Insurers call on Durban to push green sovereign bonds and relax regulation for investment

Less than 0.1% of global fixed income market environmentally focused.

A group of large insurance companies with assets of more than $3 trillion is calling on policy makers at the COP 17 climate negotiations in Durban to promote the issuance of government bonds for financing low carbon investment and to free up insurers to invest in them. Allianz, Aviva, Legal and General and Swiss Re, along with Aon Hewitt, the consultancy firm, all members of the ClimateWise insurance lobby group on climate change, said less than 0.1%, or $100bn of the approximately $95 trillion global bond market currently finances low carbon growth. They said the Durban conference should encourage governments to issue green sovereign bonds, which would help meet International Energy Agency (IEA) estimates for huge increases in investment in low carbon energy technology. The IEA says this needs to rise from current levels of approximately US$165bn per year to between US$750bn – US$1.6tr per year by 2050 to keep global warming to below two degrees. The insurers – some of the market’s largest investors in fixed income – said climate change could affect pricing of major long-term weather risks, some of their largest potential liabilities. They said they wanted to draw attention to the link between these risks and climate adaptation and mitigation.The insurers said one barrier to their own further investment in green bonds included regulation such as Solvency II, which requires increases in short-term capital requirements rather than long-term riskier assets. Other obstacles, they said, were the current limited liquidity of the low carbon bond market and a lack of standardised due diligence for low carbon investments. Alongside the increase in green sovereign bonds, the insurers said low carbon assets needed to be pooled to increase the size of the bonds issued, saying that the current average bond size of US$300m made trading costs too high. They said ratings of green bonds also needed standardisation and that climate risk needed to be looked at as a risk to be included in mainstream bond rating agency assessments. The group said it supported the recently launched Climate Bonds Standard, which aims to provide assurance for investors regarding the environmental integrity of climate bonds. Andrew Torrance, Chief Executive of Allianz UK, said: “Allianz wishes to see greater issuance of climate related bonds which insurers can incorporate into their fixed interest investment portfolios.”