'Green Cold War' scenario presents role for insurers

Insurers can play an important role in easing geopolitical climate tensions that could lead to a “Green Cold War” as climate change responses are pursued, a report released by Lloyd’s says.

The report looks at three scenarios for analysing global climate change political risk, with co-operation and anarchy at the extremes and competition between “climate blocs” presented as the more likely middle path.

Lloyd’s Chairman Bruce Carnegie-Brown says geopolitical risks and frictions between international communities add a layer of complexity in tackling climate change.

“We know businesses are looking to global leaders and diplomatic agreements for the pathway forward, but we are also acutely aware that businesses have a responsibility to play a leading role in the transition,” he said.

“We are using Lloyd’s convening power to collaborate with our partners globally and create insurance products that will enable a more sustainable world.”

The report says ambitious ideas are necessary to supercharge the energy transition process, and investment can be better guaranteed with insurance policies that provide protection for variables such as technology failures and political and security risks.

“There is significant opportunity, therefore, for international and domestic insurers to continue to pursue expansion into policies which de-risk renewable engineering infrastructure in order to drive continuous protected investment,” it says.

The report identifies the Australia-Asia Power Link, which will deliver solar energy transported to Singapore and later Indonesia, as an example of ambitious international projects announced that are associated with energy transition.

India’s government has also floated a goal to unite Middle East, South Asia and South East Asian grids to transfer solar power.

The insurance industry has a vital role to play in underwriting the continued operations of such projects, which provide “a not insignificant basis for future international friendship, collaboration, and regional peace”, the report says.

The report Shifting powers: Climate cooperation, competition or chaos? was produced in partnership with the Cambridge Centre for Risk Studies.

In the “Green Cold War” scenario like-minded states coalesce around major powers to form climate blocs, with competition between them for energy, technology and market dominance driving investment and innovation, while considerably raising the long-term environmental and geopolitical stakes.

The report says that while it sees that as the most likely of the three scenarios, the reality is likely to fluctuate over time and involve two or more scenarios.