0.618industry initiative (iii), meets next in london on 25 june to take further steps to implement...

Innovative financing for sustainabilityFinance Initiatives

UNEP FI Quarterly, Issue 1, June 2001

Why 0.618… ?The new UNEP Finance Initiatives (FI)quarterly newsletter is named: “0.618…”

Many readers will ask “Why?”. Thereason behind our choice of name forthe newsletter is given in Peter L.Bernstein’s book: “Against The Gods.The Remarkable Story of Risk.”

Bernstein explains: “The Greeks knewthis proportion and called it “the goldenmean.” The golden mean defines theproportions of the Parthenon, the shapeof playing cards and credit cards, andthe proportions of the General AssemblyBuilding at the United Nations in NewYork…. The golden mean also appearsthroughout nature – in flower patterns,the leaves of an artichoke, and the leafstubs on a palm tree…..”

Also known as the Fibonacci ratio, afterthe 13th century Italian mathematician ofthat name, the ratio defines the shape ofa spiral that appears in some galaxies, inseashells and in the coil of ocean waves.The journalist William Hoffer hasremarked: “the great golden spiralseems to be natures way of buildingquantity without sacrificing quality.”

“0.618…” believes that – forfinancial institutions worldwide –the challenges and opportunitiesposed by sustainable develop-ment are centred around anability to build wealth for share-holders and communities whilecontributing to the protection ofthe natural environment. For“0.618…”, the golden ratioencapsulates the double edgednature of sustainability – thechallenge and the opportunity –for banks, insurance and assetmanagement communities. continued on page 15

UNEP FI on theroad to Rio+10 UNEP Finance Initiatives have launched their campaign towards the WorldSummit for Sustainable Development (WSSD) with a series of events andnewly launched projects in the first half of 2001.

The re-launch of a renamed UNEP FI quarterly newsletter, “0.618…”, is justone of several exciting developments for UNEP FI, a unique voluntaryinitiative between the worldwide financial sector – covering 275 banks,insurers and asset management concerns – and the United NationsEnvironment Programme.

Since April 2001, UNEP FI activities have included:

■ A two-day, Asia-Pacific Conference (April 5-6) for 170 financiers fromthe region hosted in collaboration with the Department of Environmentand Natural Resources (DENR) in the Philippines and HSBC Holdingsplc. �unepfi.net/mtgs/manila

■ A half-day workshop, hosted by Citigroup, in New York City (April 20)for 35 executives and civil society representatives to explore the roleUNEP FI can play to support North American financial institutions asthey operationalise sustainability goals. �unepfi.net/mtgs/newyorkcontinued on page 3

The golden ratio... building quantity without sacrificing quality

0.618...

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2 • Quarterly, Issue 1, June 2001 UNEP FI

PRESIDENT URGESINNOVATIVE FINANCINGFOR SUSTAINABILITY� unepfi.net/mtgs/manila

H.E. President Gloria Macapagal Arroyo of The Philippines calledupon banks, insurers and asset management companies toexplore “innovative financing for sustainable development”during the 5-6 April UNEP Finance Initiatives Asia-Pacific regionalconference in Manila.

Congratulating the five* Philippine institutions that signed theUNEP FI statement during the conference, The Presidentstressed that partnerships will be the key to successfullyachieving the goals of sustainability across the dynamic Asia-Pacific region. “ Alliances between the government and theprivate sector, or between business and communities, can pavethe way towards the success of sustainable developmentinitiatives,” stressed The President, whose message wasdelivered to the conference by Philippines Secretary for theEnvironment, H.E. Heherson Alvarez.

In his keynote address, Aman Mehta, Chief Executive Officer,The Hong Kong and Shanghai Banking Corporation Ltd – a leadsponsor for the event – said: “There is an inherent and growingresponsibility on the shoulders of financial institutions and otherbusinesses and therefore the leaders of these organisations todemonstrate that we can practice capitalism with a conscience.”

Highlighting the potential of environmental business, Mr Mehtaadded: “ The involvement of financial institutions in e-commerce– environmental commerce – is inevitable. Consider the tradingof emission permits for example. Such market mechanisms arebeing an increasingly accepted way of minimizing extra cost toindustry and maximising the incentive towards innovation.”

The two day conference, entitled “The Finance Sector in Asia-Pacific: The Business Case for Sustainability Performance”,launched UNEP FI’s preparations for the 2002 World Summit forSustainable Development (WSSD). The Manila event attractedmore than 170 participants from the finance sector, government,and civil society in the Asia-Pacific region. The Asia-Pacificconference launched a series of UNEP FI outreach events with

Conference partners:

Republic of the PhilippinesDepartment of Environmentand Natural Resources

Bangko Sentral ng Pilipinas (Central Bank of thePhilippines)

Financial ExecutivesInstitute of the Philippines(FINEX)

Management Association ofthe Philippines (MAP)

Environment Australia

Hanns Seidel FoundationGermany

HSBC Holdings plc

Manila, 5-6 April 2001

The Financial Sector in Asia-Pacific

The BusinessCase forSustainabilityPerformance

UNEP FI Quarterly, Issue 1, June 2001 • 3

■ A working meeting in Paris (May 3) withexperts from the insurance and re-insuranceindustry to explore the possibility oflaunching a project with the GlobalEnvironment Facility (GEF) to promotedevelopment of innovative insuranceproducts which support sustainability.

■ The commencement of work to develop theglobal finance sector’s report for the Rio+10meeting. This 64-page report, developed inline with a framework created by the UNEPDivision of Technology, Industry andEconomics (DTIE) in Paris, will be publishedin March 2002.

■ Launched the development of a trainingcourse entitled Sustainability PerformanceDevelopment Programme (SPDP), specificallytailored to the needs of finance sectorprofessionals in the developing world andeconomies in transition.

The 20-strong UNEP FI joint steeringcommittees, representing the UNEP FinancialInstitutions (FII) and the UNEP InsuranceIndustry Initiative (III), meets next in London on25 June to take further steps to implement theambitious new work programme. The 2001-2002programme, packed with plans for UNEP FIevents, publications, and projects, was approvedunanimously by the committees during their lastmeeting in Frankfurt on February 13.

Richard Cooper, Lloyds TSB, and co-chair of theFII, commented: “The activities planned for2001-2002 are ambitious but as the pivotalWorld Summit for Sustainable Development(WSSD) will shape the environmental andsustainable development agenda for the nextdecade, UNEP FI has to deliver real substance atthe event.”

Walter Jakobi, Gerling Group, Chair of the III,added: “The insurance and re-insurance sectorsare increasingly engaged in the sustainabilitydebate and UNEP III ensures we play an activerole in intergovernmental negotiations, allows usto disseminate best practice models, and createsan excellent forum for information exchange.Our sector’s role in the drive to sustainability iscrucial.”

UNEP FI’s three key work groups, coveringAsset Management, Climate Change andEnvironmental Management and Reporting, willcontinue to develop detailed work programmes.

For further details on working groupprogrammes see �unepfi.net/wkgrp

continued from page 1four more planned for Latin America, Africa, the Economies inTransition, and the Gulf States. These conferences will takeplace before May 2002.

UNEP FI SPDP Training Courses Launched

On day two of the conference, during an interactive workshop,UNEP FI Co-ordinator Paul Clements-Hunt and consultantFranz Knecht launched the UNEP FI Sustainability PerformanceDevelopment Programme (SPDP). “With SPDP we are seekingto create regionally specific training courses for finance sectorpractitioners keen to operationalise sustainability. The ultimategoal for SPDP is to create a modular training course withcomponents engineered to the sustainability needs of thedifferent regions. We launched SPDP in Manila and will beholding our first SPDP training week in Bangkok later in theyear (October 29-November 1). SPDP will be taken to LatinAmerica, Africa, the Economies in Transition and the GulfStates in a similar way to develop a training course whichserves the regional needs of the finance sector.”

Themes covered during the conference – by means of eightparallel sessions – included:

• Market Trends and Best Environmental Performers in theFinance Sector

• Financing the Environmental Needs of Asia-Pacific

• Regulations, Reporting and Implications for the FinanceSector

• Thinking Globally, Acting Globally – The Finance Sector’sCritical Role in Sustainable Development

Commenting on the conference, Terry A’Hearn, VictoriaEnvironment Protection Authority, Australia, said: “This was anexcellent event with a well crafted agenda and strongspeakers from across Asia-Pacific. The SPDP training course iscertainly something we’d be looking to bring to Australia in duecourse. UNEP FI should be congratulated for a great launch totheir preparations for Rio+10 next year.”

*New Philippine signatories: Global Business Bank; Metropolitan Bank andTrust Company; Philippine Bank of Communications; PlantersDevelopment Bank; and Rizal Development Corporation.

Existing Philippine signatories: Bank of Philippine Islands; DevelopmentBank of the Philippines; and Land Bank of the Philippines.

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Hosted by Citigroup�unepfi.net/mtgs/newyork

On 20 April 2001, Citigroup hosted aworkshop in New York enabling 35finance sector executives and civilsociety observers to explore the roleUNEP FI can play to foster bestsustainability practice amongstinstitutions in North America.

The workshop, under the theme“Supporting the UNEP Finance Initiatives:The North American Business Case,”catalysed the formation of a new UNEPFI Task Force with the mandate tofurther develop the initiatives’ outreachin North America. Twelve executives andfinance sector association membershave offered to take an active role inpromoting UNEP FI in the USA andCanada.

Participants presented severalrecommendations for UNEP FI toprovide practical support to NorthAmerican institutions that are striving tooperationalise sustainability. Theseincluded calls to:

■ Bring the business case to the CEOlevel in North America.

■ Develop practical tools that assistoperational executives who drive thesustainability case in their institutions.

■ Show the up-side opportunities ofnew sustainability markets and build amore positive business case topersuade senior finance sectorexecutives of the win-win nature ofadopting sustainability at the heart oftheir core business operations.

Jacqueline Aloisi de Larderel, Director,UNEP Division for Technology, Industryand Economics (DTIE), joined Iris Gold,Citigroup, to open the workshop atCitigroup Centre.

Ms de Larderel said it was critical thatUNEP FI secure additional supportingmember companies in North America tobuild on the excellent work ofcompanies like Citigroup. The Directorcommented that: “With just 18 months

before the World Summit for SustainableDevelopment in South Africa, there is agreat opportunity for more NorthAmerican institutions to become activein UNEP FI and to play a leading role inthe process to create innovativefinancing for sustainability,”.

Presentations are available online:

■ Rob Lake, Henderson GlobalInvestors, Chair of the UNEP FIworking group on Asset Management,highlighted the critical sustainabilitychallenges which an increasingnumber of European companies arefacing and the developing role forasset managers to press the case forimproved sustainability performance.

■ Paul Hagen, Chair , InternationalEnvironmental Practice Group,Beveridge & Diamond, P.C., exploredthe role of international financialinstitutions in promoting sustainabilitygoals through their lending activitiesand against a background ofincreasing private capital flows to thedeveloping world.

■ John L. Cusack, CEO, InnovestStrategic Value Advisors Inc, exploredthe impact on business of theincreasing focus on environmental andsocial considerations and the effortsunderway to correlate performancewith market value.

Following the workshop, Paul Clements-Hunt, Co-ordinator, UNEP FinanceInitiatives, commented: “ We aredelighted that the workshop hasresulted in the creation of a new NorthAmerican task force. A clear messagethat came from the workshop was therole that UNEP FI can play to provideexecutives with the information, data,and arguments to make the businesscase for sustainability performance totheir most senior management. Thenew task force will shape a realistic workprogramme in coming months to ensurethat UNEP FI provides executives andinstitutions in North America with thekind of support they require.”

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Overview of NewYork City workshop


UNEP iscommitted tocreating synergiesacross sectors byfacilitating broadaccess tosustainabledevelopmentsolutions. “TheUNEP Brief” is aregular column in0.618… thathighlights thesesynergies byshowcasing thediversity of ideasand creativesolutions acrossUNEP andspecifically withinthe Division ofTechnology,Industry andEconomics.

The UNEP briefThe United NationsEnvironment Programme�www.unep.org

The United Nations Environment Programme(UNEP) is built on a heritage of service to theenvironment. As one of the productiveconsequences of the 1972 StockholmConference on the Human Environment, UNEPprovides an integrative and interactivemechanism through which a large number ofseparate efforts by intergovernmental, non-governmental, national and regional bodies inthe service of the environment are reinforcedand interrelated.

Today, 29 years after the Stockholm Conferenceand nine years after the 1992 Rio Earth Summit,the challenge before UNEP is to further catalyzeaction for sustainable development.

The Division of Technology,Industry and Economics �www.uneptie.org

In 1998, in response to a growing need toprovide an integrated response to industrial andurban issues, four offices of the United NationsEnvironment Programme were brought togetherunder a new Division of Technology, Industryand Economics (UNEP DTIE). Here 0.618…highlights a number of key DTIE activities.

Cleaner Production �www.uneptie.org/Cp2

In 1989 the UNEP Governing Council launchedthe UNEP Cleaner Production programme withthe aim of integrating preventativeenvironmental strategies into processes,products and services to increase their efficiencyand reduce the human and environmental risksthat their production may pose.

In order to achieve this goal, DTIE promotescleaner production investments in thedeveloping world, coordinates National CleanerProduction Centres and holds working groupsworldwide. These activities are augmented byconcrete projects including: online databases forcleaner production; the enforcement of theInternational Declaration on Cleaner Production;and the organisation of worldwide seminars oncleaner production.

Global Reporting Initiative(GRI) �www.globalreporting.org

In 1997, The Tellus Institute and The Coalitionfor Environmentally Responsible Economies(CERES) collaborated to establish the GRI.Shortly afterwards UNEP joined GRI as a

principal player and today convenes the GRIwith CERES.

Energy �www.unepie.org/energy

UNEP DTIE Energy addresses the environmentalconsequences of energy production and use.Specifically, its mission is to increase the globaluse of renewable energy resources, increaseenergy end-use efficiency and improve theoverall planning and management of energysystems.

UNEP Energy is currently expanding itstransport-related activities through The MobilityForum. The Mobility Forum is a new voluntaryinitiative that will provide the means for DTIE’sEnergy and OzonAction Unit to strengthencommunication and co-operation between theautomotive industry, consumers andgovernments.

Production andConsumption �www.uneptie.org/hp_pc.html

The Production and Consumption Unit of DTIEis dedicated to cleaner, safer production andsustainable consumption in order to emphasizethat the entire life cycle of a product or serviceneeds to be addressed in order to achievesustainable development and povertyalleviation.

The Sustainable Consumption programmefocuses on understanding the forces that driveconsumption patterns around the world andhow those findings can be translated intotangible activities for business and stakeholders.

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EcoSecurities joins UNEP FIIEcoSecurities, a financial advisory firmin the fields of climate change,emissions trading and the use of theflexibility mechanisms, joined the UNEPFinancial Institutions Initiative as anAssociate Member during a signingceremony in London on 25 June,2001.

EcoSecurities director of FinancialAdvisory Services, Lionel Fretz,commented “This move reflects thegrowing synergies in financial marketsbetween Sustainable Developmentand Climate Change. We believe thatFinancial Institutions will have anincreasingly important role to play inenabling sustainable development,and face a significant threat to theirbusiness if they do not”.

EcoSecurities

EcoSecurities is a global firmspecialising solely in Climate ChangePolicy, the development of EmissionsTrading systems, and the use of theKyoto Flexibility Mechanisms. Over thepast four years, EcoSecuritiesinternational offices (currently in UK,Europe, US, Brazil and Australia) haveadvised companies, governments,international organisations andtechnology vendors throughout theworld on the likelihood andconsequences of emissions trading.

The Development Bank of Japan:

COMMITTED TO GLOBALENVIRONMENT ISSUESIn June 2001, The Development Bank of Japan (DBJ) becamethe first Japanese bank to sign the UNEP Statement byFinancial Institutions on the Environment and SustainableDevelopment.

The Development Bank of Japan (DBJ) is a policy-basedfinance institution that has contributed to the development ofthe Japanese economy over half a century through long-termfinancing. DBJ has a long history of involvement inenvironmental management since its establishment in 1951.

As well as collaborating with Japanese ministries in formulatingeffective policy lending, DBJ works closely with the privatesector to promote environmentally sound investment. Forexample, they extend loans for anti-pollution and energy-saving equipment; promote the use of renewable resources;and further the development of green technology.

A spokesperson added: “DBJ views our signature of the UNEPFII and the inherent strengthening of commitment toenvironment issues as particularly relevant to its viability andprofitability as an organisation.”

DBJ conducts both academic and practical research, forexample, their Center on Global Warming developed a large-scale econometric model showing various impacts of a carbontax on the Japanese economy. ©

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Caisse des Dépôtssigns UNEP FIdeclaration Caisse des Dépôts, a French public financial institutioncreated in 1816, carries out both public service and generalinterest missions entrusted by the State to public institutionsand businesses through its specialised subsidiaries. Focus onthe long term has been the CdD rule of conduct for almost200 years. CdD has worked with industry, local authoritiesand government to finance the necessary infrastructure forFrench society to progress.

CdD public service work covers the management of savingsused to finance:

■ social housing and urban regeneration;

■ public retirement plan administration;

■ and management of funds requiring particular protection.

Other activities include supporting public policies on: smalland medium enterprises; job creation and development;urban regeneration; local development; and the fight againstbanking and financial exclusion. CdD’s open-marketbusinesses are: investment banking; life insurance; localdevelopment services; and engineering subsidiaries.

CdD has already publicly demonstrated its commitment tosustainable development by:

■ Signing a charter for sustainable development with otherpublic-sector enterprises “Charte des entreprises publiquespour le développement durable” – October 1999;

■ Adhering to the United Nations Global Compact oncorporate responsibility in the fields of human rights,labour rights and the protection of the environment – June2000

■ Strengthening our support to the European businessnetwork for social cohesion (CSR Europe) – November2000.

CdD has incorporated sustainable development in itsManagement Charter, signed by each senior executive. Theoperational objectives of CdD’s businesses now explicitlyinclude action in favour of sustainable development.

A CdD spokesperson said: “In joining UNEP FII, we wish tocontribute further to building solutions and spreading theword for a more responsible approach to global economicdevelopment. We have a particular concern for the waste inresources which results from social and economic exclusion,constituting a potential threat to the sustainability ofeconomic development. We are committed to promotingawareness of the key role of the financial sector in providingmeans for both economic, social and environmentallyfriendly development. We must encourage the financialsector to widen access to its services and recognise itsresponsibilities to the entire community by promoting sociallyresponsible investing and continuing to support thedevelopment of socially responsible corporate rating”.

UNEP FIactivity inAustralia�www.epa.vic.gov.au

The Victoria EnvironmentalProtection Authority (EPA),Australia, hosted twoconferences in March 2001 asits first major joint activity withUNEP FI following signature of aMemorandum of Understanding(MOU) in late 2000.

In addition to the Sydney andMelbourne conferences, whichconcentrated on environmentalcredit risk and sociallyresponsible investment, the EPAorganised a series of meetingswith financial institutions,government representativesand the business community.

Commenting on the events,Richard Cooper of Lloyds TSBand co-chair of the Financial

Institutions Initiative said “the tripwas hectic, but a great success.Terry A’Hearn of the EPA hasworked very hard to successfullyengage the financial servicessector in the environmentaldebate and it is evident that thesector is responding positively”.

The MOU was signed at UNEPFI’s Annual Roundtable inFrankfurt in November 2000 onbehalf of EPA by its SeniorEconomist, Terry A'Hearn, andon behalf of UNEP FI byJacqueline Aloisi de Larderel,Director, UNEP Division ofTechnology, Industry andEconomics.

Under the MOU, EPA Victoria willco-ordinate and promote allUNEP Finance Initiativesactivities in Australasia. The MOUbuilds on the fact that inFebruary 2000, EPA Victoriahosted the first UNEP RegionalConference held in Melbourne.EPA Victoria is well connected inAsia-Pacific, with strong linkages

to the Asian Development Bank,Osaka EPA and a wide range ofother regional bodies.

There are various initiativesalready underway in theAustralasian finance sectorincluding Westpac Bank’s EcoShare Fund and Bendigo Bank’sEthical Investment Fund.

A key initiative under the MOUestablishes a series of fouradvisory committees coveringthe following four topics: SociallyResponsible Investment;Environmental Credit RiskAssessment; Insurance; andOperational EnvironmentalManagement.

For further information pleasecontact Helen Bloustein, Tel 61 3 9695 2687,[email protected] Gabrielle McCorkell, Tel. 61 3 9695 [email protected]

“Through adifferentlens…” is aregularcolumn in0.618… thatdrives belowthe surface ofthesustainabilityand financedebate andexamines theissues from anacademicperspective orfrom that of aguest writer.In this issue,threeAmericanscholarsexamine theviews of theUnited Statesinsuranceindustry onclimatechange.

Through a different lens


Insurers not ofone mind onclimate changeEvan Mills, Eugene Lecomte, andAndrew Peara

According to the Munich ReinsuranceCompany, the world's nations haveendured nearly one trillion dollars ineconomic losses (and 170,000fatalities) due to 8800 natural disastersover the past fifteen years. Three-quarters of the loss costs wereweather-related, and a fifth wereinsured. Over the past 50 years, thenumber of weather-related naturaldisasters has been steadily rising, ashave the total and insured losses.Nearly 60% of these losses are visitedon U.S.-based companies, andbetween 1970 and 1999 losses(adjusted for inflation) grew nine-timesfaster than population. Meanwhile, theinsured fraction of total losses hasincreased steadily, as has the size ofthose losses in relation to premiumincome. Bankruptcies of large andsmall insurers alike have been triggeredby weather-related natural disasters.

VulnerabilityWeather-related events touch asurprisingly diverse set of insuranceproviders, although the degree ofvulnerability varies substantially.Property insurers are more vulnerablethan are life and health insurers, andwithin the diverse property segmentsome insurance lines are more

vulnerable than others. While the totalavailable reserves are large comparedto catastrophe losses experienced inthe past, not all of these funds areavailable to pay such losses. In fact, inthe U.S. about 90% of these reservesare associated with types of insurancethat have relatively little if any weather-related exposure (e.g. workerscompensation, medical malpractice,liability).

The effects of increased losses canlead to upward pressure on insurancereserves and prices, the sensitivity ofinsurers' stock prices to major weather-related events, and an increasingnumber of insolvencies. Large andsmall insurers alike have beenimpacted by weather extremes and willbe more so in the future if thefrequency or intensity of weather-related events increases. Thecontinued insurability of such risks is acentral question, especially given thatmost experts – and theIntergovernmental Panel on ClimateChange (IPCC) – project increases inextreme events going forward.

One of the vexing dilemmas facinginsurers is the difficulty of disentanglingthe causes of weather-related lossevents. This is especially true for thosepotentially related to human-inducedclimatic change versus natural climatecycles, and those having to do withhuman activity that could accelerate ordampen the process (demographictrends, increasing property values,disaster mitigation efforts, etc.). In manycases, upward trends in losses haveshown to be a product of both humanand climatological factors, but an in-depth understanding is hampered bytechnical complexity and insufficientinformation. Compounding theproblem, climate change research israrely conducted with insurers in mind.Importantly, the most recentassessment from the IPCC reports thatcertainty of past and future climatechanges is higher than ever and thatimpacts on natural and human systemsare already perceptible. The IPCCreport looked at insurer vulnerabilities insome depth.

While a number have given someattention to the issue, the vast majorityof individual firms and many tradeorganizations have not indicated anopinion (at least not in the publicforum). A few have taken definitivepositions that there is a material threat,


while others have adopted equallystrong views to the contrary. Somehave elected to pursue research andthe fortification of society againstclimate change, and others to adopt a“wait-and-see” stance. U.S. insurerinvolvement in the issue wassignificantly greater in the mid-1990sthan it is today, with many insurersparalyzed by conflicting reportage onthe topic and skeptical about thepolitical and scientific assessments ofclimate change.

ToolsInsurers have a number of tools forreducing their financial vulnerability.These include purchasing reinsurance,raising rates, non-renewal of existingpolicies, and the cessation of writingnew policies. They may also limit theirliability by capping amounts ofinsurance available, placing speciallimits of liability on coverage, providingcoverage on an “actual cash value”basis (taking deductions fordepreciation and/or betterment)instead of paying for the replacementcost, and increasing the deductiblespaid by their customers. They may alsopool their risks and strive to increasetheir investment income, and, ifsufficiently burdened, reduce dividendsto share and/or policyholders.Implementing some of these measuresmay require legislative or regulatoryaction and present possible politicaland market risks.

Meanwhile, insurers – in consort withother parties – also possess a diversetoolkit of engineering approaches tomanaging and minimizing the lossescaused by natural hazards. Theseinclude use of geographic informationsystems to better understand andpinpoint risks, land-use planning, floodcontrol programs, early warningsystems, sustainable forestmanagement, coastal defense, andwind-resistant construction techniquessupported by building codes. However,some within the industry questionwhether even the combined effect ofthese types of loss control aresufficient.

Insurers are also able to transfer orshare loss costs with governments,self-insureds, consumers, and to thecapital markets. Insurers point out,rightfully, that not all risks arecommercially insurable in a marketeconomy. Seeking reductions in private

sector insurance coverage for climate-and weather-related hazards producesincreased pressure on government toassume the associated risks.Governments, however, haverepeatedly shown reluctance toincrease their existing insuranceexposures and liabilities for providingdisaster relief. This tension is a centraldilemma facing society in the face ofrising catastrophe losses, especiallysince government-insured crop andflood losses are particularly likely toincrease under climate change.

Insurers have treated loss control as arelatively "local" enterprise, whereas itwould entail a rather dramatic shift inself-perception for insurers to engagein the activity at a (literally) global scale.Moreover, we have seen noquantitative analyses of how climatechanges could effect the "probablemaximum loss" estimates upon whichinsurance pricing and planning rest.

With some notable exceptions, thepreponderance of existing U.S. insureractivities fall in the area of pre- andpost-disaster loss mitigation, ratherthan involvement in climate science or

*”Through aDifferent Lens…”is intended as animpartial forum foracademics andguest writers,therefore theviews expressedin Through aDifferent Lens arenot necessarilythose of theUNEP FI or of itssignatories, nordoes UNEP FI orits signatoriestake anyresponsibility foractions taken as aresult of views oropinionsexpressed in thiscolumn.

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mitigating the potential effects ofclimate change itself. An importantsemantic point is that while the climate-change research community uses theword "mitigation" to refer to measuresthat promise to reduce the process ofclimate change, the insurancecommunity uses the term to refer tomeasures that reduce the likelihood oflosses from climate-related (and other)events.

Points on thecompassOur in-depth interviews with insuranceexecutives and extensive review of theliterature found that insurers haveassumed positions on all points of thepublic policy compass. Many of theinsurance executives exhibit a genuinedesire to make a contribution towardsafe-guarding the public and theirpolicyholders. However, most claim tolack the scientific knowledge needed toparticipate in the climate-change

debate. Ironically, some stridentlydeclare a lack of expertise and in thesame breath state with authority thatclimate change is not taking place.

Over the past decade, U.S. insurers, totheir credit, have been involved in alarge number of activities in which thequestion of weather-related losses(and in some cases climate changeitself) have been addressed. While thisevidences considerably moreinvolvement than many outside theinsurance community are aware of,what does not emerge is a sense thatthese events have built upon oneanother towards some sort ofconsensus on the matter or towards acoordinated plan of action extendingbeyond preliminary discussion and fact-finding activities.

Given the potential for disruptioncaused by climate change, it is notablehow limited U.S. insurer activities havebeen (at least as is evidenced in thepublic record) to analyze the problem.At the highest level, we discern threebasic types of "perceptual barriers" tomore in-depth insurer involvement andcollaboration with non-insurer groups.These include: (1) uncertaintiesregarding the science of climatechange, (2) distrust, emanating fromparochialism and provincialism amongstakeholders; and (3) lack ofknowledge and the failure to fullyunderstand stemming from insufficientdialog among stakeholder groups.Underlying these, we identify anextensive series of barriers that fall intothe categories of "legal and regulatory","technical and informational","economic and market", and "political".

We touch on the sometimesremarkable differences between theactivities and statements of U.S. andnon-U.S. insurers. These include therelative weight of green marketing andgreen politics, the role of governmentsin natural disasters, conceptualapproaches to loss prevention andmitigation, and the perception of newbusiness opportunities presented byclimate change risks. Likewise theregulatory role and tax-lawenvironment, as well as the tone andtenor of government relations withinsurers, and differences in corporateculture and the timeframes with whichinsurers measure their futures can differdramatically among countries. It was 27years ago that European insurers firstarticulated concern about climate


“The importanceof probabilitycan only bederived from thejudgement that it is rational tobe guided by it in action; and apracticaldependence on it can only bejustified by ajudgement thatin action weought to act totake someaccount of it.”John MeynardKeynes.

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change (16 years before their U.S.colleagues first publicly addressed theissue). Yet, it is also fair to say that, in afew select ways, U.S. insurers areahead of their European counterparts.

Non-insurer organizations in the U.S.often evidence little appreciation fordifferences in conditions faced bythemselves and insurers. Althoughgenerally well intentioned, we find thatefforts to involve insurers in the climatechange discussion have met with verylimited success. We believe that theproblem stems in part from non-insurers' lack of knowledge about theintricacies of the insurance business,i.e., its history, regulation; the commonmisperception that insurers are amonolithic group and occasionaloverstatement of the facts on climatechange. Meanwhile, mutualunderstanding is also hampered byinsurer perceptions that these groupsare politically rather than scientificallymotivated or that non-insurers cannotbring true value to their core business.

Bridging the gapIt appears that differences in worldviewand analytical orientation have servedto separate many insurers and non-insurers on the question of climatechange. Some of these differencesmay prove irreconcilable, but otherscertainly stand to be bridged throughincreased mutual understanding andinterdisciplinary, cooperative researchand inquiry. Both communities – andtheir constituencies – no doubt stand tobenefit from engaging with the other ina more comprehensive dialog. Fromvarious quarters within the insurancecommunity, we are already hearing acall for a more holistic approach, onethat integrates no-regretsenvironmental protection with thediscipline of disaster risk management.

This article summarizes an extensivereport: “U.S. Insurance IndustryPerspectives on Global ClimateChange.” Copies may be ordered [email protected].

This work was funded by the AssistantSecretary for Energy Efficiency andRenewable Energy, Office of BuildingTechnologies and State andCommunity Programs, of the U.S.Department of Energy under ContractNo. DE-AC03-76SF00098, and by theU.S. Environmental Protection Agency,Office of Economy and Environmentand Office of Atmospheric Programs.

Award for newCredit SuisseGroupenvironmentalreport 1999/2000 �www.credit-suisse.com/sustainability

Credit Suisse werehonoured during a recentpresentation for the bestenvironmental reports bySwiss companies. Thereports were judged byenvironmental experts ofPriceWaterhouseCoopersand an independent jury.The Group's newEnvironmental Report1999/2000 came in third(out of 34 reports) in thelarge company category,after Canon and Sulzer.Martin Wetter, member ofthe Executive Board ofCredit Suisse Banking andEnvironmental Officer ofCredit Suisse Group,accepted the prize onbehalf of the company. Thefull version of the new CSGEnvironmental Report1999/2000 is only availableonline.

Yasuda Fire & MarineInsurancelaunch newwebsite�www.yasuda-pavilion.com

Yasuda Fire & MarineInsurance Co. Ltd.(Tokyo,Japan) have just openedup the English version oftheir website. The purposeof this new site is to relaytheir primary message of‘Taking on environmentalissues as part of all ourlives’. The site is tailored forchildren, with specialfeatures such as‘EcoTheatre animationclips’ that explainenvironmental issues in asimple and fun way tolearn. Also featured is an‘EcoQuiz’ as well as aMessage Card service andMessage Board. Through“Message Card Forest”,they have set up adonation fund forenvironmental NGOs (forevery card sent, 20 yen willbe donated by Yasuda).

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Emer

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erra “Information is transparent today.

Anyone with a Reuters Terminal anda phone is playing on pretty muchthe same level ( and much lessprofitable ) playing field asGoldman’s highly trained, highoctane traders … so the ever-hungrymarketers are creeping out into theless well known but potentially morelucrative territory: the developingcountry world.”Jon Corzine, Former CEO of Goldman Sachs.

On the Digital Divide.The goal of technology is efficiency. It makes iteasier for us to exchange goods andinformation. With every new telephone line,every new fiber optic cable and every newcomputer, the world becomes a smaller placeand the global market becomes more efficient.

This efficiency also lies at the heart ofsustainable development. Market efficiency

begets economic efficiency, and with theresulting savings a corresponding surplus ofactivity arises that can be set aside to decreasethe impact of our markets and ensure thatnatural and economic capital is reserved forfuture generations. (See “Linkages” to learnmore about how the UNEP Global E-Sustainability Initiative is making this happen).

But many markets in the world are far fromefficient, in fact, 42 percent of the world’spopulation have never used a telephone. Tomany people, this situation is a major problem.To others, it is a major opportunity.

Bruce McConnell, President of McConnellInternational Consulting, sides with the secondpoint of view, stating that “for high techcompanies looking to wire developing countriesthere are great possibilities to make money andmove the world in the right direction.”

Admittedly, recent figures from the InternationalTelecommunication Union (ITU) suggest that formany of the poorest nationstelecommunications convergence to presentrates of connectivity in the richest nationsremains between 50 and 100 years away. KlausSchwab, founder of the World Economic Forum,notes three key prerequisites for growth in the

LinkagesThe UNEP Global E-Sustainability Initiative� www.gesi.org

Launched on June 5, 2001, the UNEP Global E-Sustainability Initiative (GeSI) is avoluntary initiative - similar to the UNEP FI - that tackles the linkages between theInformation Communication Technology sector and sustainable development. "Ata time in history when our technologies are bringing people closer together itfollows that businesses also work together to contribute to the societies withinwhich they operate," says Chris Tuppen, Chair of the Interim GeSI steering group."The launch of GeSI will build on existing voluntary activities and act as the focus fora global network of companies and organisations working on sustainability issuesin the ICT sector."

Over the next two years, the GeSI will support research on the role that informationand communications technology can play in advancing sustainable development –climate change, waste reduction and the digital divide are among the main issuesthat will be addressed first. Participating companies are also looking into how bestto “outreach” their knowledge and experience to enable businesses around theworld to take new opportunities and expand markets while displaying corporatesocial and environmental responsibility at the same time.

As an industry, telecommunications appears to be relatively clean. However, asmany other industries, it consumes vast amounts of energy, generates waste andaffects the physical environment in various ways. Responding to this challenge,the GeSI encourages corporate environmental monitoring and the sharing of bestpractices like reducing and recycling of waste, saving energy and developingproducts “designed for the environment.”

For more information contact: [email protected], or phone: +33.1.44.37.14.50

Wiring our way to sustainability


Emerio terra,Latin for “to earnthe earth” is aregular columnin 0.618… thatexamines topicsrelating toemergingtechnologies andtheir impacts onour societies, oureconomies andourenvironment.This month, weexamine theshape ofemergingmarkets forcommunicationsinfrastructureand theirlinkages tosustainability.

ICT (Information communication Technology)sector: access; education; and entrepreneurship.The poorest nations need to develop these basicprerequisites before they can establish andmaintain profitable communications networks.

However, many other nations are taking positivesteps to build and expand on theseprerequisites. According to a report from theUK based consulting firm Knowledge Societies:

“Developing countries are improving theircapabilities to use ICTs to provide theinfrastructure for modern business. It is believedthat such investments will assist domesticcompanies to integrate with the global economyand enhance the prospects for foreign directinvestment.” (Mansell, When, 1997:20)

It is these investments, ranging from mobiletelephone networks in South America tofledgling internet service providers in India andtheir potential for growth that deserve a closerlook.

A Return onInvestment. The driving force behind the development ofICT is investment. In developing nations thisinvestment is shifting from long-termgovernment financing towards shorter termprivate investments made in a commercialframework, thus increasing the opportunitiesfor private investors.

One observer suggests that the four mostimportant indicators for determining foreigndirect investment in ICT are: for profitexpectations; for market expectations; forinvestment requirements per unit of revenue;and most importantly, taxes ontelecommunications revenue.

For profit expectations and for marketexpectations relate to the demand side for ICT,something that developing nations certainlyseem to have on their side. Take for example1990-95 OECD statistics on the compoundannual growth rate (CAGR) of the ICT market inthe following nations:

North America: 9.4 %Eastern Europe, Africa, Middle East: 10.6%Western Europe: 15.6%Latin America: 15.6%Asia Pacific: 18.9%

While it is clear there is growth in ICT in allregions of the globe, it is interesting to note thatsome of the highest growth rates are found indeveloping nations.

In addition, examination of ITU (InternationalTelecommunications Union) data on thepercentage change of revenues in the regionfrom 1990-94 provides an indication of return:

Asia: 62.3%South America: 66.5% Caribbean: 21.1%Africa: 12.2%Middle East: 18.5%

This astounding degree of market growth is alsoevident via ITU CAGR rates of telephone mainlines, a key indicator of the growth in ICTcapacity.

Low Income Nations: 27.4%Lower Middle Income Nations: 8.2%Upper Middle Income Nations: 8.2%High Income Nations: 3.5%

These figures illustrate that the market inwealthier nations is becoming saturated whereasgrowth rates in developing nations show adynamic potential for growth and thus return oninvestment while at the same time building thecapacity for sustainabls business.

Investment requirements in ICT are extremelyvaried across the developing world and dependon a variety of political and socio-economicfactors. Using the example of telephone lines,recent ITU data suggests that the vast majority ofdeveloping nations have investment costs permain line that are much lower than theirwealthier counterparts.

Investment in more efficient and modern ICTinfrastructure facilitates market growth throughreducing transaction and production costs. Ifthese benefits are distributed properly, thedevelopment of nations, while not assured, cancertainly not be done harm. And, as thenumbers show, these fledgling markets are moreripe than ever for a return on investment.

Jacob Malthouse is with UNEP FI in Geneva

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ECAs and theenvironmentUNEP FI, in collaboration with various Export CreditAgencies and UNEP Energy, is developing a workshopthat will gather executives to examine environmentalquestions relevant to the finance, insurance and exportguarantee sectors.

The thrust of the workshop will be the exchange ofinformation and experience that will help participatingcompanies and agencies integrate environmentalconcerns into their project approval processes. The oneand a half day workshop is tentatively scheduled for midOctober 2001 in Paris. It will cover four aspects relevant toECA operations:

■ Raising Environmental Awareness■ Task specific training■ Sustainability and Investment Instruments■ Environmental Professional Development Programme

(EPDP).

For more information on this workshop contact: MarkSanctuary at [email protected].

European Convention on Corporate SocialResponsibility attracts high profile support� www.csreurope.org

The outcomes of the European Convention on Corporate Social Responsibility (November 2000), a majorevent hosted by CSR Europe left no doubt that Socially Responsible Investing (SRI) is an issue of growingimportance. Contributions by Jean-François Théodore, Chair of Euronext, the first European StockExchange, and Daniel Lebègue, CEO Caisse Des Dépots et Consignations, were a highlight of theconvention.

Mr. Théodore praised recent achievements in the field and suggested that for banks the possibility ofoffering green investments is only one way to contribute to CSR. Mr Lebèque called upon the financialsector to recognize these possibilities. He went on to add that financial institutions can play an importantrole by further promoting SRI in Europe, exploring the feasibility of a European Voluntary Banking Charter,and by promoting improvements in the financing of small and medium enterprises.

Morley FundManagementmake a standMorley Fund Management, CGNU'sfund management arm and one of theUK’s largest holding circa 2.5% of theUK market, has said that from nextyear:

∑ They will expect all FTSE 100companies, in all sectors, to haverobust processes to minimisedamaging environmental impacts.Morley therefore expects thesecompanies to publish a comprehensiveEnvironmental Report.

∑ Where FTSE 100 companies do notpublish such a report, and afterconsultation as to managementintentions, they will vote against theresolution to adopt the Report &Accounts.

∑ Morley also expects FTSE 250companies in high risk sectors toproduce an Environmental Report.Where such a report is not producedMorley will abstain on the resolution toadopt the Report & Accounts.

Morley will review the situation eachyear but it is likely that a harder stancewill be taken, over time, to match theapproach taken with the FTSE 100companies.

Morley is the first company of its kind totake such a stand. CGNU is a memberof Steering Committee to the UNEPInsurance Industry Initiative as well aschair of the Initiatives Working Group onEnvironmental Management andReporting.

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Ministers meet onenvironmentand tradeGerman Environment Minister H.E:Juergen Tritten and Dr. Klaus Toepfer,UNEP’s Executive Director co-chairedthe Ministerial segment of a UNEPEconomics and Trade Unit (ETU)meeting on 22 March, 2001.

UNEP ETU co-hosted with the GermanFederal Ministry for the Environment,Nature Conservation and Nuclear Safetya meeting which brought togethersenior officials in environment and tradefor two days of presentations,discussions and working groups on theuse of environmental and integratedassessments of trade liberalisation andother trade-related policies. Themeeting discussed the integration ofenvironment and trade policies;integrated assessment as a tool toachieve coherence at the national level;coherence at the international level;capacity building; and economicinstruments. UNEP was encouraged tocontinue its efforts with more countryprojects as well as in-country trainingand awareness-raising with specialconsideration given to least developedcountries and small island states.

Another recommendation resulting fromthe meeting was that UNEP incooperation with UNCTAD establish aWorking Group on EconomicInstruments. The broad objectives of theWorking Group are to provide technicalsupport and guidance on the role ofeconomic instruments in internalisingenvironmental externalities as one policytool to achieve environment andsustainable development objectives;assessment of the impacts of existingmarket incentives, including subsidies onthe sound management ofenvironmental and natural resourcesand the role of economic instruments inachieving the objectives of multilateralenvironmental agreements. The firstmeeting of the group was held on 18-19June in Geneva.

Fibonacci’s work was a critical first step in the quantificationof risk, a process that sits at the commercial heart of anyfinancial institution. Sustainable Development brings a newdimension as we seek to understand risk and reward in achanging world. For these reasons, we feel that “0.618…” isa thought provoking name for our re-launched UNEP FIquarterly newsletter. We hope that you agree.

We would like to know what you think about the newsletter’snew name and to hear your opinions on its contents, theway in which we cover issues and what issues you wouldlike to see covered in “0.618…”. Please let us know what youthink by e-mailing Jacob Malthouse at UNEP FI,[email protected].

For the financial services sector, change, anticipation andadaptation to customer needs and market trends is a materof competitive survival.

Klaus Töpfer, Executive Director, UNEP

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Finance, Mining andSustainabilityLeaders of institutions who provide financing for many ofthe world’s principal mining projects met in Washington toanalyse critical problems facing the minerals industry.

The April 9, 2001 conference, sponsored by the WorldBank, UNEP, and the Mining Minerals and SustainableDevelopment Project focussed on the role of financialinstitutions in the transition to a more sustainable model ofdevelopment in the minerals sector.

World Bank President James Wolfensohn joined executivesfrom a range of institutions to discuss problems in thesector, both low returns on capital and risks of catastrophicloss. Some 125 participants explored the relationshipbetween these financial issues and broader social concernsabout the industry’s role in economic and socialdevelopment, human rights and environmental issues.

Participants recognised the need to strengthen thebusiness case for the financial industry to develop a betterunderstanding of the environmental and social practices ofthe mining and minerals sector.

MMSD and its partner organisations plan to carry thisinitiative forward with research in several areas:

• the adequacy of techniques for measuring good socialand environmental performance

• the links between good performance on sustainabledevelopment issues and overall company financial results

• the relationship between better performance and industrystructure.

An outline report of the conference will be available. Formore information, write to [email protected].


The United Nations EnvironmentProgramme Finance Initiatives (UNEP FI),under the UNEP Division for Technology,Industry and Economies (DTIE), is aunique voluntary initiative betweenUNEP and some 275 banks, insurers,and asset management companiesworldwide.

The goal of the initiative is to identify,promote, and realise the adoption ofbest environmental and sustainabilitypractice at all levels of financial institutionoperations.

UNEP FI comprises the FinancialInstitutions Initiative (FII), for the bankingsector, and the Insurance IndustryInitiative (III), for insurers, re-insurers,pension funds and asset managementconcerns.

Financial InstitutionsInitiative (FII)FII was founded in 1992 to engage abroad range of financial institutions in aconstructive dialogue on economicdevelopment, environmental protection,and sustainable development.Signatories to the UNEP FI Statement byFinancial Institutions on the Environmentand Sustainable Development committo the integration of environmentalconsiderations into all aspects of theiroperations and services.

Insurance IndustryInitiative (III) In 1995, building on this success UNEPlaunched another partnership with theInsurance Industry, who also play a key

role in achieving a sustainable economy.Signatories to the III`s statement ofenvironmental commitment have playeda high profile role in variousintergovernmental negotiations, notablythose under the United NationsFramework Convention on ClimateChange.

Quality ServicesWe provide our signatories with practicalresearch; capacity building; andinformation exchange services. Ourproducts range from professionaldevelopment programmes and action-oriented reports to major internationalconferences that bring togetherprofessionals from around the globe.

Practical Support Our job is to provide quality support foryour organisation. In addition to ourdedicated team, UNEP FI opens up avast network of sustainabledevelopment contacts, information andnetworking services that are dedicatedto helping you and your organisationmake a difference.

StructureUNEP is headquartered in Nairobi,Kenya. UNEP has six divisions throughwhich it carries out its activities, includingthe Division of Technology, Industry andEconomics (DTIE) based in Paris,France. The Economics and Trade Unit(ETU), based in Geneva, Switzerland, is aunit of DTIE. The Finance Initiatives is anInitiative of the ETU.

UNEP Finance InitiativesInnovative financing for sustainability

UNEP Finance InitiativesInnovative financing for sustainability

Contact the UNEP FI teamdirectly:

Paul [email protected]

Ken [email protected]

Jacob Malthouse [email protected]

Mark Sanctuary [email protected]

Niamh O`[email protected]

�unepfi.net

15 Chemin des AnémonesCH-1219 Chatelaine, Geneva, SwitzerlandTel. 41.22.917.8178 / 116, Fax. 41.22.796.9240

Editor Paul Clements-HuntAssistant Editor Jacob MalthouseDesigned and produced by RebusPrinted in France by Promoservice

The views expressed in 0.618 are not necessarily those of UNEP or UNEP FI, or of its signatories, nor doesUNEP FI or its signatories take any responsibility for actions taken as a result of views or opinions expressed inthis quarterly.

0.618industry initiative (iii), meets next in london on 25 june to take further steps to implement...

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