Weathervane

Feb12

Managing Risks from Extreme Weather Events

Major snowstorms across the U.S.—from the blizzards that pounded the Mid-Atlantic to the deep snow burying the Deep South—have done more than collapse roofs and down power lines; they’ve also added fuel to an ongoing debate of climate change science. Regardless of one’s position on the opinion spectrum—and there’s plenty of room for debate—it’s tough to argue against prudent policies that account for the likelihood of increased frequency and severity of extreme weather events.

From sufficient snowplows during blizzards to home insurance policies that account for more than just the water damage from hurricanes, how do policymakers, insurance providers and risk analysts assess the scope and severity of intensifying weather events?

To untangle these complicated questions, RFF recently gathered a panel of experts to address how climate change may enhance extreme events, how mitigation can help manage extreme events, how to ensure proper functioning of insurance markets in these situations, and the proper role of the federal government in addressing these risks.

According to panelists at “Managing the Risk of Extreme Weather Events in a Changing Climate”, the more we know the better off we’re likely to be. Further research into the realities underpinning risk assessments—like how buildings and infrastructure can be constructed to better withstand things like wind and water—will go a long way toward optimizing models and informing policy responses.

In the meantime, according to panelist Sharlene Leurig of CERES, we can take advantage of existing stimulus funds to weatherize existing buildings for both energy efficiency and all-weather weatherization. She says tackling this adaptation through the lens of job creation will provide a 2 for 1 benefit in the face of increasing volatile weather conditions.

Event video and audio, along with more information about panelists, is available here.

Tiffany Clements is managing editor of Weathervane.

Published: Feb-12-10 | 0 Comments

Feb05

SEC Recognizes Climate Change as Material Business Risk

Risk, SEC

Roulette wheel image courtesy conorwithonen via Flickr Last week the Securities and Exchange Commission took a significant leap into the climate change debate by clarifying the climate-related disclosure requirements for publicly traded firms. Investors and shareholder rights advocates have been calling for increased disclosure about the impact of climate change risks for several years—as evidenced by the emergence of the Carbon Disclosure Project (and existing reporting frameworks such as the Global Reporting Initiative), numerous shareholder resolutions, litigation, as well as petitions by investor groups to the SEC. The new SEC Guidelines do not make new rules—they simply provide guidance about how existing disclosure standards should be applied in the case of climate.

The basic idea behind the guidelines is that companies should disclose “material” information “if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote or make an investment decision …” The SEC Guidelines recognize that there are several different ways in which climate change might have a material impact on companies, including: direct increases in the price of energy and/or carbon that might come about through legislation or regulation, physical impacts on plant and equipment depending upon geographic location of firm’s plants, availability of supply for essential inputs, and changes in consumer demand.

In perhaps its strongest-worded statement on current practice, the SEC Guidelines noted that many (but not all) firms are already disclosing significant information through voluntary reporting standards. However, it noted, “Although much of this reporting is provided voluntarily, registrants should be aware that some of the information they may be reporting pursuant to these mechanisms also may be required to be disclosed in filings made with the Commission pursuant to existing disclosure requirements.”

While the impact of these new SEC Guidelines is difficult to predict empirically, this is a very significant step toward making climate change risks more transparent and comparable across firms. In another context, mandatory toxic chemical disclosures had both a significant effect on firm stock prices as well as an impact on overall emissions.[1] Thus, if new material disclosures are made as a result of this ruling, we can expect both changes in market value (as investors adjust their expectation about the future profits of firms) and changes in firm behavior (as firms taken on new initiatives to reduce the impact of climate change on their bottom line).

Mark Cohen is vice president for research at Resources for the Future.

[1] See for example, Konar and Cohen (1997), "Information As Regulation: The Effect of Community Right to Know Laws on Toxic Emissions," 32 Journal of Environmental Economics and Management 109-124.

Published: Feb-05-10 | 0 Comments

Jan25

Join the Climate Conversation with RFF and Earthscan

COP-15, Risk

While the outcome of its policy discussions is uncertain, 2010 is shaping up to be a year full of thought-provoking climate policy debates. Check out a couple on the horizon from Resources for the Future and Earthscan.

The latest installment in Earthscan’s Earthcast series will take a closer look at the outcome of December’s United Nations climate change summit:

In the wake of the COP-15 summit in Copenhagen, the first Earthcast of 2010 will examine the treaty that emerged, the negotiating tactics behind it, and what the next steps are likely to be.
Experts Michael Grubb, David Satterthwaite and Richard Smith will be dissecting the agreement and asking whether future negotiations can establish a binding treaty that sets ambitious limits for the large emitters while supporting developing nations financially and technologically.

Click here for more information and to reserve your space in the online forum.

And, if you’re in the Washington D.C. area, join Resources for the Future for “Managing the Risk of Extreme Weather Events in a Changing Climate” Wednesday, February 3, 2010 from 12:45 p.m. - 2 p.m.:

In future years, climate changes may significantly boost both the frequency and severity of storms, hurricanes, and other extreme weather events. Damages from such weather phenomena have been shown to be catastrophic – and climate change could further exacerbate the risks. Moreover, historical data for such risks may be unreliable, loss projections may actually be underestimated, and traditional diversification strategies may fail.

The recent financial crisis, Hurricane Katrina, and major floods point to the need to improve our detection, measurement, and analysis of catastrophic and dependent risks. At this seminar, discussions will focus on how climate change may enhance extreme events, how mitigation can help manage extreme events, how to ensure proper functioning of insurance markets in these situations, and the proper role of the federal government in addressing these risks.

Moderator:
Roger Cooke, Senior Fellow, Resources for the Future

Panelists:
Gordon Woo, Risk Management Solutions
Paul Embrechts, ETH Zurich
Michael Cohen, RenaissanceRe
Debra Ballen, Institute for Business & Home Safety

For more information and to register for the event, click here.

Tiffany Clements is managing editor of Weathervane.

Published: Jan-25-10 | 0 Comments

Dec09

Risky Business

COP-15, Risk

COPENHAGEN -- If you’re looking for an industry that is on the cutting edge of assessing the effects of climate change and forming appropriate responses, look no further than the insurance industry. At a small side event sponsored by Climate Consortium Denmark, experts from major European insurance companies came together to call for a larger role for governments in the industry through public-private partnerships. The insurance industry has been dealing with nasty weather as long as it has been around, but the steroid injection of climate change into weather systems creates a whole new ballgame.

With those future risks in mind, Richard Ward, CEO of Lloyd’s, asked policymakers here at Copenhagen to help level the playing field amongst companies by strongly regulating the entire industry. While it’s not often you hear the CEO of a major corporation asking for stout government regulation, Ward emphasized the need for more clarity for future planning and investment. He also called for the formation of national adaptation plans, especially in developing countries, to provide the industry insights that can help move capital into new or burgeoning markets.

His calls were echoed by Patrick Liedtke of the Geneva Association, an international industry think tank, who said that the industry wants stronger partnerships with governments. He pointed to the Kyoto Statement, in which 56 insurance companies state their great concern about extreme climate change, as an example of the commitment of the industry to addressing climate change.

Two major issues popped up throughout the presentations that highlight the unique tension the industry faces. First was the role of insurance in the developing world. Insurance companies can encourage both mitigation and adaptation through investments in renewable and sustainable technologies and offering products that encourage adaptive measures and better building codes. Unfortunately, it can be difficult for companies to establish themselves in developing countries. Insurance is a luxury good, and poor farmers are more likely to spend money on extra livestock or seeds than on floor insurance. Consumers need much more education before they will try to access insurance markets. Moreover, many of these markets are still primitive and require government action to get firmly established. And while insurance companies can manage risk, they can’t reduce it alone, further showing the need for private-public partnerships.

Second is the issue of data. Both Ward and Liedtke emphasized the importance of robust data and the need for more data collection and data sharing from national governments. Better information will inform the risk assessments that are critical to the insurance industry and this need for better data has driven the industry to be on the forefront of climate assessments for years. “Good risk management needs good risk data,” according to Ward and he made a strong plea for governments to make more data freely and publicly available.

Data sharing is a two-way street, however, and one (like me) could argue that the insurance industry needs to be more transparent with its risk assessments and make its data more accessible to the public. Prices that reflect true risks are the best way to make them clear to consumers, but there are other means to achieving clarity as well, including data and information sharing.

At the end of the day, it’s still the price tag that drives behavior, especially in insurance markets. Profit drivers are still an essential part of the system, so there is a limit to how much coverage can exist, especially in areas highly exposed to climate change risks. As national governments continue to devise ways to grapple with the effects of climate change, they may need to provide the insurance industry with a little more assurance that they won’t leave it overexposed.

Daniel F. Morris is a Research Associate with Resources for the Future and a regular contributor to Common Tragedies.

Published: Dec-09-09 | 0 Comments