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12° Nicosia,
21 May, 2024
 
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The effects of Global warming on banks and insurance companies

The creation of the ‘The Loss and Damage Fund’ is an indirect admission that the goal of containing climate change is not going to be achieved.

Opinion

Opinion

by Pavlos Loizou, CEO, Ask WiRE

One of the last print editions of the Economist had the title ‘Say goodbye to 1.5° C’ which refers to the goal of limiting the increase in the average temperature of the planet to 1.5 degrees Celsius. The article provided an extensive analysis of the reasons why climate change policies have failed. The magazine was released a few days before the United Nations COP27 Climate Change Conference.

It is clear that extreme physical events affect the value of a property. As previously mentioned, if a project is very close to the coast and at sea level today, it may be... floating in a few years!

A few days later, the COP27 decided to create a special fund that will financially support vulnerable countries expected to be hit by weather-related disasters— ‘The Loss and Damage Fund’, as they called it. The creation of the Fund is an indirect admission that the goal of containing climate change is not going to be achieved. In fact, according to research presented during the summit, with the current data, the temperature will increase by at least 2.5 degrees Celsius by the end of the century.

Sea levels in the Mediterranean rose by 7cm between 2000 and 2018, according to the UK's National Oceanographic Centre. As might be expected, in Cyprus many developed areas are at sea level or remarkably close, especially in the eastern part of the island.

Natural phenomena present a significant risk for financial institutions, especially banks that grant long-term loans and insurance companies whose operations are directly linked to losses from various events, e.g. floods, wildfires, etc.

It is clear that extreme physical events affect the value of a property. As previously mentioned, if a project is very close to the coast and at sea level today, it may be... floating in a few years! If a piece of land is in a landslide area or in an area where the ground is subsiding, such as in the ‘Limnes’ (Lakes) area in Pissouri, obviously its value will also be dramatically affected. Any change in the value of a property directly affects the financial organization that has financed its development/purchase or the insurance company that has offered it coverage.

Additionally, in this era where the ESG (Environmental, Social, Governance) criteria form the new reality, the energy efficiency of each property affects its value. If a house or other building does not have a high-energy efficiency score, e.g. thermal insulation, photovoltaics, and so on, its attractiveness and value are reduced. This concerns both properties aimed at retail buyers, as well as institutional investors.

At Ask Wire, we collect data on all phenomena that can affect the value of a property. Whether acute (one-off) risks such as a wildfire or an earthquake, or chronic risks that evolve over time such as the frequency of storms and floods because of climate change. We even collect data about the condition of the ground or the correct inclination that the photovoltaics must have to be more efficient. All this dynamic data is combined with satellite data to create a comprehensive package of information that financial organizations can leverage in a variety of ways, either to adjust their pricing policy and avoid surprises or to create new innovative products that meet the needs of our time, even to meet the ever-increasing supervisory requirements around ESG issues.

Cyprus alone can do little to prevent climate change. The adoption and implementation of solutions that at least predict the consequences and effects of potential acute and climate risks are imperative to facilitate companies and individuals to mitigate them.

TAGS
Cyprus  |  world  |  climate

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