Climate Change: Marketplace is the First Responder
For a few years, matters involving climate change have been nestled behind a darkening economy. Now, though, the subject is re-emerging, hastened by Hurricane Sandy and who will pay for the associated liabilities.
Uncommon weather events are occurring with increasing frequency and are causing an enormous human toll and economic hardship. The marketplace has become the first-responders here, sidestepping a congressional stalemate. As such, insurers are pricing climate change risks into their policies while businesses are taking either mandatory or voluntary steps to cut their emissions. The result is now the platform from which to tackle the challenges posed by the earth's warming.
Addressing the phenomenon is similar to how Americans eventually coped with the domestic tobacco industry, says Randy Evans, co-author of a book called “Climate Change and Insurance.” That is, for decades cigarette makers warded off litigation and warning labels, which eventually gave way to a U.S. surgeon general report that pronounced smoking “a” cause of cancer. The courts then relaxed the causation standard, enabling some successful lawsuits to change how that sector now does business.
Evans, a Republican who served as outside counsel to the U.S. Speakers of the House during the 104th through 109th Congresses, says that he does not believe that the global environment is at a “tipping point.” But he does say that it is at a “median point” whereby all political and business leaders must manage the apparent risks. An obvious sticking point is whether man-made emissions from fossil-fired power plants are adding to the level of heat-trapping emissions.
“Man-made emissions are ‘one’ cause,” says Evans, also a lawyer with McKenna Long & Aldridge in Washington, DC and Georgia. “Maybe it is a significant cause but it does not have to be ‘the’ cause -- if you follow the tobacco analogy. If it only has to be ‘a’ cause, there should be some accountability: Why shouldn’t those who profit the most share their profits with those who suffer the most?”
Evans, who spoke to this reporter by telephone, says that the trend toward collective action is similar to a “beehive” whereby a swarm of activity exists that it is generally headed one way. Independently, a steady and unyielding movement is pushing for action on climate change. And it’s coming from shareholders, insurers and ordinary citizens, he says.
Unlike the prolonged tobacco fights, Evans says that the battle to reduce global warming emissions will be shorter. With the ubiquitous nature of the internet and cable that allow for the immediate flow of information, the time frame will get compressed down to “a decade.”
The clock has been ticking. Shareholder activism, for example, is forcing companies to adopt more environmentally-friendly policies: Evans notes that those demands have increased four-fold over the last four years. To boot: The U.S. Securities and Exchange Commission says that corporate boards are obliged to report climate risks so that they can be fully evaluated by investors.
According to a report by Ceres, which is a group of investors interested in sustainability, 96 of the combined 173 companies in the Fortune 100 and Global 100 have set immediate greenhouse gas reduction targets. Only a third of them, however, have longer-range plans.
Insurers, meantime, are now pricing those risks into their policies. Evans says that Munich Re and Swiss Re are among the major providers that actuarially measure climate hazards. Consider: In 2011, 14 major weather events occurred costing at least $1 billion each, says the National Oceanic Atmospheric Administration. Sandy alone is expected to run $20 billion. Droughts, earthquakes, floods, tornadoes, thunderstorms and wildfires are active and having widespread effects.
“Whether stakeholders succeed in achieving mega-tort recoveries remains to be seen, but in any case, insurers risk spending substantial sums on their legal defense and should seriously consider mitigating climate change exposure,” says Walter Stahel, head of risk management research for the Geneva Association.
Dealing with global warming will be expensive. But the proposition posited by author Evans is that the price tag will be more affordable if it is paid up front.
To that end, insurers are a major mover. So are those shareholders interested in sustainability. But they are following the gyrations in weather patterns as well as the scientific community's cues, which have also enabled EPA greenhouse gas regulations -- laws that have been upheld by the federal courts. As a result, the various moving parts are aligning and trying to dull the impact of climate change.
EnergyBiz Insider has been awarded the Gold for Original Web Commentary presented by the American Society of Business Press Editors. The column is also the Winner of the 2011 Online Column category awarded by Media Industry News, MIN. Ken Silverstein has been honored as one of MIN’s Most Intriguing People in Media.