We are thinking too narrowly about solutions

Günther Thallinger: I keep coming back to one question: Can we remain economically competitive without sustainability? Or, more broadly: Can we continue to ensure prosperity without sustainability? Especially from a global perspective, maintaining a minimum level of prosperity, and therefore economic success, must be the goal.

At the same time, we must not exceed ecological limits. Right now, however, we are failing to provide that minimum level of prosperity for many people, and we are exceeding six of the nine planetary boundaries.

Thallinger: As insurers, we must be transparent about where the risks associated with global warming are particularly high. That allows people to protect themselves more effectively. Thanks to improved prevention and firefighting capabilities, many fires can now be contained more quickly. At the same time, current data show that wildfire losses over the past ten years have been significantly higher than during the preceding decade.

Large parts of the world, including Europe, will continue to face substantial wildfire risks. That is why, in addition to focusing on prevention, we must also offer new insurance products and risk management services.

Thallinger: If we adapt to these risks better, insurability can be maintained at appropriate price levels. However, if the overall volume of risk continues to increase, we will eventually reach limits.

Insurability depends on the ability to diversify and balance risks across different protection mechanisms and geographic regions. But if the impacts of climate change increasingly affect more areas of life, more regions, and more industries, that ability erodes. At that point, we face a systemic risk to society, and insurability becomes much more difficult.

Thallinger: No, not the entire economic system, but parts of it certainly are being affected, and at some point, the system as a whole may be challenged. That is exactly what I mean when I talk about the relationship between competitiveness, prosperity, and sustainability.

The Intergovernmental Panel on Climate Change communicates very clearly that climate change is accelerating and that extreme weather events will therefore become more frequent. If we fail to reverse this trend, the challenge will continue to grow and eventually exceed our capacity to manage it.

This makes it even more important that we intensify our efforts to drastically reduce greenhouse gas emissions and adapt to emerging risks.

Thallinger: Secondly, we ignore information and thereby narrow our perspective. In Europe, sustainability reporting has become a public disclosure requirement for many companies, but not all.

In other parts of the world, reporting obligations remain focused solely on financial data. This distortion can lead to underestimating risks to soils or water systems, which are resources that underpin the production processes of many companies.

As a result, important investments may never be made. Third, there is a lack of responsibility. We are dealing with problems that have regional, international, and even global implications. Yet political responsibility rests with municipalities, regions, and nation states, while corporate responsibility remains within individual companies. All of this shows that we need to significantly expand the solution framework across all three dimensions: time, information, and responsibility.

Thallinger: Companies should develop long-term transformation plans, and in politics, long-term visions are essential. What should our energy market look like in 2035? What about transportation? Water infrastructure and water management systems?

These long-term plans allow us to use the full range of available information. For example, only when carbon pricing is fully reflected in capital markets can lending and investment decisions be optimized toward climate-friendly outcomes. That is why it is so important that the European emissions trading system remains ambitious.

Thallinger: We are working very concretely on economic transformation through a variety of platforms. One example is the Net-Zero Asset Owner Alliance, which was convened by the United Nations in 2019. Today, about 85 institutional investors have joined the initiative.

They have set clear climate targets and engage constructively with the companies in which they invest, helping them align with the Paris Agreement goal of reaching net-zero emissions by 2050.

These companies must demonstrate their progress through transformation plans and implementation measures. We, too, have a transformation plan with interim targets through 2030, and we report on it annually. In addition, our sustainability disclosures in the annual report are externally verified at the highest level of certification. Expanding the solution framework in this way ultimately helps build trust.

Anyone can see from the outside: Are they actually doing what they say?

Thallinger: It is not happening everywhere. The political landscape is highly diverse. The United Kingdom and Spain, for example, recently stated jointly that the climate emergency is also a security emergency. China, Texas, and California are making solar energy, wind power, battery storage, and intelligent energy management central pillars of economic development.

India is moving aggressively into renewable infrastructure and may avoid building the fossil-based infrastructure that remains a legacy burden elsewhere. That, in itself, is a unique competitive advantage. Every major economic region is trying to build the infrastructure of the 21st century because that is what defines competitiveness. Climate protection follows from competitiveness.

Europe, and Germany in particular, need to embrace this development much more decisively. But yes, some political actors are still operating within a limited window.

Thallinger: We do not see this as an either-or question. While we are increasingly investing in climate solutions and transformation opportunities, we also support companies on their decarbonization journeys as a long-term investor.

At the same time, one should not expect capital markets to solve major problems that, from their perspective, do not yet exist. Governments must make other risks, just like carbon emissions, visible as market factors if they are to be addressed effectively.

Thallinger: Biodiversity is a major challenge because, unfortunately, it cannot be measured and quantified as easily as greenhouse gas emissions.

Yet that kind of quantification is necessary if it is to influence business decisions. I realize this is not an especially inspiring answer, but that is also why we do not yet have programs comparable to those developed for climate protection.

Thallinger: It is true that many measures can be implemented immediately, and we are active in this area. A forest is less likely to burn when diverse vegetation helps retain moisture and provide cooling.

The same applies to soils and groundwater recharge. Climate policy already addresses some of these issues indirectly. In cooler summers, forests and soils do not dry out as quickly, strengthening their role as natural carbon sinks.

And if we expand the solution framework by recording ecosystem services through something like a natural capital inventory, we can better understand the system-wide relationships, discuss them openly, and begin steering them more effectively.

Thallinger: In major transformation processes, not all stakeholders move at the same pace. But much is moving in the right direction. Financial service providers are now contributing to economic transformation. Sustainability has become integrated into decision-making processes at many companies.

Targets for 2030 have been communicated. Technical capabilities, our understanding of the challenges, and our willingness to act have all increased significantly. That gives me hope.