Climate Emergency and the Need for Adequate Solutions

The last few years have shown, in an increasingly evident and expressive manner, the impact of human activity on climate, with growing frequency and intensity of extreme events that highlight the need to recognise and prepare its impact on People and Organisations.

The confirmation of this reality is evidenced by the substitution of the designation “climate change” for the more acute and realistic “climate emergency” or “climate crisis”, and by the conclusions of the report “United in Science 2022”, coordinated by the World Meteorological Organization (WMO).

The average global temperature, one of the most widely used metrics by scientists and academics, is undergoing a significant rise. According to the WMO, the concentration of greenhouse gases continues to increase annually to unprecedented figures.

According to the same organisation, the past seven years were the hottest ever recorded, requiring an urgent effort to promote the tackling of, and adaptation to, climate change. Regarding the real impact of this situation, the report “Climate Change 2022: Impacts, Adaptation and Vulnerability” from the Intergovernmental Panel on Climate Change (IPCC), reports a critical scenario.

This publication shows that climate change caused by human action has led to widespread adverse impacts and considerable damage, in addition to natural climate variability. Among the phenomena that have impacted people, infrastructures, populations and ecosystems, it is worth stressing hot extremes, on land and in the ocean, heavy rainfall, droughts and fires.

Portugal is no exception in this global reality. According to the United Nations (UN) envoy to the national territory, David Boyd, the country is on the front line of the most affected nations by climate crisis, both due to the delay in implementing measures, such as the maximization of our potential in terms of renewable energies, as well as the occurrence of adverse events, being a clear example the extreme drought that is transversally affecting the different regions.

From a risk mitigation perspective, governments and the business community are responsible for implementing practical and urgent measures, posing a real challenge to minimise the advance and escalation of these occurrences. From a protection and response perspective, as more and more people, organisations and infrastructures are affected, the insurance industry is required to develop agile and effective solutions to protect and minimise the impact of increasingly frequent extreme climate events.

In the corporate sector, environmental risk management is no longer just good practice, but a key factor in the resilience and sustainability of the organisations themselves. At a time when more companies witness the impact of natural disasters on their business, the insurance industry is faced with the need to respond effectively to the management of a risk that is not only emerging but structural, requiring in-depth know-how and the effective development of solutions that allow companies to be protected against the advance of these episodes.

The responses may take into consideration not only the variability of the events as well as their impact on specific economic activities, among which I would highlight agriculture, transport or construction, areas that are especially vulnerable and dependent on the unpredictability of the climate. It is in this inconstant situation that parametric insurance becomes pivotal, a customised solution created through indexation to specific metrics and indicators.

Based on the evaluation of the operational activity of each company and its sector of activity, it is possible to index risk to specific weather and climate variables, such as temperature, humidity, sismic activity, precipitation or other climate indicators. This solution is characterised by high customisation and simplicity in the activation of claims, providing companies with predictability, stability and security in a context of great convulsion and change.

We must not ignore the fact that we are at a turning point, worldwide. Changes are happening at a pace that, without the necessary preparation and anticipation, exceeds our ability to adapt. Faced with this scenario, the insurance industry emerges as a structural link with the responsibility of representing a vector of stability that drives prompt adjustment to new demands.

Although market players, like all of society, are faced with an unprecedented challenge, I believe that the times we live in are a unique opportunity to place all our know-how at the service of communities from a more agile, multidisciplinary, empathetic and flexible perspective, so that the industry grows as an engine of change and assists those who, each and every day, strive to make a difference.

Opinion article by David Sousa, Director of SEMPER, published in Ambiente Magazine.