Sustainability and Risk Flashcards
What are the four types of risk?
- Physical
- Liability
- Transition
- Reputational
physical risks
Unexpected failure in the day-to-day operations
liability risks
Risks that could arise for insurance firms
transition risks
The financial risks which could arise from the transition to a
more sustainable economy
reputational risk
Damaged reputation
physical risk in the context of sustainability
The first-order risks which arise from weather related events, such as floods and storms. They comprise impacts directly resulting from such events, such as damage to property, and also those that may arise indirectly through subsequent events, such as disruption of global supply chains or resource scarcity.
• Example: Textile industry and changes in precipitations and droughts (lower cotton yields):
ex. flooding in Thailand for 30-60 days that disrupted global electronics, automotive, and food supply chains
liability risk within the context of sustainability/climate change
Risks that could arise for insurance firms from parties who have suffered loss and damage from climate change, and then seek to recover losses from others who they believe may have been responsible.
ex. Munich Re found that weather related losses have increased nearly fourfold in the United States since 1980…extreme weather events (such as prolonged droughts, hurricanes, floods, and severe storms) led to $560 billion in insured losses from 1980 to 2015
transition risk within context of sustainability
The financial risks which could arise from the transition to a more sustainable economy.
ex. Gas Car vs. Electric Car – Increased regulations – Expanding infrastructure – Increased demand • Pollution awareness • Lower operating cost • Govt. subsidies
reputational risk in the context of sustainability
• Risks to revenue and partnerships that result from reputational crises and their consequences, such as boycotts and divestment campaigns
ex. Animal cruelty in food and apparel industry
what are the two fundamental societal response options for reducing risks?
- adaptation to climate change
2. mitigation of climate change
def. adaptation
actions targeted at the vulnerable system in response to actual or expected climate stimuli with the objective of moderating harm from climate change or exploiting opportunities
def. mitigation
limiting global climate change by reducing the emissions of
greenhouse gases or enhancing their sinks
example of adaptation
Miami Beach, Florida: $400 million infrastructure project meant to keep rising waters from reaching the city. The infrastructure put in place will only prevent the floods for an additional 50 years, at most.
example of mitigation and adaptation (buildings)
Buildings (linked to 1/3 of world’s GHG emissions):
Mitigation: reduce energy needs with high efficiency designs (such as Passivhaus)
Adaptation: User comfort, protection from heat and cold
example of mitigation and adaptation (mangrove reforestation by Tokio Marine and Nichido Insurance Company)
Mitigation: Carbon sequestration
Adaptation: Support of off-site fisheries productivity, shelter against extreme weather, shoreline stabilization & erosion control, water quality regulation, etc.
