Munich Re's climate ambition: Part 1, 2, & 3

Part 1

Mark Maroon:

Hi, welcome to Climate check. This is Mark Maroon, vice president at American Modern a Munich Re company. And today, I'm joined by Dr. Michael Menhart, global chief economist for the Munich Re (Group), which has made climate commitment central to its corporate strategic plan, dubbed Ambition 2025. Michael, thank you so much for joining me today.

Dr. Michael Menhart:

Great to be here.

Mark Maroon:

Just as a quick introduction, would you mind telling us who you are and what your role is with the group?

Dr. Michael Menhart:

Definitely. My name is Michael Menhart. I am the chief economist of Munich Re (Group). At the same time, I am heading a central division reporting directly to our CEO Joachim Wenning, and the central division is called Economics, Sustainability, and Public Affairs. So, it deals with all economic topics, with cooperate responsibility topics, and with our interaction with political topics and with politicians. And actually, that's not by extent that all those areas are together. I think, and we are convinced, the example of climate change shows that you have to look at it from various dimensions.

Mark Maroon:

Could you tell us why some corporations like Munich Re are taking climate change into account as they set some of their short and long-term strategies for their business activities and investments?

Dr. Michael Menhart:

Well, first of all, sustainability and corporate responsibility is really a core element of the strategy of Munich Re (Group). In our overall Munich Re (Group) ambition, we are talking about scale, shape, and succeed. And part of succeed is also that we have a truly comprehensive climate strategy that is also matching the Paris Agreement. Climate change is one of the most important topics for societies today, and it is also one of the most important strategic topic that all corporations and of course companies like Munich Re (Group) also take into account when they define their strategy. So, it was a quite natural step for us to also define a climate ambition. Also, because Munich Re has been doing research on the topic of climate change since the mid of the 1970s, we have a lot of knowledge and expertise there. And therefore, it was quite natural for us to also define a climate ambition that has something about our own efforts and decarbonization targets.

Mark Maroon:

Wow, I didn't realize that Munich Re had been studying climate change for over 40 years. To follow up on that a little bit, can you perhaps share with us what new initiatives are planned to meet Munich Re's ambitious climate targets as outlined in the 2025 strategy?

Dr. Michael Menhart:

The strategy is quite overarching. It's about climate related disclosures that we make. So, we make transparent where we have an impact on the global climate. But we also think that as Munich Re (Group) we can really bring in all of our strength and our competency to support the transition of the world into a low carbon economy. And in these strengths, they include things like risk transfer solutions, climate risk expertise that we are offering. We are contributing to the transition to a low carbon economy also through our own investments, but we are also committed to ambitious decarbonization targets of our business on the asset side, on the liability side, but also regarding the emissions that come from our own business operations.

Mark Maroon:

So, one of the things that you had brought up a couple of minutes ago that I wanted to circle back on was the involvement with the Paris Climate Agreement. What role does Munich Re play in conferences such as those? And what sort of climate expertise and data are we bringing to the table there?

Dr. Michael Menhart:

Well, first of all, the Paris Climate Agreement is the very core of our climate strategy. The Paris Climate Agreement and defines that we must hold the increase in the global average temperature to well below two degrees above preindustrial levels. And we want to pursue efforts to limit the temperature increase even to 1.5 degrees, always above pre-industrial level. So, this is the very core of our ESG climate ambition. What are we looking at when we talk about decarbonization ambitions? We are looking at our financed emissions. That's the asset side. We are looking at what are emissions that we enable through our investments. We are of course also looking at our so-called insured emissions. That is the liability side. And there we look at what are the CO2 emissions of specific industries and sectors that we provide risk coverage. And the third cornerstone of that climate ambition is to look at our own emissions, the emissions that come from our operational processes.

And for all of those three columns, we have defined very ambitious decarbonization targets. If I just run through them real quick on the asset side, we have committed to total net-zero emissions from the asset side by 2050. We want to be fully out of any thermal coal investments already by 2040. And we have defined ambitious milestones on the way there. The first one being the year 2025. By this year, we want to have reduced our total financed emissions by 25% to 29%, and we want to be even more ambitious on the side of thermal coal with 35% reduction. And actually, for quite some time, we have decided as Munich Re (Group) that we do not want to be invested in companies with revenues of more than 30% coming from thermal coal or more than 10% coming from oil sense. So, these are our ambitious and targets on the asset side.

Mark Maroon:

Thank you, Michael. Let's pause there. I'd like to talk about Munich Re's climate commitments on the liability side of the business in the second part of our conversation. To listen to part two with Dr. Michael Menhart and for more information, go to munichre.com/client.

Part 2: 

Mark Maroon:

Hi everyone. This is Mark Maroon, Vice President at American Modern, a Munich Re company, continuing my interview with Dr. Michael Menhart, Global Chief Economist for the Munich Re Group, addressing the climate commitments from Munich Re Group's Ambition 2025.

Michael, in the first part of our conversation, you detailed the climate commitments Munich Re has made on the asset side of the business. But on the second part of the conversation, we want to move on with the liability side of your commitments and Munich Re's own carbon neutrality.

Michael Menhart:

We have committed to similar targets on the liability side. There, we focus on the coal sector and on the oil and gas sector. Overall, those three sectors are responsible for 75% of the global CO2 emissions. On the coal sector, we will not ensure any new coal mining, any new coal power plants or related infrastructure, and we want to be out of coal insurance by the year 2040, and we want to have reduced our emissions from thermal coal by 35% until the year 2025.

We have also looked into the oil and gas sector. There, we are targeting the exploration and the production of oil and gas. We are convinced that in order for the world to achieve and to reach the Paris climate objectives, the world also needs to get on a pathway out of fossil fuels, and that includes oil and gas. There, we will not ensure new or existing oil science sites or related infrastructure, and we also have committed to come to net-zero emissions from oil and gas exploration or production business by the year 2050.

In the oil and gas area, actually, we as Munich Re Group, we have a true competitive edge because we can use the expertise of HSB Solomon in order to actually measure the CO2 emissions coming from the respective oil sites that we provide insurance coverage for. So we measure real emissions and we have also defined our decarbonization targets according to these measurements and want to have to reduce them by 5% until the year 2025.

And actually, this sort of measurement and these sorts of targets as of today, this is unique in the insurance and reinsurance industry and there we as Munich Re Group, we really benefit from being a global group of experts also in this area, but we are not only looking at what are insured emissions and what are financed emissions. Of course, we also cause emissions ourselves through our operational processes, through traveling, through heating, through our buildings and through all business activities that we undergo.

We also want to reduce our direct impact coming from these own emissions. We have been car neutral regarding our own emissions already since the year 2015. We have already reduced our own CO2 emissions by 44% per employee since the year 2009. And now we have a new target. We want to further reduce the carbon footprint per employee by 12% until the year 2025, and we want to come to net-zero emissions from operational processes by the year 2030. And net-zero emissions from our own emissions does not only mean that we neutralize our emissions by buying certificates that somewhere else in the world are, for example, financing solar panels or things like that.

But it means that by the year 2030, we want to have made sure that all the emissions, because from our own operational processes, all the CO2 is actually removed from the atmosphere, removed from the atmosphere through respective investments, for example, in reforestation or aforestation projects or through respective investments in carbon removal technologies. And that is our overall ambitions that we have. We want to come to net-zero financed emissions to net-zero insured emissions, and we also have the ambition to further reduce and finally get to net-zero on emissions.

Mark Maroon:

That's a fantastic overview. Thank you for reviewing all of that with us. I just had one clarifying question there. You had briefly mentioned the idea around buying certificates. Could you maybe elaborate quickly on what that means and why some companies might do that?

Michael Menhart:

Actually, that's a very, very important instrument in today's climate ambitions and in today's climate strategies. As of today, of course, we emit CO2 into the air through our business operations, through our employees going on business travels, using airplanes, through using air conditioning in the summer and heating our buildings in the wintertime. All these business activities or business related activities lead to CO2 emissions. And what we have done since 2015 is to make sure that we are carbon-neutral. That means that for each ton of CO2 that we emit through our business activities, we have financed somewhere else in the world projects that actually prevent the emission of this one ton of CO2. So for example, we have done this through financing wind farms somewhere else in the world that substitute coal power plants, and thus we have prevented CO2 and preventing CO2. This is done via buying certificates and the proceeds of those certificates, they are then invested into projects.

This has been the past. Now looking into the future, we want to do more than that. We want to make sure that not only if we through our business operations, through our traveling, through our heating, if we emit CO2 that somewhere else in the world, the same amount of CO2 emission is prevented, we now want to make sure that the CO2 we cause is actually removed from the atmosphere. And that is done, for example, via reforestation, where the forests actually remove CO2 from the atmosphere through biological processes. And that is the next step we are doing regarding our own emissions.

Mark Maroon:

Thank you, Michael. I look forward to continuing this conversation and discussing more about how your company is finding climate change. Tune in for part three of our conversation with Dr. Michael Menhart and go to munichre.com/climate for more information on this topic.

Part 3:

Mark Maroon:

Hi everyone, this is Mark Maroon and Vice President at American Modern, a Munich Re company. Continuing my interview with Dr. Michael Menhart, Global Chief Economist for the Munich Re Group, addressing the climate commitments from Munich Re Group's Ambition 2025. So we previously talked a lot around what Munich Re has been planning to do over the next few years in terms of combating climate change. But Michael, I just want to get your opinion on what the broader insurance and reinsurance sector can do to contribute to sustainability and to fight climate change?

Dr. Michael Menhart:

Actually the entire financial sector and of course the insurance sector is in a very good position to make a substantial contribution to reaching the Paris Climate Agreement. And if we take the example of the insurance industry, Munich RE is a member of two very important alliances that have set themselves the target of supporting the Paris Climate Agreement. The first of these alliances is the, so-called Net Zero Asset Owner Alliance, or AOA. It was launched officially in September 2019. And member companies have committed themselves to transition their investment portfolio to net-zero greenhouse gas emissions by 2050, consistent with the Paris Climate Agreement. We have been a member of this alliance since 2020 and we are, of course, very much engaging in the activities of this alliance. Something similar exists now on the liability side. In July 2021, the co-called Net-Zero Insurance Alliance has been officially launched. Net-Zero Insurance Alliance is a group of companies that have committed to transition the emissions from their insurance and reinsurance underwriting portfolios to net-zero by the year 2050. Actually, Munich Re has been a founding member of this Net-Zero Insurance Alliance, next to several others, primary insurers and reinsurers.

So those are two examples of how the insurance industry overall can make an important contribution. But I also want to stress that setting ambitious decarbonization targets is, of course, only one part of what insurers can do and have to do. The Paris Climate objectives will not be reached without technological solutions which help mitigate climate change. And as I've said before, the insurance industry in its role as an investor, but also in its role as somebody who is providing risk coverage, will be a very important driver of this technological progress and technological change. And it'll be desperately needed in order to achieve the Paris Climate Agreement. So on the one hand, we set ourselves ambitious decarbonization targets for our business, but on the other hand, we also want to enable other companies to enable our clients to provide the solutions which are needed in order to keep the world's temperature increase well below two degrees.

Mark Maroon:

It does sound like Munich Re is in a prime leadership position to help the industry get to those metrics. And so maybe one more thing I wanted to ask about before we get you out of here today was the idea of climate justice. That is, underserved populations are disproportionately affected by the impact of climate change. How can insurance factor into that issue?

Dr. Michael Menhart:

Well, indeed, climate change has substantial consequences for all parts of the world population, but some societies will be hit harder than others. And especially vulnerable societies and economies, especially vulnerable societies and economies in regions of the world which are very much exposed to natural catastrophes will suffer. And there the insurance industry overall, but Munich Re Group in particular is in a very good position to help those which are most affected with risk transfer solutions, with very fast and very substantial support in case they suffer from the consequences of climate change. One of which is, of course, the exposure to weather related natural catastrophes. So on top of enabling technological solutions that prevent climate change through our very core business, we as Munich Re are in a very good position to help those which are most affected from the consequences of climate change.

Mark Maroon:

Michael, thank you so much for speaking with us today. If you liked this episode, please subscribe to our podcast. And for more information, go to munichre.com/climate.