Speech of Gaël Giraud

Over the past two years, something has changed in the West's relationship with ecological transition. When we emerged from the confinements imposed during the COVID pandemic, we were still full of hope: many hoped that the international community would learn the lessons of the pandemic and finally agree to confront the colossal ecological challenges we face: global warming, lack of drinking water, partial collapse of biodiversity, plastic pollution... In January 2022, the financial gotha jostled to listen to Greta Thunberg in Davos. Since then, the necessary transition seems to have disappeared from most political agendas in the West; the parties supposedly promoting ecology are recording their worst electoral defeats in decades; the media have relegated the ongoing ecological catastrophe to the rank of secondary subjects; the United Nations is struggling to build a coalition around the fight against food insecurity. 

 

Has the transition lost its relevance? Clearly not: the physical fundamentals of global warming, the disruption of the water cycle and the ongoing destruction of our natural ecosystems have only worsened. We know that we're going to reach the +1.5C ceiling (which we set ourselves 9 years ago, right here in Paris) before the end of this decade. And that it will be virtually impossible to avoid reaching +2C before the middle of the century. We know that the global demand gap for drinking water promises to reach +40% by 2030 if we continue to do little to ensure access to water for all humanity. We know that deforestation in the Amazon is now at 18% (compared with the pre-industrial forest era), and that beyond 25% we risk irreversibly tipping the balance. 

the planet's first lung to a savannah. 

 

So what happened? Of course, there was the invasion of Ukraine, which plunged the international community into the immediacy of war. Now there's the conflict in the Middle East grabbing the headlines. But I don't think that's enough to explain why, at a time when climatic disasters are multiplying in Europe in particular, the West seems to be taking a step backwards on the ecological front. 

 

I believe that one decisive factor has gone largely unnoticed, yet is playing a decisive role: at the end of 2022, most reinsurance companies in the Western world withdrew from the risk induced by extreme climatic events --- floods, droughts, hurricanes...--- the very ones that are set to multiply (or increase in severity) due to global warming. For almost two years now, therefore, most insurers have found themselves on their own when it comes to insuring against the damage caused by these events. And the impact of this damage on the insurance profession is massive. In 2021, then 2022, the net result recorded by domestic residential insurers in Florida was an annual loss of around $1,000 billion (slightly less than Spain's GDP). More generally, as the slide shows, annual losses induced by extreme weather events in the United States have exceeded $50 billion since 2016 and are approaching $200 billion since 2021. 

 

If no action is taken, what is in store is for all reinsurers, and then insurers themselves, to withdraw from insuring risks associated with extreme weather events. 

 

What then? One of two things: either the state steps in as insurer of last resort, or it gives up saving its citizens from the next disaster similar to the floods currently ravaging Eastern Europe. The difficulty, of course, is that the public finances of many states seem too fragile to afford losses in the tens of billions every time a hurricane or drought hits their territory. But if the state itself pulls out, the private banking sector will soon follow suit: bank lending relies primarily on the borrower's ability to show collateral, which can be seized by the lender in the event of non-repayment. However, assets that are not insured against climate risk provide poor collateral. This could mean that territories exposed to extreme climatic risks and uninsured could eventually become places deserted by bank credit, and therefore by any form of investment. All that remains for citizens with the means to do so is to desert these regions. This could mean unprecedented migration, including to the North.  

 

Has this prospect convinced some investors and asset management funds that it's now too late to invest in green?  

 

In 2023, well-known financiers such as Allianz and Vanguard withdrew from the environmental organizations they financed. JPMorgan redefined its investment criteria, significantly relaxing its environmental requirements. The Inclusive Capital fund, headed by activist Jeff Ubben, which set out to invest in environmentally unfriendly groups in order to change them from within, announced at the end of 2023 that it was giving up and would repay the $2.3 billion it had raised from its clients. According to the Wall Street Journal, by 2022, six other funds had dropped all references to ESG standards and decided to move towards much more conventional investments. Thirty-two went bankrupt in 2023. 

 

On the contrary, it's encouraging the major central banks to raise their key interest rates, making investment more expensive and green projects even less attractive than before. 

 

Finally, geopolitical tensions have convinced some asset managers that the urgent need now is to finance the defense sector, particularly in the USA, where the arms industry is running at full capacity to fuel Ukrainian resistance. 

 

Can we break this deadlock and put the ecological transition back at the top of our list of priorities? 

 

To imagine a way out to the top, we must, I believe, take into account the following elements: 

 

These are all reasons why the ecological transition is more topical than ever.