There is no avoiding the reality of climate change. The evidence of our changing climate and impacts on the natural world and patterns of weather is clear. Climate science advancing to provide greater sophistication in how the Earth system is modelled, and refining links between human-induced warming and individual weather events through progress in attribution science. Alongside the physical sciences, economic modelling and social science is providing new insights and access to scenarios to represent the possible future warmer world. The scientific community has provided the fundamental understanding and methodological approach to make projections about the future, but it is up to every person, business and government to quantify how these possible futures will affect them, and make a choice based on their risk appetite, capability and aspirations to achieve a better world.
However, the actions based on these choices are not simple. There is much do. The coming years and decades will be challenging. Maintaining financial stability and responding to disasters to protect lives, livelihoods and businesses, will involve risks, but with risks come opportunities. The insurance and risk management industry is placed in prime position to meet this challenge head-on. The Willis Research Network has been supporting Willis Towers Watson’s increasing efforts in this space for some time, by forging links between latest scientific understanding and representation of natural catastrophes and financial impacts.
During two decades of studying and working in the weather and climate domain, I have never seen such a confluence of drivers pushing societal responses to changing climate risks forward. This range of drivers is comprised of a combination of c-suite corporate interest, industry regulatory pressure, analytical capability, public awareness and climate activism. It seems that the time is now for acting on climate issues as competitive advantage is becoming tangible and the risks are material across many industries.
A new language of climate risk is developing. Willis Towers Watson has been active in this space for many years. Our Environmental, Social and Governance webpage highlights some key initiatives with which WTW has been involved. From driving the 1-in-100 Initiative back in 2014 and chairing the Insurance Development Forum which was announced at Paris Climate Summit (COP21), through to influencing the creation of the Task Force on Climate-related Financial Disclosures (TCFD) which has gained significant traction in the corporate risk management arena. Affecting the insurance industry directly, 2019 saw the inclusion of future climate scenarios as part of the General Insurance Stress Tests issued by the Prudential Regulation Authority (PRA). These, and other industry or policy drivers, are the providing a foundation for climate risk assessment and reporting which support ongoing reporting of climate risk. A range of different frameworks have been released by entities seeking to help companies meet these requirements, and while they are currently voluntary, the momentum is expected to continue with more binding requirements on climate risk management on the horizon.
In a concerted effort to transform how infrastructure investments decisions are made, Willis Towers Watson CEO, John Haley, announced the launch of the Coalition for Climate Resilient Investment (CCRI) at the U.N. Climate Summit in September 2019. Over 15 major companies have already signed up with more than $5 trillion in assets under management, with more on the way. The goal is to utilise analytics to price climate risk to support and incentivise the development of climate resilient infrastructure. This three-year initiative will build on previous collaborations and frameworks across multiple industries. The Willis Research Network is a key contributor from Willis Towers Watson, both in terms of our credibility for the top-down initiatives described, the ‘stratosphere’, but also in the bottom-up view, the ‘troposphere’; the foundations for developing new analytical capabilities, services and innovations for climate risk assessment for our clients, industry and society at large.
Our new WRN brochure covers all angles of our research portfolio, but in this article, we’ll touch on some of projects focussed on climate science, and the applications of these WRN collaborations for business. The Weather and Climate Hub of the WRN has been responding to increasing requirement from our industry leaders on extending our work on climate change, to explore impacts of future climate scenarios on weather extremes and applying this new understanding to financial risk modelling. New climate risk assessment frameworks need filling, new platforms require content, and complex models and data benefit from expert advice. The long relationships we have developed through the WRN, can support the acceleration of our efforts to provide climate risk advice and meaningful access to the data representing possible future scenarios and their financial impacts. By continuing this journey together, Willis Towers Watson and its academic partners can provide the guidance and new tools needed to build greater financial resilience for our clients, while also supporting important new science to be published in the peer-reviewed literature and presented at leading conferences.
Willis Towers Watson has supported a number of research projects focussed on climate change in the past. Through the WRN, we’ve driven tropical cyclone research with scientists at Princeton University to understand the impact of doubling the levels of carbon dioxide on storm activity, and supported the National Center for Atmospheric Research (NCAR), who identified an increase of the proportion of intense tropical cyclones related to climate change, as well as collaborated on developing a method to provide a global view of risk related to tropical cyclone winds around the world. We’ve also looked at flood research through recent work with Newcastle University to help our clients respond to the PRA requests for climate change stress testing on increases in flood risk. And we have recently set up new projects with existing partners at Columbia University, Karlsruhe Institute of Technology, NCAR, and the National University of Singapore, which focus on the impacts of climate change on extremes relating to the key loss-driving perils such as severe convective storms (hail and tornado events), tropical cyclones and flooding. We are also investigating projects and partnerships to explore climate change impacts relating to wildfire, heat stress and health as the reach of the WRN extends to new industries to unlock new avenues for disaster risk reduction and financial success for our clients.
Climate change is a theme which influences many spheres of scientific research. Through building on research into climate risk, the WRN can support our advice and services to our clients across all industries. With the confluence of regulatory pressure, public opinion and increasing analytical capability, the next few years will be an exciting time for the application of the latest research in climate science. And there is no time to waste. The effects of 1 degree of warming are already being seen around the world. Projecting into the future society’s reaction to the challenge of climate change is the biggest uncertainty in climate science, but socio-economic scenarios can be used to inform the projections of the state of the climate and environment, whichever path we take. Whether we stay on a worst case ‘business as usual’ pathway which increases the rate of global warming to reach 4 degrees Celsius or more above pre-industrial levels by 2100, or we manage to make a transition to a low or zero carbon economy in the next few decades to reduce the rate of warming to under 2 degrees Celsius to mitigate the worst effects of climate change, private and public interests will need to collaborate to adapt. The financial sector will play a key role in maintaining stability and resilience as more changes occur. At Willis Towers Watson we have been setting the foundations to help our clients to assess, monitor and manage their climate risks for many years through our industry experts, analytical capability and external collaborations, like the Willis Research Network. We now need to use those foundations to build a more climate resilient future and help our clients seize the opportunities created by the changing landscape of risks.
