Our commitment to sustainability and corporate responsibility guides our approach towards climate change.
Climate Change Statement
Climate change contributes to higher temperatures, sea level rise and more extreme weather events including droughts, heavy storms, wildfires, and stronger hurricanes. We do not manufacture products that produce carbon, nor do we otherwise meaningfully impact the environment through our operations. As the owner and operator of a diversified group of businesses in insurance, financial services and related sectors, however, we are exposed to risks that are exacerbated by climate change, in particular in our property and casualty insurance/reinsurance and municipal bond guaranty businesses. Accordingly, in our risk management processes, we consider the potential impact of the effects of climate change.
We also believe that we have an important role to play as a responsible corporate citizen on climate change matters. Our corporate philanthropy reflects our commitment to the environment.
Our operating businesses take account of climate change risk through both rigorous analysis during the underwriting process as well as selected “green” initiatives.
As part of the underwriting process, all of our businesses exposed to the impacts of climate change model expected losses based on the estimated frequency and severity of catastrophic events, then price for those expected losses plus an underwriting profit. In addition, they model capital adequacy and use various techniques to protect our capital position, such as concentration limits, portfolio diversification strategies, outbound reinsurance and safety margins. Our businesses use multiple techniques, metrics and data sources in the modeling process. In doing so, they incorporate current data and science on climate change and frequently customize third party models and tools to enhance the latter's relevance to our businesses. At the same time, they recognize the limitations of these models (so called “model risk”).
Additional measures to address climate change vary across our operating businesses. For example:
Ark. Ark has launched an initiative that targets renewable energy clients including wind farms, solar plants, hydroelectric plants, geothermal plants and wave and tidal projects. In addition, Ark is implementing the 2019 climate risk management guidelines of the UK Prudential Regulation Authority (PRA), which include (i) establishing a climate change working group; (ii) undertaking a detailed climate change risk assessment, (iii) routinely analyzing climate change risk as part of its risk management framework; (iv) engaging with industry peers through the Lloyd’s Climate Change market group; and (v) establishing executive responsibility and quarterly Board reporting for climate change risk.
BAM. BAM incorporates climate change risk in its credit underwriting process by considering both the short-term economic impact from climate change-related severe weather events (including flooding, wildfires, and drought) as well as longer-term impacts on population and property values from rising sea levels and changing temperature patterns. In addition, BAM operates the GreenStar initiative, through which it provides a third-party assessment of the green attributes of municipal bond issues. The program is designed to raise awareness of the benefits of Green Bond issuance among issuers as well broaden investor demand for Green Bonds. Through year-end 2021, BAM has verified 250+ transactions, totaling $3.5+ billion in par and is the most active provider of third-party Green Bond verifications in the U.S. municipal market.