 AUSTRALIAN INSURERS COULD ISSUE A STATEMENT similar to the Australian Climate Roundtable 12 mentioning the importance of avoiding 2 C warming and the serious economic, social and environmental impacts that unconstrained climate change will have on Australia; 3 DEMONSTRATE PUBLICLY how companies will meet their commitments including under the UNEP Financial Initiative (FI) Principles for Sustainable Insurance 13 and the Geneva Association Climate Risk Statement 14 ; There is plenty companies can do to become an active business voice calling for strong and ambitious climate mitigation action and to better manage consumer risk. A recent presentation at the general insurance seminar had some concerning findings: the worse affected homes could see buildings premiums of about 38% of annual income under certain scenarios by This is a significant affordability problem [for consumers]. 15 This highlights how vulnerable certain sectors of the community are, as well as the broader implications for the economy and society, where it is also likely that tax payers will have to foot the bill. This also has implications for the insurance industry itself where a smaller insurance industry may end up being less commercially viable if there are fewer policyholders able to spread the risk and cost, resulting in more volatile losses. 12 Retrieved from 13 Retrieved from 14 Retrieved from ga2014-climate-risk-statement.pdf 15 Jon Harwood et al (2014) Can Actuaries Afford to Ignore Climate Change? delivered at the 2014 Actuaries Institute, General Insurance Seminar retrieved from GIS/2014/GIS2014EganEtAlClimateChangePres.pdf 4 UNDERTAKE A DETAILED REVIEW of company investment policies and portfolios from an ESG and climate change risk perspective; and 5 COMMUNICATE to consumers and financial analysts what companies are doing to proactively manage their climate change risks. 8 Insurance and Climate Change Disclosure in Australia

9 SCOPE, METHODOLOGY & LIMITATIONS This report draws only on publicly available information up to 15 October This is predominantly sourced from the most recent annual reviews and/or sustainability reports; certain policies or statements published on company websites; and most recent CDP data accessed through the CDP website. More weight is given in the benchmarking review to disclosure in public statements, annual reviews, or sustainability reports, given the focus of this report. It compares three leading Australian general insurers IAG, QBE and Suncorp against Allianz, AXA and USbased Prudential Financial 16. Allianz and Prudential were chosen since they are identified as Top Rated Insurers in Ceres and they are active in different sectors: Allianz in Property & Casualty and Prudential in Life. AXA was chosen due to its recently announced coal divestment policy. Four Australian banks, ANZ, CBA, NAB and Westpac, are included in the benchmarking as they are leading members of the Australian financial services industry as a comparison to the Australian insurance industry. Collectively, the three overseas insurers and three banks above are referred to as the peer group. 16 NB: Prudential Financial Inc. in the US is not affiliated to Prudential PLC in the UK. 17 Messervy, M. (2014) ibid. istock.com / Jaykayl - Insurance and Climate Change Disclosure in Australia 9

10 APPENDIX A deeper dive into the assessment A. Disclose climate risk oversight at Board/ Senior Management level a) Rationale Top down support and accountability are viewed as important for the successful management of emerging systemic issues like climate change and can also send a positive signal to investors, industry peers, regulators, government and other stakeholders. The Ceres report for example summarises several key recommendations for the industry, the first of which is to develop climate risk oversight at the Board and Senior Management level to ensure they understand and align company policies with climate change issues. b) Company Disclosure Peer Comparison Allianz (2014) is explicit about climate change and related governance, citing the issue as one of three global issues most relevant to its business (p.7) and describing the role of the Group ESG Board (p.27) which: is responsible for integrating and strengthening ESG aspects within our insurance and investing activities. This helps to promote ESG issues within our Group corporate governance. The ESG Board meets quarterly and reports to the Group Finance and Risk Committee for decision-making. 18 AXA (2014) provides extensive commentary from its Chairman and CEO on climate change risks (p.5) as well as by its Deputy CEO (p. 9). From a governance perspective, it describes how in 2014 it: combined its corporate responsibility teams with those handling strategy and public affairs, such that they are now represented in the Group s Executive Committee. Furthermore, in its Progress Report Principles for Sustainable Insurance 19 it describes how: Environmental, Social and Governance (ESG) issues monitored through regular reporting by Group Corporate Responsibility department to the senior management (Executive Committee, Board of Directors, Group Corporate Responsibility Committee). 20 Prudential (2013), p.42 describes how its 2009 Environmental Commitment stated: We recognize the emerging risk of global climate change and the impact it could have on our industry and our customers around the world. 21 It also describes (p.14) its views on long-term risks and opportunities which include mitigating climate risk and how: Formally, long-term value creation is overseen by the Board of Directors, led by Prudential s senior leaders and carried out by senior staff. 22 Prudential s statement Commitment to the Environment which recognises climate change as described above also outlines its governance structure around environmental matters: To channel Prudential s commitment to the environment, understand and mitigate environmental risks to the business, and identify opportunities driven by environmental issues, Prudential formed an Environmental Task Force that reports to the Vice Chairman. IAG (2014) reviews its risk management framework, governance and key risks at great length, including economic, environmental and social sustainability risk but no specific reference to the governance of climate change risk was found. This however is described explicitly in CDP 2014 data 23 supplied by the company: Responsibility for natural perils and Climate Change lies with IAG s Chief Executive Officer and Managing Director. 24 It is worth noting that previously IAG has been more explicit in an earlier annual report. IAG (2009) 25, p.68 states: Climate change is any long-term significant change in the expected patterns of average weather of a specific region over an appropriately significant period of time. Unexpected changes in climate impact the ability to appropriately price risk. IAG s most recent annual report 26 mentions the importance of business resilience particularly for rural and regional Australia, without specifically mentioning climate risks. Disclosure by QBE and Suncorp of risk governance focusses on disclosure of principles and broad risk categories. No specific reference was found in QBE and Suncorp to climate change risk governance. Corporate governance issues are also covered in corporate governance statements 29/30 but no specific reference was found to climate change risk while specific reference to climate change risk governance is included in the CDP 2014 data. QBE s CDP disclosure states: The Group Chief Risk Officer is responsible for monitoring and reporting on climate change as part of the group risk management framework Insurance and Climate Change Disclosure in Australia

11 APPENDIX CDP 2014 data supplied by Suncorp states: Suncorp Group s CEO is responsible for the development and implementation of business strategies and budgets The Group CEO provides leadership on key social and environmental issues that impact Suncorp Group Risk and opportunities impacted by climate change are included within the risk categories managed by the Group s risk framework. 32 Both insurers and banks are in the business of managing risk. ANZ 2014 specifically discloses climate change in the Risks section of its Directors Report which covers the material risks facing the Group: ANZ s customers could also be impacted by climate change and changes to laws or regulations, or other policies adopted by governments or regulatory authorities, including carbon pricing and climate change adaptation or mitigation policies. 33 CBA Chairman in the most recent annual report states that we fully understand our role in addressing the challenge of climate change...and the Group will continue to take an active role as a financial intermediary in addressing climate change. 34 Westpac , p.121 describes climate change as a risk in the description of Risks and Risk Management in its annual report. Governance of this risk is described in its Climate Change and Environment Position Statement and 2017 Action Plan p14: Group-wide sustainability performance is reported to the Westpac Group Executive Team and Westpac Board on a half-yearly basis Allianz Group Sustainability Report 2014, retrieved from allianz.com/media/responsibility/allianz_sustainability_report_2014.pdf 19 Retrieved from AXA_Disclosure_2.docx 20 Axa 2014 Activity and Corporate Responsibility Report, retrieved from Report_2014_VA_b.pdf 21 Prudential Financial, Inc Sustainability Report, retrieved from Report_2013.pdf 22 Retrieved from 23 CDP data 24 Retrieved from reportingcentre/2014/downloads/iag_annual_report_2014.pdf 25 Retrieved from Documents/Results%20%26%20reports/AR09_RR_iag_annual_ report_2009_ pdf 26 Retrieved from Results%20%26%20reports/2015%20IAG%20annual%20review-final.pdf 27 Retrieved from Default%20Media/QBE_AR14_Full_report.pdf 28 Retrieved from reports/sgl_2014_2015_directorsreportandfinancialstatements_6.pdf 29 Retrieved from Media/Corporate%20Governance%20Statement.PDF 30 Retrieved from documents/governance-documents/corporate_governance_statement_ Interactive.pdf 31 CDP data 32 CDP data 33 Retrieved from files/2014-anz-annual-report.pdf 34 Retrieved from commbank/about-us/shareholders/pdfs/annual-reports/cba-annualreport-30%20june-2015.pdf 35 Retrieved from ic/2014westpacgroupannualreport.pdf 36 Retrieved from c) Conclusion Disclosure of direct climate risk oversight at board and senior management levels in annual and sustainability reports is more detailed by the foreign insurer and domestic bank peer group than that provided by the three local insurers. Insurance and Climate Change Disclosure in Australia 11

12 APPENDIX B. Public disclosure of climate change position statement a) Rationale A detailed statement on climate change can send a positive signal to all stakeholders and provide a baseline against which implementation measures can be judged. Disclosure of such polices can be viewed as an important component of a more comprehensive corporate responsibility framework. 37 Retrieved from report_2014/sustainability_strategy/climate_change_strategy.html/ 38 Retrieved from AXA_and_Climate_Risks.pdf 39 Retrieved from ClimateRisks_2014.pdf 40 Retrieved 41 Retrieved from 42 Retrieved from 43 Retrieved from b) Company Disclosure Peer Comparison Allianz has a dedicated webpage 37 on its proactive support for a low-carbon economy. AXA has a detailed strategy document strategy document focussed on AXA and climate risks. 38/39 Prudential discloses various climate change policies 40 through its webpage focusing on its own footprint, as well as its investment activities, external engagement; governance and reporting. ANZ 41, Westpac 42 and NAB 43 have specific policy documents outlining their approach to climate change. None of the Australian insurance companies seem to have self-contained public climate change statement in their annual reviews and/or sustainability reports. However relevant material is reported through CDP data. Both QBE and Suncorp provide links on their websites to their CDP reporting which contains a strategy section and would be encouraged to but this material in their annual review and/or sustainability reports. See and reports. c) Conclusion Public disclosure of a more detailed climate change statement by the peer group is consistently made in contrast to the local insurers. 12 Insurance and Climate Change Disclosure in Australia

13 APPENDIX C. Public disclosure of climate change related business risks a) Rationale From a business perspective, having an understanding of associated risks and opportunities is essential to managing climate change issues. Disclosure helps to evidence an understanding of this business case. In addition, it is helpful to communicate to stakeholders that companies understand the risks and opportunities, they adequately manage these risks for consumers, and that they engage in the public discourse on climate change. b) Company Disclosure Peer Comparison Allianz, 44/45 AXA, 46 Prudential, 47/48 ANZ, 49 CBA, 50/51 Westpac, 52/53 and NAB 54 disclose climate change risks mainly in their annual reviews and/or sustainability reports or dedicated policies/statements. Similar risks are raised by members of the peer group. For example Allianz s disclosure (mentioned above) covers the following: Increase in extreme weather events such as heat waves, droughts, floods and tropical storms Greater number of insured assets Larger economies and populations in vulnerable areas Decrease in insurance affordability and/or availability Sea level rise Supply chain or business interruption exposures extending beyond local events Impacts on carbon-intensive investments. Public disclosure of a more detailed climate change statement by the peer group is consistently made in contrast to the local insurers. Furthermore, both IAG and Suncorp made submissions to the Senate Standing Committee on Environment and Communications Inquiry into Recent Trends in and Preparedness for Extreme Weather Events. These documents were reviewed for commentary on climate change and linkages to extreme weather events. An extract from the IAG s submission is as follows: 44 Retrieved from sustainability_report_2014.pdf p.1 45 Retrieved from allianzclimatechangestrategy_eng.pdf 46 Retrieved from Activity_Report_2014_VA_b.pdf p.14 & p Retrieved from Sustainability_Report_2013.pdf p Retrieved from 49 Retrieved from ANZ-Annual-Report.pdf p. 26 & p Retrieved from commbank/about-us/shareholders/pdfs/annual-reports/cba-annualreport-30%20june-2015.pdf 51 Retrieved from commbank/assets/about/who-we-are/sustainability/environmentalsocial-governance-lending-commitments.pdf 52 Retrieved from ic/2014westpacgroupannualreport.pdf p Retrieved from 54 Retrieved from shareholder-centre/annual-reports/pdf-reports/2014-dig-deeper.pdf 55 Retrieved from Default%20Media/QBE_AR14_Full_report.pdf?download=1 p.53 QBE 55 discloses climate change risk, but overall the Australian insurers tend to acknowledge any risks through CDP reporting. The table below summarises some of the types of risks and potential impacts disclosed in recent CDP data provided by the Australian insurers. These institutions have identified the same types of issues as the peer group but the communication channel is generally through CDP rather than annual reviews and/or sustainability reports. Insurance and Climate Change Disclosure in Australia 13

14 APPENDIX INSURER CDP DATA 2014: RISKS AND OPPORTUNITIES IAG 56 Increased electricity prices; potentially increased reporting obligations under the National Greenhouse and Energy Reporting Scheme; increased claims due to frequency and severity of extreme weather events; increased government role as insurer of last resort reducing demand for insurance provided by private sector. QBE 57 Potential loss of business due to physical risks. Suncorp 58 Possible increased costs due to uncertain regulatory environment; improved energy efficiency and building standards could impact claims due to increased replacement costs; increased costs due to greater expected levels of voluntary reporting; increased electricity supply costs; uncertainty around frequency and intensity of extreme weather events increases difficulty of pricing risk as well as possibly impacting premium prices, claims expenses and capital requirements; increased re-insurance costs or buffers; reduced affordability and associated decrease in market participation of level of cover impacting revenue; increased reputational risk due to stakeholder demands on large corporations. Furthermore, both IAG and Suncorp 59 made submissions to the Senate Standing Committee on Environment and Communications Inquiry into Recent Trends in and Preparedness for Extreme Weather Events. These documents were reviewed for commentary on climate change and linkages to extreme weather events. An extract from the IAG s submission is as follows: In Australia, climate change-induced alterations to temperature, humidity and wind, together with changes to regional weather patterns, have resulted in a warming trend across the continent. This is predicted to increase in the coming decades and therefore to potentially increase the danger of bushfire, more severe and frequent storms, and other weather events such as dust storms. c) Conclusion On the whole, Australian insurers have identified and communicated multiple risks but have outlined these through specialist avenues such as CDP rather than in mainstream avenues including annual reviews and/or sustainability reports. 56 CDP data 57 CDP data 58 CDP data 59 Retrieved from ashx?id=ceb831af-a51d-4ca6-a5ac a3b430 and gov.au/documentstore.ashx?id=01ff6d83-8b3c-49b1-b183-9c07dcd7f3d6 60 Retrieved from ashx?id=55d7bfe1-b8f2-46eb-a7e9-6d403823e885 p.14 IAG has a dedicated meteorology team which has undertaken research into the future climate impacts on severe hailstorms in the Sydney region. Our research team believes we could see could see a doubling of hailstorms with hailstones greater than 10 centimetres in diameter in the greater Sydney region over the next 50 years. 60 Such acknowledgement of climate change impacts would be useful to have in more publicly accessible documents such as annual reviews and/or sustainability statements. 14 Insurance and Climate Change Disclosure in Australia

15 APPENDIX D. Public disclosure of climate change related business opportunities a) Rationale As above, having an understanding of associated risks and opportunities is essential to managing climate change issues. Communication by leading and sophisticated risk managers like insurance companies helps to build understanding of climate change issues and drive public debate. b) Company Disclosure Peer Comparison Allianz, 61/62 AXA, 63/64 Prudential, 65 ANZ, 66/87 CBA, 68 Westpac 69 and NAB 70 disclose climate change opportunities mainly in their annual or sustainability reports or dedicated policies/statements. AXA, for examples, mentions in its reports the following: Increase in extreme weather events such as heat waves, droughts, floods and tropical storms Greater number of insured assets Larger economies and populations in vulnerable areas Decrease in insurance affordability and/or availability Sea level rise Supply chain or business interruption exposures extending beyond local events Impacts on carbon-intensive investments. QBE 55 discloses climate change risk, but overall the Australian insurers tend to acknowledge any risks through CDP reporting. The table below summarises some of the types of risks and potential impacts disclosed in recent CDP data provided by the Australian insurers. These institutions have identified the same types of issues as the peer group but the communication channel is generally through CDP rather than annual reviews and/or sustainability reports. Public disclosure of a more detailed climate change statement by the peer group is consistently made in contrast to the local insurers. Recent Trends in and Preparedness for Extreme Weather Events. These documents were reviewed for commentary on climate change and linkages to extreme weather events. An extract from the IAG s submission is as follows: Fund research to promote better understanding and broad public awareness critical for a resilient economy Work with governments and others on developing new building codes, climate early warning systems, improved risk zoning and town planning Providing insurance for low carbon technologies e.g. wind powered energy Crop insurance and weather-based coverage in emerging economies Investment opportunities Cooperation with government on regulatory frameworks including those that favour long term sustainable development, public private partnerships. As with the disclosure around risks, the Australian insurers tend to provide detail in specialist disclosure such as CDP rather than more easily accessible annual reviews and/or sustainability reports. The table below summarises some opportunities disclosed in CDP data provided by the Australian insurers. 61 Retrieved from sustainability_report_2014.pdf p Retrieved from allianzclimatechangestrategy_eng.pdf 63 Retrieved from AXA_Reference_Document_2014.pdf p Retrieved from ClimateRisks_2014.pdf 65 Retrieved from Sustainability_Report_2013.pdf p.14 & Retrieved from p Retrieved from 68 Retrieved from commbank/about-us/shareholders/pdfs/annual-reports/cba-annualreport-30%20june-2015.pdf 69 Retrieved from default-source/default-document-library/wbc599-group-annual-review fa2-web.pdf?sfvrsn=6 p Retrieved from shareholder-centre/annual-reports/pdf-reports/2014-dig-deeper.pdf Furthermore, both IAG and Suncorp made submissions to the Senate Standing Committee on Environment and Communications Inquiry into Insurance and Climate Change Disclosure in Australia 15

16 APPENDIX INSURER CDP DATA 2014: RISKS AND OPPORTUNITIES IAG 71 Improved environmental data through better reporting helps manage risks; cost saving through reduced consumption; increased government action on climate change will lead to more resilient communities and reduced claims; increased insurance product demand from environmentally conscious customers for insurers with a good environmental reputation. QBE 72 Induced changes in human and cultural environments leading to reduced operational costs. Suncorp 73 Better benchmarking of own emissions from NGERS data; future environmental regulation will create new markets; better land use planning and building codes will ultimately reduce claims; superior risk pricing capabilities will create competitive advantage and increased product demand; improved overall employee engagement through environmental programs; new industries will emerge offering growth opportunities. c) Conclusion As above, Australian insurers have identified and communicated business opportunities but these are reported through specialist avenues rather than mainstream disclosure. 71 CDP data 72 CDP data 73 CDP data 16 Insurance and Climate Change Disclosure in Australia

17 APPENDIX E. Public Acknowledgement of 2ºC target a) Rationale There is international consensus at the government level that global warming should not exceed 2 C. The private sector has a key role to play to help drive global action towards such a target. Communicating this target helps do that and also draws attention to whatever specific actions are in place to support it. It is hoped that corporate discussion of a 2ºC threshold would lead to commitments and specific targets and actions. 74 Retrieved from sustainability_report_2014.pdf p Retrieved from policy_b.pdf 76 Retrieved from 77 Retrieved from p.5 b) Company Disclosure Peer Comparison Allianz, AXA, ANZ and Westpac have variously introduced the 2ºC concept, some more strongly than others: Allianz 74 states: However, the additional amount of investment needed to keep global warming below the target of two degrees centigrade is remarkably low. AXA 75 states: contributing [through its coal policy] to an energy transition curve which is aligned with a + 2 C scenario is consistent with our broader Corporate Responsibility strategy to promote a stronger and safer society. ANZ 76 states that We support the goal of governments around the world seeking to limit the average global temperature rise to no more than 2 C above preindustrial levels. Westpac 77 states: There are significant environmental, social and economic benefits to limiting global warming to two degrees Celsius above pre-industrial levels, while investing in greater resilience to the impacts of such a change. Market mechanisms and pricing solutions will help business play a role in delivering innovative technology. We can act as a market facilitator, bringing forward affordable, low carbon technologies while supporting energy security. c) Conclusion No discussion was found by the Australian insurers about the importance of a 2 C target in their primary disclosure documents and, as mentioned above, no self-contained public policies/statements have been identified. Even the banks are limited on this aspect and would be encouraged to acknowledge this threshold. Insurance and Climate Change Disclosure in Australia 17

18 APPENDIX F. Public disclosure of low carbon investment/ lending targets or divestment actions a) Rationale Even though some institutions may have balance sheets with significant fossil fuel exposures due to historical activity, forward looking statements on companies divestment and decarbonisation policies are a powerful market signal. Such a statement may also influence other institutions investment or lending decisions and lead towards increased investment in a low carbon economy while at the same time reducing exposure to higher carbon industries. b) Company Disclosure Peer Comparison Allianz, AXA, ANZ, NAB and Westpac have disclosed targets for increasing investment in renewable energy, some of which are as follows: Allianz states: We are gradually expanding our own investments in the renewable energy sector with a planned investment volume of around 400 million per year. 78 AXA states: AXA divested and will stop investing in the following types of businesses: Mining companies and electric utilities deriving over 50% of their turnover from coal. 79 ANZ states: To help mitigate climate change we will increase the proportion of lower-carbon (gas and renewables) power generation lending in our Project Finance business by percent by commitment, by financing an additional net 167 MW of renewable energy generation projects, taking our total MW financed from 2,914 MW in 2013 to 3,081 MW in (p20) CBA states: Over the last five years our exposure to the renewable energy sector has increased significantly, at a much faster rate than our exposure to coal-based energy. 84 c) Conclusion There is no disclosure by the Australian insurers of low carbon investment targets or statements around divestment, whereas members of the peer group have each made public disclosure along these lines. This suggests that perhaps Australian insurers have not identified the business case for such action. This contrasts with members of the Australian banking sector and other international peer group members who have made public statements. 78 Retrieved from Retrieved from sustainability_report_2014.pdf p.21` 79 Retrieved from policy_b.pdf 80 Retrieved from p Retrieved from default-source/default-document-library/wbc599-group-annual-review fa2-web.pdf p Retrieved from Sustainability_Report.pdf 83 Retrieved from shareholder-centre/annual-reports/pdf-reports/2014-dig-deeper.pdf p20 84 Retrieved from environmental-stewardship.html?ei=gsa_generic_renewable-lending Westpac states: During the year, we increased our lending to the CleanTech and environmental services sector to total exposures of $8 billion, significantly exceeding our target of making available up to $6 billion to this sector by Prudential Financial through its real estate arm in 2013 declared a $100 million target to add value to their portfolios over a two-year period through sustainability initiatives such as efficiency improvements, solar photovoltaic installations, and utility management strategies across all global regions resulting in energy and water savings, and waste reduction. 82 It in fact reached $103.3 million in value. NAB states: In 2012, NAB made a public commitment to continue to make a significant investment in renewable energy through project finance. In 2014, we continued to deliver on this 18 Insurance and Climate Change Disclosure in Australia