By Sarah Caddy
Extreme weather events are on the rise due to climate change, placing East Africa increasingly at risk. The recent torrential rain raising Lake Tanganyika to dangerous water levels is just one example, with experts citing climate change and deforestation in the Burundi highlands as causes for topsoil erosion around the lakes. Droughts, tropical cyclones and even plagues of locusts have all been experienced recently. Each threaten the health and livelihoods of households and economies.
In response, there’s growing impetus to promote sustainability in the run up to the global climate event COP26, to be held in the UK in November. As experts in estimating risk and with significant investment capable of steering meaningful change, the insurance industry is well placed to advise and make a difference.
To this end, the Nairobi Declaration on Sustainable Insurance was launched by the UN Environment Programme’s Principles for Sustainable Insurance Initiative (PSI) on 22 April 2021. Founding signatories including the Association of Kenyan Insurers (AKI), ICEA Lion Group, Egypt’s Regional Center for Sustainable Finance (RCSF), FSD Africa, and PTA Reinsurance all pledged to strengthen the African insurance industry’s contribution to achieving the UN Sustainable Development Goals (SDGs). These include ensuring a sustainable recovery from the Covid-19 pandemic.
Four months on, with global climate disasters continuing to make news headlines, we look at the efforts being made by the African insurance industry to achieve the goals outlined by the Nairobi Declaration.
As the only African member of the 22 global insurers and reinsurers who collaborated over 2020 as part of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) insurer pilot group, ICEA Lion Group is vocal about its pioneering role. Writing about its work on the group, it describes the analytical tools the firm is developing to improve climate risk disclosures in line with the recommendations of the TCFD, using the latest climate science. With mounting global pressure on accountability and evidence-based net zero target achievement claims, we predict an increase in African insurance firms communicating their use of tools aligned to the TCFD recommendations, and their role in mitigating against climate change.
Meanwhile, FSD Africa refers to the obligations for the insurance industry to act on climate change. Writing in their July 2021 blog, risk managers Kelvin Massingham and Zillah Maliah outline the extent of the sustainable development crisis that we currently face, and the essential role that the insurance industry must play in facilitating the flow of capital to climate mitigation investments. Their call to action to their industry peers is to act now: with only 3 percent of global climate finance allocated to sub Saharan Africa, and a low percentage of African weather-related losses currently being insured, East Africa is poorly equipped to meet the cost of increasing climate disasters. Delay from the insurance industry could prove to be catastrophic.
While home to 15 percent of the world’s population, Africa is responsible for only 4 percent of global carbon emissions. And yet, Africa’s citizens are already among those suffering most from the effects of climate change – not only from extreme climate events, but also from decreasing agricultural yields and increasing disease transmission, as outlined in this article by the UNFCCC. Despite the unfairness of this situation, there is hope. Rama Yade, Director of the Atlantic Council’s Africa Center, describes the potential offered by the African continent to reverse climate change. She writes convincingly of the renewable energy opportunity, but also of the “massive investment” required to achieve full capacity – fifty billion dollars per year by 2050, according to the United Nations.
The onus is on African insurance industry leaders to leverage their collective might towards a sustainable future. The appetite for working collaboratively towards a common goal that benefits society as well as business is evident in the work of the Nairobi Declaration. By effectively communicating their individual efforts, those insurance firms that are pioneering in this regard can not only be seen as industry leaders but may also nurture best industry practice for all.