Humanity is in a perilous position entering the UN-brokered international climate talks in Scotland, known as COP26, later this month. For the last two centuries, we’ve been filling our skies with greenhouse gases (GHGs). The result is that our atmosphere is denser with carbon dioxide than at any point in the last 4 million years.

Carbon dioxide is the primary GHG emitted through industrial production, mobility, housing and other human activities. It traps solar radiation in the atmosphere, like glass collects  heat in a greenhouse, and heats our planet. Temperatures today are around 1.2 degrees higher than before we began burning massive amounts of fossil fuels.

In 2015, in Paris, nearly all countries of the world agreed to hold the global average temperature increase to “well below 2°C” above pre-industrial levels, but ideally no more than 1.5°C. Scientists believe that 2.0°C is the “tipping point” beyond which it will be too late to save the planet. Known as the Paris Agreement, the UN-convened conference marked unprecedented political recognition of the risks of climate change. The gathered nations made an ambitious step by pledging to cut GHG emissions, known as Nationally Determined Contributions (NDCs).

Signatories were to update their NDCs by July this year. As of mid-October, only 70 countries had submitted an update. Worse, none of the world’s major economies – including the entire G20 – have a climate plan that meets their obligations under the Paris Agreement. This is despite scientists’ warning that deep cuts to GHGs are needed now. 

The majority of international climate scientists state that we are heading towards a planetary emergency and that limiting global warming and adapting to more frequent weather extremes are crucial. The insurance sector – and especially global players like Allianz – is exposed to these risks. Climate change is increasingly affecting our business: through insurance policies, for instance, those covering health, property damage and other losses, as well as changes in sectors and business models we underwrite.

Furthermore, as a large-scale institutional investor with significant stakes in economies, companies, infrastructure and real estate, our assets are increasingly affected by climate change and scarce resources. This influences asset values and their ability to generate long-term returns. But it’s not only about a balanced portfolio – as large scale investor we are committed to driving the global transition of a 1.5°C-economy – we want to create change in the real economy. 

Recognizing that climate change will impact our clients and communities in which we operate, Allianz systematically considers sustainability criteria in all insurance and investment business activities. A global challenge can’t be solved alone, and thus we gather in sector-wide networks and work with other insurance companies and international political organisations on establishing sustainability and net-zero standards for the insurance sector.

One of our flagship partnerships is the United Nations-convened Net-Zero Asset Owner Alliance (AOA), of which we are a founding member. This network of committed institutional investors now has 56 members, comprising pension funds and insurance companies representing $9.3 trillion in assets under management. The members commit to transitioning their portfolios to net-zero GHG emissions step by step latest by 2050 and will deliver to the first interim target to reduce their portfolio carbon footprint by 16% - 25% already by 2025. All members plan to regularly report on progress.

Seconding this successful blueprint, Allianz has recently joined the newly established Net-Zero Insurance Alliance and the Net-Zero Asset Manager Alliance.

Allianz helped form the Alliances because we believe capital markets are one of the most critical tools available to fight climate change. Asset owners, asset managers and insurers have a unique power to shift capital flows to speed the transition to clean energy and build the net-zero economy.

Further, we stopped financing coal-based business models already in 2015. Since then, no new investments have been allowed, equity stakes have been divested and fixed income investments made before 2015 are in run-off. Coal-based business models will be phased out in our insurance and propriety investments by 2030 (Asia 2040). In our own house, we plan to source 100% renewable power for our group-wide operations by 2023.

With COP26 around the corner, there is more ambition and commitment to tackle climate change than ever. Allianz believes we must seize this opportunity to inspire real-world action and change.

It will be a poor result from Glasgow if governments merely double down on existing pledges without meaningful action resulting in a fast transition to a low carbon, renewable energy-driven economy. Scientists warn that the world must cut emissions in half this decade before zeroing them out by 2050. Unfortunately, carbon emissions are on track to rise by 16% by 2030 rather than fall.

However, countries representing more than half of the global economy have already gone beyond the goals set in Paris and are bound by comitments to reach net-zero. With the US and other countries preparing net-zero pledges for COP26, more than three-quarters of the world economy could be on track for full decarbonization by mid-century. If such collective action results from Glasgow, it would be a good result and make the Paris Agreement goal of keeping global warming well below 2˚C achievable.

A more ambitious COP26 will be if policymakers raise the bar by ceasing to support fossil fuels with subsidies that distort energy markets. It would also be more positive if they support programs for financial market transparency, in line with the Paris Agreement. And, in addition, encourage countries and regions to use a stringent market-based price of carbon so markets can consider the actual costs of carbon emissions.

Climate change is not a problem that can be put off. It is here, and the impacts are already too costly for people and our planet. Decisive advances must be taken this decade to hit the mid-century target of 1.5°C. Further delays mean dramatically more harm and a vastly more costly bill to make up for the lost time.

As one of the world’s largest insurers and institutional investors, we will do our part. We are willing to face short-term effects on our portfolios to invest long-term and to use our leverage to shape a fair transition to a low-carbon future.