Given that you have been with Allianz for 14 years now, what was the background story of the inception of the Sustainability Board in 2012?
Back then, it became clear that all sustainability dimensions need to be not only observed, but also integrated into our business processes in such a manner so as to become a part of our decision-making ritual. The Board was created to manage and lead this integration across our business. In addition, Allianz was one of the first companies to introduce a Sustainability Committee at the supervisory board level.
A lot happened since then. We now see insurance companies withdrawing from offering services in parts of Texas, California or Arizona, preventing house owners to build on formerly approved spots due to droughts and other climate-related issues that render insurance unaffordable. This clearly illustrates the need for insurers to act on climate change. If climate change or its impact is not limited, people will not be able to buy insurance anymore because the risks will be too high for an insurance policy to remain affordable.
How can Allianz help channel more private finance resources to the benefit of the green economy?
Annually, we need between 2 and 6% of GDP (Gross Domestic Product, value depends on the respective country) for the transformation, mitigation, and adaptation to the green economy. Some of this financing need can be achieved by shifting fossil fuel subsidies to the support of renewable energy.
But the remaining financing volume cannot be supported by public finances alone. For this reason, we have and continue to create risk-tiered blended finance structures whereby public and private financing can work together towards the common goal of sustainable development. In partnership with the European Investment Bank, we have for example structured EMCAF (Emerging Market Climate Action Fund). This is an innovative public-private partnership which finances developers and fund managers that work with local authorities in developing and scaling up investable climate action projects in emerging markets. The goal is to not only exemplify good practices, but to work in the direction of proposing and setting standards and blueprints, such as bankable offtake agreements or concession agreements for running certain infrastructure that can then be replicated. Allianz is fully supporting standardization, as it would dramatically diminish project development time.
What are the main obstacles standing in the way of an improved synchronization between the private and the public sector?
On the investors' side, we need to show that we have expertise to be able to go into project development and engage in advancing investable project pipelines. Currently, the balance between the number of projects and the amount of financing is not yet defined, but, from our point of view, the problem lies in understanding the specific infrastructure of different countries. The capacity of domestic financial institutions also needs to be better developed, since this could make investments more attractive and cost-effective for investors and developers. Besides, scaling supported offerings such as hedging and de-risking mechanisms can enable investors to make local currency investments and to take equity stakes which are vital to support local market development.
What role do you see for green bonds and how do you address the potential for greenwashing?
Compared to the global fixed income market, the green bond segment is still relatively small, but growing. For corporate bonds, especially in Europe, however, green bonds already make up a significant share of the outstanding amount and new issuance.
While this is a relevant market segment for us, it globally requires further forms of development in terms of documentation. We are not of the belief that we should restrict ourselves solely to green bonds, as we want to explore many more opportunities of transition finance. We can tackle various projects that may not meet green bonds requirements with the development of better financial institutions and more caution and prudence from private investors.
Could you tell us more about the UN-convened Net-Zero Asset Owner Alliance and the role Allianz plays therein?
The technical aspects of integrating the climate impact with the financial steering have not been completely elucidated yet, so we need to work on ways to further develop them. Back in 2018, together with CDPQ and UNEPFI, we had the chance to work on an initiative to address the technical aspects of this issue – which in 2019 became the UN-convened Net Zero Asset Owner Alliance. The UN is the only unilateral initiative organization that can orchestrate this kind of transformation. One year after the inauguration, we launched the first Target Setting Protocol to help members to set 2025-intermediate targets for emissions reduction, and, to this day, this remains the only large alliance of companies where members set targets for that year. The Alliance is currently comprised of 86 organizations representing 11 trillion dollars in assets under management, 7 trillion of which are under the target setting framework .
What are your objectives for the next couple of years and how close is Allianz to meeting the 2025 target?
Allianz has set a 25% emission reduction target for selected assets for 2025 and, through reaching out to companies to discuss their transformation plans, we are confident we will be able to meet it in the next one year and a half. By working under the umbrella of an alliance, we can define how we measure emissions, define KPIs, and report progress, thus devising a unified standard and making it easier for other companies to work towards the same goal. In addition, based on this framework, the same companies can increase both trust and financing speed to support the transition. Once we have integrated these sustainability standards, competition in sustainability can truly improve.
