Adaptation: Field of action finance and insurance sector

A valid data basis is necessary for active management of the increasing climate-related uncertainty factors. This enables future risks and potential losses to be assessed and appropriate premiums to be set. Various climate change information systems provide region-specific data. These can help to improve the assessment of local risks.

In addition, incentives for risk reduction can counteract the increasing incidence of damage. To this end, it is important to increase the population's awareness of the changed hazard situation, for example through information and education campaigns as well as targeted advice to policyholders.

In addition to information campaigns, flexible premiums can motivate policyholders to take adaptive measures, such as premium discounts for precautionary measures. In the case of particularly high risk potential, deductibles, fixed maximum amounts or restrictions on insurance cover can also create additional incentives to reduce the individual risk.

In addition, an increase in equity capital may be necessary to ensure the solvency of insurance companies in the event of increasing claims.

Another possibility for the insurance industry is the development of new financial market products that spread climate risks of policyholders such as companies or municipalities on the capital market. Examples of this are weather derivatives or catastrophe bonds.

Further market opportunities are opened up by insurance cover for products or technologies that are becoming increasingly important in the wake of climate change, for example wind power plants.

Insurance companies can also increase their adaptability by cooperating with other players. For example, insurers, reinsurers, environmental associations and scientists have joined forces in the Munich Climate Insurance Initiative (MCII)  to jointly develop strategies for dealing with the risks of climate change.

Capital providers should work to ensure that climate risks become an integral part of investment decisions. Potential investment objects should be subjected to a systematic climate risk assessment. A reliable information base and comparable methods are therefore necessary for the assessment of such risks.

The non-profit organisation Carbon Disclosure Project (CDP) can be mentioned as an example in this context. It is supported by numerous institutional investors and advocates the disclosure of climate risks and environmental data in order to improve risk management. The number of companies participating and reporting their non-financial climate risks now exceeds 8,400.

The G20 Financial Stability Board also established the Task Force on Climate-related Financial Disclosures (TCFD) following the 2015 Paris Climate Change Conference to develop voluntary, standardised disclosures on climate-related financial risks that companies can use to provide information to lenders, insurers, investors and other stakeholders. In 2017, it presented its recommendations.

The EU has since taken steps to transform the Task Force's proposals into national law and thus build sustainable financial systems. In addition to a uniform EU classification system for green activities ("taxonomy"), this also includes, among other things, an EU standard for green bonds.

The German government has set up a Sustainable Finance Advisory Council in 2019 to advise it on the development and implementation of its Sustainable Finance Strategy. This strategy aims to support the financial sector in aligning its activities with the achievement of the UN Sustainable Development Goals and the targets of the Paris Climate Agreement, in order to mitigate climate-related risks to the economic and financial system.

Regulators such as Bafin and Bundesbank will conduct climate stress tests in the future to provide guidance to companies on how to deal with the increasingly important climate and sustainability risks.

With a "Climate Self-Commitment", the German financial sector committed in mid-2020 to aligning its monetary transactions with the goals of the Paris Climate Agreement. In future, the institutions want to measure and reduce the emissions associated with their loans and securities transactions. This is intended to make a contribution to climate protection and support sustainable and future-oriented further development of the economy.

In addition, it is possible for investors, who can exert influence on companies through bonds and shareholdings, to actively demand a risk-conscious corporate policy.

Climate change also opens up new business areas for the banking industry. Climate-friendly financial services and investments in innovative climate technologies can be mentioned here as examples.

Indicators from the DAS monitoring: Public awareness of storm and flooding risks, Awareness of the relevance of physical climate risks among financial services providers