Insurers are risking stranded assets if they fail to transition towards a greener economy, a Lloyd’s market study has warned.
Climate change regulation and changes to taxes mean assets can face sudden write-downs or devaluations, warned the report, for which Lloyd’s partnered with the University of Oxford Smith School of Enterprise and the Environment.
Insurers and reinsurers are particularly exposed to such vulnerable carbon-based assets and liabilities in the energy, commercial property and shipping sectors, Lloyd’s cautioned.
“As governments across the globe put in place frameworks to address the causes of climate change, insurers and reinsurers need to ensure they are not caught out on the wrong side of the debate,” said Trevor Maynard, head of innovation at Lloyd’s.
The report, called “Stranded assets: The transition to a low-carbon economy”, recommended firms should stress-test their investment portfolios to paint a picture of exposure to stranded assets, and consider the environmental characteristics of investments while playing an active role in developing climate risk legislation.
Maynard said: “This study illustrates the importance of considering how climate change could impact the value of your assets, but more than that, it encourages the insurance industry to play a pro-active role in the development of policies and regulation with the knowledge and expertise that exists in this field.”
Ben Caldecott, sustainable finance programme director at the University of Oxford Smith School, said: “Insurers and reinsurers price environment-related risks in their insurance policies but don’t always apply these same principles to their investments.
“Doing so would help avoid stranded assets and ensure investments are appropriately protected in order to meet liabilities,” Caldecott added.
The report PDF can be downloaded here.