CCR interview: why understanding the wider impact of CSR is crucial for re/insurers
What does corporate social responsibility (CSR) mean to you?
As a reinsurer and also on a personal level, my feeling is that global warming will continue apace with greenhouse gas (GHG) emissions. In other words, the planet would suffer irreversible damage if this trend were to expand.
About half of the cumulative human CO2 emissions between 1750 and 2011 have occurred over the past 40 years. And in the entire history of humanity, we have never emitted as many GHGs as we did between 2000 and 2010.
My second feeling is that people reside at the heart of communities and societies whose stakeholders, such as central and local governments as well as companies, have a duty to operate in way that strengthens the resilience of economical systems.
This is particularly true when higher frequency and severity become more perceptible due to climate change. This is equally the case with the digital change that revolutionises our way of life with big data, internet of things and artificial intelligence, which consume a lot of energy.
Aligning environmental and social values with business incentives imply a rethink of our ‘way of doing things’.
A limited number of sectors are of vital importance to ensure social stability: food, water, health, energy, and infrastructure are among the main. Beyond this, consumers, clients, employees can feel the need for sense in what they are doing and how they are doing it. This is expressed much more than in the past, with information spread at milliseconds speed through connected networks
There is a need for companies to refocus on their core values and raisons d’être that could be shared with their customers and partners.
Although the challenges of CSR are acute for the industry, there has never been a better time than the present for a company like CCR to play a vital role in helping to resolve them while building up its capabilities.
How would CCR go about this?
CCR’s models are advanced enough to figure out tangible benefits of prevention mechanisms such as water flooding, in terms of disaster avoidance or effect reduction and a proper use of the re/insurance industry and financial markets.
Second, partnering in projects that are innovative and communicative conveys a sense of collective benefit for many, if not all, our stakeholders. CCR is the official sponsor of a wonderful and fascinating adventure called Energy Observer, the odyssey of the first hydrogen-powered ship.
Reaching energy autonomy, with zero greenhouse gas emissions or fine particles, this former race boat was fully transformed into a vessel of the future, powered by electric propulsion thanks to a mix of renewable energies and a hydrogen system that produces carbon-free hydrogen on board using seawater.
We act as investor and the CCR group follows an approach of continuous improvement of its investment policy with CSR-appropriate criteria. Such extra-financial criteria should be taken with care and the group financed studies in order to better understand and contribute to create a proper framework, in addition to other financial indicators.
We tend to favour risks that are environmentally friendly in our underwriting portfolio. I admit this is an ongoing daily concern to realise this into a feasible framework understood by all parties.
What does digital and the use of advanced models mean to CCR?
We entered into a partnership with Météo-France, the French government agency for weather and climate, to combine their global climatic model with CCR impact models. This climate data set relies on 400 occurrences of the year 2000 under current climate conditions and 800 occurrences of the year 2050 under two United Nations (UN) Intergovernmental Panel on Climate Change (IPCC) scenarios for all French territories, including the overseas territories.
The outcomes of these heavy calculations that use masses of data unsurprisingly show that natural disasters that depend on climate change can have significant financial impacts, which vary based on IPCC scenarios factored into the models.
Such a heavy machinery is necessary to step back and have a consistent estimation of real extreme events.
Using this innovative approach, the knowledge of the reality of insured damages that a reinsurer like CCR has gathered over time makes the climate projections more tangible and concrete actions, some of which could take decades for full effect.
Could you develop this based on an example?
Sometimes it takes more innovative methods to acquire the necessary knowledge. During Hurricane Irma, there was difficulty accessing hazard measurements as wind-stations were destroyed by the hurricane itself. This data was superseded by the use of satellite data and drones.
A few days after the catastrophe, a first evaluation of damages was made possible by exploring the reactivity and the precision of these new technologies in a crisis environment.
As an exercise, CCR strengthened implemented hazard mapping using drone videos and geographic information system technologies. These outcomes are shared with the market and government to improve the post-event knowledge.
How do you implement CSR using your models?
As a state-owned reinsurer, CCR has been developing capabilities, together with the industry in France, which contributes data on each and every P&C contracts into our data model, to transform climate-related hazards into financial impacts based on climate scenario. This transformation of hazards into costs in my view makes our best contribution to the society.
As a public reinsurer, CCR has a special relationship with internationally recognised public research centres as well as with R&D units from private companies. This institutional cooperative framework makes CCR the unique reinsurer to engage in long-term scientific collaborations.
Climate change impact modelling started in 2015 during the UN Climate Change Conference, COP 21 in Paris and is expanding in 2019 with hurricane simulation in the overseas territories. An extension of this study has begun for three years, in collaboration with universities and agri-labs, to evaluate the impact of climate change on crop yields in 2050 in France.
The outcome of this is shared during our Natural Disaster annual conference. It calls for the need to incentivise all our stakeholders to promote risk prevention and, as an institutional investor, to keep strengthening CSR metrics into our investment processes.
How do you tackle risk prevention?
The level of granularity is extremely high and this helps us not to lose ground with reality as we can simulate the impact of a natural disaster on a given territory and share the outcome with the various stakeholders.
CCR’s main added value is to make visible what citizens, private companies, public authorities can not necessarily perceive by themselves: risk exposure, impacts of extreme natural events, risk prevention effectiveness and efficiency.
Because we share our outcomes with the French government, local authorities and citizens throughout our web portal and also specific studies, we contribute to build at every scale, societal and institutional capabilities to face the impacts of climate change.
In this respect the major role that CCR plays is to support the French state in the decision-making process of the prioritisation of risk prevention policies. Moreover, since 1995 we have been legally in charge of the accounting management of the major financial tool devoted to prevent natural disasters: the national natural risk prevention fund.
What concrete actions do you take as an institutional investor?
Socially responsible investment consists in applying extra-financial criteria in the selection of stocks. Among the various schools of thinking, some fund managers simply exclude certain sectors such as tobacco or coal mining.
As a first level of filter, CCR’s investment division first makes sure that 98 percent of our fund managers effectively signed the objectives of sustainable development set by the UN.
As a second level we monitor on a regular basis the use by our fund managers of an effective CSR methodology in
the management of their investment universe.
Finally, and for our direct investments, we use the Bloomberg model to monitor our socially responsible investment compliance level. We apply the best-in-class approach to select the companies that best qualify on CSR.
We have applied a progressive approach in our real estate portfolio with rehabilitation policy, including depolluting and transforming industrial wasteland, and liaising with local communities.
Finally, we will pay extra attention to the European Insurance and Occupational Pensions Authority advice that is presently sought by the European Commission on the feasibility of transition risks integration in insurance companies’ prudential framework.
Laurent Montador is deputy chief executive officer of CCR. He can be contacted at: lmontador@ccr.fr
