Latest news with #Thallinger
CNBC
2 days ago
- Business
- CNBC
Why a landmark ruling from the world's top court puts financial markets on notice
Gripped by corporate earnings season and U.S. President Donald Trump's back-and-forth tariff policy, investors largely shrugged off a historic climate ruling from the world's top court. But for some, the International Court of Justice's (ICJ) recent advisory opinion on state's legal obligations in the face of climate change could emerge as a watershed moment for financial markets. Günther Thallinger, a board member at Allianz, one of the world's biggest insurers, said that close watchers of the ICJ's July 23 ruling described it as perhaps the most significant climate development since the 2015 Paris Agreement. At the time, the pronouncement marked the ICJ's first-ever opinion on climate change and laid out that climate action is not optional. The court said in a unanimous ruling that governments and countries have a legal obligation to protect the environment from greenhouse gas emissions, protect present and future generations from the climate crisis and to cooperate internationally. Notably, the ICJ also found that fossil fuel production, including licensing and subsidies, "may constitute an internationally wrongful act which is attributable to that State." The ruling, which was the brainchild of young law students in low-lying Pacific island states and championed by the government of Vanuatu, is widely expected to have far-reaching legal and political consequences. Speaking in a personal capacity, Thallinger said that while the ICJ's opinion is based on existing law and conventions, the ruling could yet have meaningful ramifications for a vast range of assets — whether one cares about climate change or not. "If one takes as an investor what the International Court of Justice just said, then a revaluation of these assets needs to happen. Every prudent investor must do this now," Thallinger told CNBC by video call. "Even if they don't like the discussion around climate change, even if they would say they denigrate the Court of Justice completely, they must expect that, in some countries, some governments, some courts are going to follow this opinion," Thallinger said. "If they follow this opinion, it has asset valuation implications, quite clearly. So, this opinion for investors, for capital market participants, really means something." On the issue of licensing and subsidies, Thallinger said the ICJ's ruling could prove to be a significant development. That's because licensing and permitting for the mining sector, for example, and government subsidies for fossil fuels could be at risk following the court opinion. The burning of fossil fuels such as coal, oil and gas is the chief driver of the climate crisis. "If subsides are unlawful, then one should expect that subsidies are somehow stopped at a certain point in time," Thallinger said. "Now, certain business processes live on these subsidies or at least benefit to a certain degree on these subsidies. And, as always for an investor, usually you look simply at the cashflow, and if the cashflow part is missing or all of a sudden becomes much smaller then that means another valuation," he added. The U.S. and China, the world's two biggest carbon emitters, provided a mixed response to the ICJ's ruling. "As always, President Trump and the entire administration is committed to putting America first and prioritizing the interests of everyday Americans," White House spokeswoman Taylor Rogers said in response to the court opinion, Reuters reported. A spokesperson for China's Foreign Ministry, meanwhile, said the ruling has a "positive significance" for advancing international climate cooperation and sought to reaffirm the Asian country's status as a developing country. Not everyone is as concerned about the ICJ's ruling from an investor standpoint. "I feel like the wide spectrum of views that exist in the investor community on climate change, and the action that investors are supposed to take, will probably mean that the decision is a bit of a Rorschach test," Lindsey Stewart, director of institutional insights for Morningstar, told CNBC by video call. "People are just going to see things that kind of confirm their existing view," he added. A Rorschach test refers to a psychological assessment during which a person is asked to describe what they see in a series of inkblots. Ida Kassa Johannesen, head of commercial ESG at Saxo Bank, said the ICJ's intervention is a non-binding advisory opinion, rather than a ruling, "and this distinction is crucial." Companies with significant environmental footprints, such as those in the oil and gas, mining and heavy industry sectors, are likely to face increased litigation risk, which could affect their costs, valuation and reputation, Johannesen told CNBC by email. "As a result, investors and particular large institutional investors may begin to reallocate capital away from high-risk sectors to manage exposure to climate-related legal and reputational risks," she added. Saxo Bank's Johannesen pointed out that the U.S. and China both expressed reservations about the ICJ's opinion, emphasizing its non-binding nature and calling for flexibility in climate action. The Trump administration also recently signed into law the U.S. president's One Big Beautiful Bill Act, a package that is favorable to mining and oil and gas companies. "All this sends mixed signals which would probably lead to fragmented market responses between the world's 2 largest economies and the [rest of the world], slow down global regulatory convergence and ultimately limit the (short-term) impact on markets and investor behavior," Johannesen said. A spokesperson at ABP, one of Europe's largest pension funds, welcomed what they billed as "the spirit" of the court's opinion, but said they do not anticipate any short-term ramifications for financial markets. "The ICJ's advisory opinion sends a signal that climate inaction may constitute a breach of international law. However, given its non-binding nature, we don't expect immediate changes in national policies or financial markets," an ABP spokesperson told CNBC by email. The Dutch pension fund, which doesn't invest in fossil fuels and says it actively supports climate solutions, highlighted that Europe, for example, already has a lot of climate legislation in place.
CNBC
08-08-2025
- Business
- CNBC
Why insurers worry the world could soon become uninsurable
Top insurers fear the climate crisis could soon outpace industry solutions, effectively threatening to make entire regions around the world uninsurable. Günther Thallinger, a board member at Allianz, one of the world's biggest insurers, recently outlined how the world is fast approaching temperature levels where insurers will no longer be able to offer cover for financial services, such as mortgages and investments. In a LinkedIn post published in late March, Thallinger made the case for rapid decarbonization, pointing out that entire asset classes were "degrading in real time" as extreme weather events take their toll. Perhaps most strikingly of all, he warned the worsening climate crisis appears to be on track to destroy capitalism. Insurance, which is regarded as the invisible lubricant of the global economy, has a unique role to play in addressing climate-related risks. As professional risk managers, insurers routinely allow investors to take on calculated risks, protecting individuals and businesses against financial losses. Thallinger, who is responsible for investment management and sustainability at Allianz, told CNBC that approximately two-thirds of economic losses from natural catastrophes are currently uninsured, indicating a "major societal problem." The so-called protection gap means that the financial burden of these disasters often falls on individuals, businesses and governments, rather than insurance firms. "If this volume just grows even more, we simply have a societal situation that is not bearable anymore because it is just too much risk that is no longer covered," Thallinger told CNBC by video call. "The logic is not ours or mine. No, absolutely not. There are many people who are actually talking about how you cannot insure certain assets. It's very, very difficult to deal with these assets as an investor." The warning comes at a time when the world is on course for a temperature increase of as much as 2.6-3.1 degrees Celsius this century, according to the United Nations, a level that would trigger "catastrophic" consequences for the planet. Scientists have repeatedly warned that global average temperatures must be kept below 1.5 degrees Celsius to avoid the worst of what the climate crisis has in store. This threshold is recognized as a crucial long-term target because so-called tipping points become more likely beyond this level. Tipping points can lead to dramatic shifts or potentially irreversible changes to some of Earth's largest systems. "We can really talk about adaptation. How to build our infrastructure, our houses, our streets, our pipelines, our grids in such a way that they can withstand certain forms of weather phenomena. This is something that we can do with a very, very easy economic case behind it," Thallinger said. Allianz estimates that the cost of economic losses from natural catastrophes is typically around 10 times higher than the cost of adaptation, noting that this provides a clear economic incentive for policymakers to invest in preventative measures. "If we continue, however, with the policies that we have out there, we are clearly on a pathway now of 2.7 degrees or 3 degrees where adaptation is simply not doable anymore. This is just what it is. We cannot protect Amsterdam from sea level rise of three meters. This is just not doable," Thallinger said. It's not just Allianz's Thallinger fearing the worst. Zurich Insurance Group, Europe's fifth-largest insurer, said in April alongside a research paper assessing climate resilience that the outlook looks "alarmingly bleak." The Swiss insurer cited the Los Angeles wildfires at the start of the year as a stark reminder that even the world's wealthiest economies are unprepared for the impact of increasing climate risks. Zurich also found that global insured losses have grown at a much faster rate than the global economy over the past three decades. On an inflation-adjusted basis, Zurich said that average insured losses rose by 5.9% per year between 1994 and 2023, while global gross domestic product (GDP) increased by 2.7% annually over the same period. The findings suggest that insured losses have more than doubled relative to global growth over the past 30 years. "If insured losses continue to grow at this rate, premiums for climate risk coverage will need to increase to reflect the additional risk," Zurich Insurance Group said in the paper. "This in turn, will affect the level of protection that individuals and businesses are willing and able to purchase, with potential consequences for the overall functioning of the market." For insurers and reinsurers, the increase in severity and frequency of extreme weather events has coincided with astronomical growth in the catastrophe bond market. First created in the 1990s, so-called CAT bonds refer to a type of financial instrument designed to raise money for insurers in the event of a natural disaster, such as a hurricane or earthquake. Swiss Re, a leading global reinsurer, said in a recent report that the CAT bond market has expanded by a whopping 75% since the end of 2020, noting that the trend that shows little sign of slowing down. For Allianz's Thallinger, however, the climate crisis threatens to push a long-standing relationship between more risk and more business for insurers to breaking point. At some stage, this could have implications for financial markets, he said. Steve Evans, owner and editor-in-chief at specialist data provider warned the insurance industry won't just keep bearing the brunt of economic losses from natural disasters. "Unless resilience is increased and protection is put in place, then the more disasters impact regions and the more expensive their insurance is going to get. And that could be a terrible spiral to be honest with you," Evans told CNBC by video call. "If the losses keep escalating, it just becomes uneconomic for insurers and reinsurers and even the capital markets. So, something has to be done to really bring together both resilience and protection." Not everyone is convinced the insurance industry will struggle to function amid rising global average temperatures. "Will the world become uninsurable? Well, I'm a bit hesitant on that," said Tobias Grimm, chief climate scientist at German reinsurance giant Munich Re. "It's all about the question of price. We have appetite still to offer — not cut — insurance given that there are healthy market conditions, and we get risk adequate premium on that." Grimm told CNBC that since Munich Re's business offers reinsurance on a one-year basis, rather than a multi-year basis, the question of insurability is not typically something that comes up. "The underlying problem is that we still develop properties in high-risk areas, and we have seen with the example of Californian wildfires where many of these rich villas in the outskirts of the Los Angeles suburbs were hit first," Grimm said. "So, that's the issue. We can counter them by encouraging loss prevention and thinking about land use management schemes, these kinds of things," he added.
The Guardian
03-04-2025
- Business
- The Guardian
Climate crisis on track to destroy capitalism, warns top insurer
The climate crisis is on track to destroy capitalism, a top insurer has warned, with the vast cost of extreme weather impacts leaving the financial sector unable to operate. The world is fast approaching temperature levels where insurers will no longer be able to offer cover for many climate risks, said Günther Thallinger, on the board of Allianz SE, one of the world's biggest insurance companies. He said that without insurance, which is already being pulled in some places, many other financial services become unviable, from mortgages to investments. Global carbon emissions are still rising and current policies will result in a rise in global temperature between 2.2C and 3.4C above preindustrial levels. The damage at 3C will be so great that governments will be unable to provide financial bailouts and it will be impossible to adapt to many climate impacts, said Thallinger, who is also the chair of the German company's investment board and was previously CEO of Allianz Investment Management. The core business of the insurance industry is risk management and it has long taken the dangers of global heating very seriously. In recent reports, Aviva said extreme weather damages for the decade to 2023 hit $2tn, while GallagherRE said the figure was $400bn in 2024. Zurich said it is 'essential' to hit net zero by 2050. Thallinger said: 'The good news is we already have the technologies to switch from fossil combustion to zero-emission energy. The only thing missing is speed and scale. This is about saving the conditions under which markets, finance, and civilisation itself can continue to operate.' Nick Robins, the chair of the Just Transition Finance Lab at the London School of Economics, said: 'This devastating analysis from a global insurance leader sets out not just the financial but also the civilisational threat posed by climate change. It needs to be the basis for renewed action, particularly in the countries of the global south.' 'The insurance sector is a canary in the coal mine when it comes to climate impacts,' said Janos Pasztor, former UN assistant secretary-general for climate change. The argument set out by Thallinger in a LinkedIn post begins with the increasingly severe damage being caused by the climate crisis: 'Heat and water destroy capital. Flooded homes lose value. Overheated cities become uninhabitable. Entire asset classes are degrading in real time.' 'We are fast approaching temperature levels – 1.5C, 2C, 3C – where insurers will no longer be able to offer coverage for many of these risks,' he said. 'The math breaks down: the premiums required exceed what people or companies can pay. This is already happening. Entire regions are becoming uninsurable.' He cited companies ending home insurance in California due to wildfires. Thallinger said it was a systemic risk 'threatening the very foundation of the financial sector', because a lack of insurance means other financial services become unavailable: 'This is a climate-induced credit crunch.' 'This applies not only to housing, but to infrastructure, transportation, agriculture, and industry,' he said. 'The economic value of entire regions – coastal, arid, wildfire-prone – will begin to vanish from financial ledgers. Markets will reprice, rapidly and brutally. This is what a climate-driven market failure looks like.' Sign up to Down to Earth The planet's most important stories. Get all the week's environment news - the good, the bad and the essential after newsletter promotion No governments will realistically be able to cover the damage when multiple high-cost events happen in rapid succession, as climate models predict, Thallinger said. Australia's disaster recovery spending has already increased sevenfold between 2017 and 2023, he noted. The idea that billions of people can just adapt to worsening climate impacts is a 'false comfort', he said: 'There is no way to 'adapt' to temperatures beyond human tolerance … Whole cities built on flood plains cannot simply pick up and move uphill.' At 3C of global heating, climate damage cannot be insured against, covered by governments, or adapted to, Thallinger said: 'That means no more mortgages, no new real estate development, no long-term investment, no financial stability. The financial sector as we know it ceases to function. And with it, capitalism as we know it ceases to be viable.' The only solution was to cut fossil fuel burning, or capture the emissions, he said, with everything else being a delay or distraction. He said capitalism must solve the crisis, starting with putting its sustainability goals on the same level as financial goals. Many financial institutions have moved away from climate action after the election of the US president, Donald Trump, who has called such action a 'green scam'. Thallinger said in February: 'The cost of inaction is higher than the cost of transformation and adaptation. If we succeed in our transition, we will enjoy a more efficient, competitive economy [and] a higher quality of life.'
