How Climate Change Can Be Countered through Life Insurance Investments

Climate change is a dire reality, with deep impact on several
aspects of life – and, contrary to popular belief, those aspects touch on more
segments of existence than just the ‘environmental’ ones. In other words, not
only is this phenomenon posing a threat to the integrity of our planet, its
flora, fauna, and weather realities, but it also affects the already afflicted
global economy. In the world where climate is changing, it has become a risk for
investors to include companies who disregard global warming on their
portfolios. Many experts, including those at the Climate Policy Initiative, are
choosing to take a different kind of look at this reality and present it as an
opportunity for investors.

Institutional investments from life insurers can help drive clean energy

The claim such advocates of renewable energy are making is
that the world cannot reasonably be expected to transition toward this goal
without substantial investments for the long-term. Governments the world over
are expected to do their share in terms of low-cost investment, yet, at the
same time, many of the world’s economies are still dealing with recovering
financial systems, marred by the effects of the recession. As such, one
potential solution is to turn to institutional investors for input into clean
energy alternatives. That’s actually the topic of a recent report, published in
2013 by the Global Investor Coalition on Climate Change, a global institutional
investment group that handles some $22 trillion in assets and supports the
Climate Policy Initiative.

The report looked at the investment opportunities for pension
funds and life insurance companies into clean energy. They found several
challenges in this respect, most of which had to do with an excess of public
policy barriers, as well as a shortage of attractive investment opportunities.
Attractiveness was judged in terms of risk levels and pricing/returns ratio and
it was established that investing into renewable energies is particularly
suitable for institutions whose risk/return requirements favored long-term approaches,
lower returns and, in turn, lower prices. In looking at potential investment
opportunities, the report identified three distinct channels, which can take
the form of loans or bonds, as well as equity and company shares.

 

• Corporate
  investment. The reports’ authors acknowledged that this channel could
  prove the easiest investment path for institutions. Their conclusion was that
  institutions can provide corporations with the amount of equity and debt they
  would need to fund renewable energy projects for the coming 25 years. However,
  they also explained that corporations tend to articulate their energy policies
  in accordance with their own strategies and goals. There were also relatively
  few companies out there on the market, at the time the report was written,
  which focused strictly on renewable energy. As such, it’s unlikely, the report
  concludes, that institutional investment could do much to change corporate
  attitudes toward funding renewable energy projects and, in turn, lowering the
  price of clean energy. 

• Direct
  investment. For most institutions (or at least most of those that came
  under the scope of the report discussed here) direct investment is a
  complicated option. It requires specialized skills and expertise, and also
  comes across as largely liquid. In other words, institutions would likely
  limit their investment to a handful of major companies and they would have a
  hard time selling off assets at minimal value losses, in times of liquidity
  needs. The institutions in question, as per the report’s authors, could only
  provide about a quarter of the equity investment required to fund such
  renewable energy projects until 2035. However, direct investment does have the
  potential to lower the cost of such projects, as well as to ‘teach’ the
  institutions involved how to make the most of their risk-adjusted returns. 

• Investment
  funds. Pooled investment funds could turn out to be larger and less
  liquidity-constraining than direct investment options. However, just like with
  corporate investment, the link they come with an underlying risk: that of a
  reduced connection between the money invested by life insurers and pension
  funds and hands-on projects for encouraging renewable energy projects. Some
  institutions, the report highlights, have thus far been concerned about the
  uncertainty of cash flows that pooled investment funds offer and would rather
  adopt “buy and hold to maturity” fund designs, which are more predictable in
  terms of cash flow.

Can you, should you invest into renewable energies?

That being said, while institutions have some alternatives at
their disposal, what of personal finance investments? It goes without saying
that permanent life insurance is a useful investment tool – you can find out
more about its cash value right here. It pays to choose your insurer based on
the value of the guaranteed interest rate, while also bearing in mind that
stronger companies will generally start paying dividends into their permanent
policies after a period of two years. And some insurers offer special solutions
geared toward new technology risks, which help promote the development and
propagation of clean energy sources. One of them, for instance, offers special
protection against investment risks in offshore wind technologies, warranties
for solar cells, as well as exploration risk insurance for geothermal energies!