Climate Risk and Resilience
Climate risk is business risk
Insurance has a vital role to play in the future of our planet
Climate change, natural disasters, biodiversity loss, energy transition, poverty and inequality all need big ideas, superhuman efforts - and the investment capital to match.
Organisations all over the world are looking to adjust their businesses models. To find ways to be greener, fairer and more sustainable.
Insurance has an enormous role in this seismic shift: helping manage the risks, instilling confidence, building resilience and unlocking capital to support game-changing projects.
The race to respond to climate change is on. All businesses need to contribute, and Howden are contributing what we do best: outside the box thinking to create valuable risk transfer solutions.
Three examples of how we are tackling climate change
Enabling the transition towards a low carbon economy
Projects to support the transition to clean energy are expensive. There are often significant barriers to financing them.
We help remove financial roadblocks that many sustainable energy projects inevitably face. Smart use of credit insurance can play the same role as a well-respected early investor would: raising the level of confidence around the project and the security of the investment.
Transforming disaster relief funding models
Humanitarian organisations are facing a funding crisis. The UN reports that the disaster relief funding gap stands at over $30bn*.
We believe that insurance has a huge role to play in getting critical funding to humanitarian organisations when they need it most. Parametric insurance, built on pre-agreed triggers that result in pre-agreed payments, can provide the immediacy and reliability of funding needed to prevent a disaster from turning into a crisis, and reduce the overall financial and, more importantly, human cost.
At COP28 in 2023, a group from our Climate Risk and Resilience team, led by our CEO David Howden, hosted roundtables and spoke on panels to demonstrate how insurance plays a vital role in driving climate solutions. During COP26 and COP27, David Howden spoke about how insurance is the key to unlocking the private capital needed to address the disaster relief shortfall.
Increasing confidence in carbon credits
Buying carbon credits is mandated for some industries, and optional for others (for now).
There can be a risk that the carbon credits being produced are not sequestering the correct amount of carbon dioxide, due to fraud or negligence by the project developers. Howden is the first broker to offer insurance protection against this in both the regulated market and the Voluntary Carbon Market. Read more here.
*Figure correct as at October 2022
New ways of thinking about financial risk transfer
Howden offers a range of ground-breaking opportunities for ESG projects.
But for us, they are not so new. These innovations are simply moving the dial by applying longstanding, tried-and-tested techniques of financial risk transfer to the most important challenges of our time.
We're taking the traditional techniques of financial risk transfer, and turning them into something new and highly valuable to ESG projects
What we're doing
Our Climate Risk and Resilience team combines creativity, a passion for ESG, and deep experience of the inner workings of the insurance and financial markets.
Curbing global warming is a daunting task. To hit the 1.5°C target, entire industries will need rethinking. And wherever major change is happening, insurance has a big part to play.
A no-limits approach to climate resilience
What is parametric insurance? Learn about the complexities of parametric insurance and disaster relief, and see how Howden supports people and organisations in Jamaica and the Philippines.
Connecting sustainable energy projects with untapped investment capital
Green energy projects often struggle to raise sufficient investment capital to make a real go of it.
The backing of the insurance markets can change all that, as early investor returns can be guaranteed with the innovative use of credit insurance.
Howden is making that happen - we're currently working with green energy facilities in Europe.
Unlocking funds for disaster relief to increase the speed and impact of response
Many of the disasters that humanitarian organisations hold reserve funds for can be insured, using a blend of parametric payment triggers and the insurance industry's usual way of hedging major risks: catastrophe bonds. This allows humanitarian organisations to keep significantly less capital tied up in reserve and get funds into disaster zones faster.
The other great benefit is the financial multiplier effect: every £1 of funding translates into up to £20 of actual aid delivered.
Howden worked with the Danish Red Cross on the world’s first volcano catastrophe bond. Read our case study below.
Insuring carbon credits to guarantee their value
Another world first, Howden enables organisations to insure purchased carbon credits against human error, negligence and fraud by the project developer.
If the purchased carbon credits are suddenly downgraded or found to be worthless, these insurance products will fund rapid replacement, maintaining your offsetting progress and demonstrating to your stakeholders that you are taking appropriate steps to mitigate this risk. Most importantly, it ensures that the project you are backing is actually capable of absorbing your carbon production. We are working with intermediaries and businesses investing in the voluntary carbon market.
How we helped the Red Cross with a disaster relief bond
Nearly 500 million people globally live near an active volcano. The Danish Red Cross uses a catastrophe bond, based on a parametric trigger mechanism, to release capital swiftly to mitigate a potential humanitarian disaster.
10 volcanoes are covered: in Mexico, Colombia, Ecuador, Chile, Guatemala, Indonesia and Cameroon.
The parametric claims trigger relates to volcanic ash and prevailing winds. When they reach pre-agreed parameters, indicating populous areas are under threat, funds are immediately paid to the Danish Red Cross, who can then move quickly to get the aid where it is needed.
Howden Group, with other industry partners, have pioneered this with the Red Cross. We are developing more opportunities in partnership with humanitarian organisations, to help make their financial resources go further using leverage in the financial markets.
Read our latest related reports
Greening the way
A collaboration between our M&A and Climate Risk and Resilience teams, offering forward-thinking insurance solutions to detect and shield against climate risks in transactions.
Tackling urban resilience
We facilitated collaborative dialogue at COP28 around how to improve resilience for vulnerable communities and urban areas across the world.
The Global Risk and Resilience Fellowship (a joint global partnership launched at COP27 by the Sustainable Markets Initiative, Howden and Resilient Cities Network) recently launched the 2023 report.
This details how a cohort of insurance professionals were chosen as Fellows and seconded into city leadership teams around the world. Over three to six months, each Fellow worked with city leaders to deliver tangible movement towards increased city resilience and to harness the power of insurance to de-risk and accelerate resilience-building activities.
Climate in Peril
We're calling on the risk transfer industry to change insurance for (social) good. Our latest report analyses the science of climate change, the impact on loss frequency/severity, and the power of insurance in incentivising ‘better’ behaviours through an ESG lens.
Insuring Nature-based Solutions report
Nature-based solutions could provide up to 30% of the climate mitigation needed to limit global warming to 1.5°C. In this report, together with Be Zero Carbon and Blackford Group, we examine how insurance can accelerate the growth of a market that is vital to the future of our planet.