John Scott, head of sustainability risk for Zurich Insurance Group, called for greater pandemic preparedness and prevention in light of an increasing frequency of outbreaks, in an article for the World Economic Forum this week.
“Our business is in managing risk, and we want to support preparedness and prevention in any way we can,” Scott tells Euromoney.
The S&P Insurance Select Index has lost 10.7% since the start of the year compared with an 8.1% loss in the S&P 500 (as of Monday).
The case for pandemic preparedness has been argued for many years.
In 2016, the Commission on a Global Health Risk Framework for the Future recommended $4.5 billion annual investments worldwide to shore up national health systems, fund research and development, and finance contingency efforts.
John Scott, Zurich
Scott says while investments in technology as well as health care systems would help with preparedness, one way to decrease the risk of pandemics would be to prevent climate change and deforestation, highlighting biodiversity loss and climate change as a cause of the increase in disease spread.
“Deforestation drives wild animals out of their natural habitats and closer to human populations, creating a greater opportunity for zoonotic diseases,” says Scott, highlighting that deforestation is linked to 31% of outbreaks such as Ebola, and the Zika and Nipah viruses.
Covid-19 is a zoonotic virus thought to have come from bats. By Monday, the virus had infected more than 111,000 people worldwide and claimed more than 3,800 lives.
Deforestation, however, is not slowing fast enough and has been exacerbated by extensive fires. According to research from the University of Maryland, the tropics lost 12 million hectares of tree cover in 2018 – the fourth-highest annual loss since record-keeping began in 2001. That figure was expected to be higher in 2019.
As a result of increased deforestation, there has been pressure on the financial sector to assess its deforestation financing policies, but with limited success.
In February, Global Canopy published its annual Forest 500 report, which identifies and ranks the most influential companies and financial institutions in forest risk commodity supply chains.
Source: Forest 500, Global Canopy
Of the 150 financial institutions in the rankings, the report identified 102 that had no policies to address deforestation. Just 42 had a deforestation commitment for all commodities, and a mere 19 had a deforestation commitment for at least one commodity.
Coverage of deforestation policies is poor across the board, says the report, but financial institutions are least likely to have deforestation policies for soy (23%) and cattle products (19%). Although higher, the percentage of financial institutions with policies for timber and palm oil products is just 27%, said the report.
Of the financial institutions identified, BNP Paribas scored the highest for positive deforestation and sustainable forestry policies. Deutsche Bank, ING, Standard Chartered and Rabobank also ranked in the top five.
Among the 102 institutions with zero deforestation policies were BlackRock, Fidelity, Pictet, Legal & General, Charles Schwab, Aviva, Invesco, Macquarie, State Street, Itaú Unibanco, Nomura, TD Bank and Wells Fargo.
The Soft Commodities Compact, coordinated by the Banking Environment Initiative (BEI) and Consumer Goods Forum (CGF), was set up in 2014 to look at the ways banks can assist their clients to achieve net-zero deforestation in the key soft commodities by this year.
It seems that there has not been enough pressure on banks, from consumers, governments or from the companies themselves, to adopt deforestation policies
– Sarah Rogerson, Global Canopy
Barclays, BNP Paribas, Deutsche Bank, JPMorgan, Lloyds, RBS, Santander, Societe Generale, Standard Chartered, UBS and Westpac have adopted the compact, but progress has not been as hoped.
“It seems that there has not been enough pressure on banks, from consumers, governments or from the companies themselves, to adopt deforestation policies,” says Sarah Rogerson, Forest 500 lead at Global Canopy. “More needs to be done to show banks that by not acting they are exposing themselves to real risks.
“In order to mitigate these risks, banks need to set deforestation policies that they apply across all of their lending, all forest risk commodities, and go beyond engagement to require the companies to act and improve.”
Speaking to Euromoney in December, Chris Hart, a senior sustainable finance associate at Global Canopy, said banks that claim data are insufficient to support the level of disclosure that would lead to improved policies are misunderstanding their role.
“Imperfect data should not be a barrier to action,” he says. “The financial sector has evolved to manage risk using incomplete data and a lack of transparency, and so this should be a core skill set for them. When it comes to environmental risk management, this is no different.”
Several platforms now provide greater transparency on soft commodity supply chains linked to areas of deforestation.
Further impetus to better protect and restore nature comes in the form of nature-based medicines. An estimated 50,000 to 70,000 plant species are harvested for traditional or modern medicine, while around 50% of modern drugs have been developed from natural products that are threatened by biodiversity loss, says Zurich’s Scott.
Beyond deforestation, he points out that climate change is altering the transmission patterns of infectious diseases such as Zika, malaria and dengue fever.
Nepal, typically too cool in climate to be at risk for dengue fever, suffered its first outbreak in 2006 with a handful of cases. Last year, however, more than 9,000 people in Nepal were diagnosed with the disease. Dengue fever, which had caused severe outbreaks in only nine countries before 1970, is now endemic in more than 100 countries, according to the World Health Organization (WHO).
Human migration – typically among the most vulnerable populations – may also lead to an increase in measles, malaria, diarrheal diseases and acute respiratory infections, says Scott.
He says it is the role of financial institutions, indeed insurance companies, to assess how their own portfolios may be contributing to climate change and biodiversity loss. Zurich Insurance Group joined the Net-Zero Asset Owner Alliance last year – a coalition of institutional investors committed to transitioning investment portfolios to net-zero GHG emissions by 2050.
Zurich Insurance Group has adopted investment policies to reduce exposure to fossil fuels, including stopping investments in thermal coal.
“It would not make sense if we were in the business of managing risk and trying to help prevent risk, to also be investing in sectors adding to that risk, so we have divested where we see fit and then are engaging to support the transition to a low-carbon market,” says Scott.
“We have to recognize the interdependence of nature and climate and social risk, such as pandemics, and the stress that puts on our healthcare systems – particularly in low-income countries.”