News March 2003

The following are summaries of news stories that appeared in the March 2003 print edition of Environmental Finance magazine

Swiss Re considers applying SRI research

Swiss Re is analysing whether it could incorporate sustainability considerations into the management of its equity portfolio. At the start of March, analysts at its European investment centre began an analysis of socially responsible investment (SRI) research to see if it could add value to the investment decisions of the world’s second largest reinsurer.

“We’re using information from two [SRI] suppliers related to sustainability issues on a test basis,” says Thomas Strieff, head of group sustainability management at Swiss Re in Zurich. “We’re looking at the business case – it would need to [produce] some outperformance.”

Biodiversity liability proposals worry EU insurers, industry

A proposed European Union directive on environmental liability will be unworkable until a widely accepted definition of biodiversity is agreed, say insurance companies and business leaders.

“As long as this vague notion has not been clarified, biodiversity damage is not measurable and thus cannot be covered by existing insurance solutions,” said the Comité Européen des Assurances (CEA), an organisation representing more than 5,000 European insurance companies, in a February statement.

“Insurers have to be able to estimate the probability and severity of any loss, to quantify the risk economically … to calculate premiums and define adequate conditions,” the CEA added.

ACE hires Nathan to relaunch weather desk

Insurance firm ACE is re-entering the weather market with the hire of market veteran Ravi Nathan, former head of weather at US energy firm Aquila. Nathan’s appointment ends considerable market speculation about his next move since Aquila announced its withdrawal from the weather market last August.

With offices in more than 50 countries, “ACE has a very large distribution platform,” second only to insurance giant AIG, says Nathan. He intends to use this platform to target sectors that are not yet hedging much, or any, of their weather exposure, such as agriculture, municipalities and entertainment.

Canadian exchange plans carbon trading

The Winnipeg Commodity Exchange (WCE) plans to list carbon contracts once the Canadian government reveals how it plans to meet its obligations under the Kyoto Protocol. On 5 February, the WCE launched a subsidiary, the Canadian Climate Exchange, to work on setting up a market for carbon credits.

“We have been working on the climate change issue for three years,” says Steve Teller, an analyst with the Canadian Climate Exchange. “We have a lot of expertise in the area of contract design and we have some ideas on how [a contract] might be constructed and how it might be cleared and traded.”

ERM, WSP expand into environmental risks

Two consultancies have announced new initiatives to help their clients manage environmental risk.WSP Environmental Services, an environmental management and consultancy firm, has unveiled a tie-up with insurance broker Willis, to launch a risk management product that can “permanently eliminate” a company’s environmental liabilities, they say.

Meanwhile, ERM has hired two senior managers – Marcel Steward and Bob Martin – from Marsh, another insurance broker, to head up its newly-formed Financial Solutions subsidiary. “It’s combining consultancy [services] with environmental insurance and alternative risk transfer [ART]” to help companies manage the financial impact of environmental risks, says Steward.

Swedish green certificate market opens for business

Trading has started in the Swedish green certificate market, in anticipation of an April parliamentary vote creating the market.Two brokers have completed transactions, and a small number of ‘direct’ trades between renewable energy generators and electricity consumers have been reported.

On 11 February, Sydkraft Energy Trading announced the sale of an undisclosed number of certificates to Kraft & Kultur, an electric utility.The deal was brokered by GreenStream Network. The counterparties declined to comment on price.

On the same day, GT Energy brokered a 5GWh green certificate transaction, at a price of Skr155 ($18.28)/MWh. It declined to comment on the counterparties. Garth Edward, environmental products trading manager at Shell Trading in London, says his firm has also participated in the market.

‘Largely positive’ verdict on UK ETS

Greenhouse gas emissions trading has largely been a success in helping UK firms meet their targets under climate change levy agreements (CCLAs), according to market participants. While use of trading was patchy in the run-up to the 17 February deadline for compliance with the first CCLA target, the scheme has proved its worth in helping to educate companies about emissions trading, they say.

Hundreds of the 6,000-plus UK companies with CCLAs – which took on energy efficiency targets in exchange for an 80% discount on a tax on the business use of energy – are believed to have missed their targets, which ran from 2001 to 2002. Many of these then used emissions trading to bring themselves into compliance, with brokers estimating that more than 500 trades took place.

But consultants also believe that hundreds of companies – particularly in the farming sector – missed their targets and failed to buy allowances.

Governments turn to GHG projects

The Finnish government has issued a tender to buy ‘carbon credits’ from projects in developing world countries that reduce greenhouse gases (GHGs). Austria, Denmark, Sweden and the Netherlands are also considering, or have recently completed, similar carbon purchase tenders.

Under the terms of the Kyoto Protocol on climate change, industrialised countries can earn credits for GHG reductions by investing in Joint Implementation projects in other industrialised countries, and in Clean Development Mechanism (CDM) projects in the developing world.

The Finnish government issued a tender at the end of January to buy credits from CDM projects. It will use the credits to help it meet its Kyoto Protocol obligation to reduce its emissions to 8% below 1990 levels by 2012. The government has opted to invest in ‘small-scale’ CDM projects – defined as renewable energy projects with an output capacity of no more than 15MW, or energy efficiency projects which reduce energy consumption by no more than 15GWh a year.

Rabo India launches carbon business

Rabobank’s Indian subsidiary has launched a carbon advisory service to help project developers generate and sell greenhouse gas emissions reductions. The Dutch bank also plans to launch a similar advisory business in Brazil, says Daniël Dijk, Utrecht-based head of the bank’s sustainable energy and environmental markets department.

The Indian advisory service was launched in late February in conjunction with Winrock International, a US non-governmental organisation. It has won its first mandate, from GI Power, to help the Indian wind power operator generate and sell reductions equivalent to 350,000–400,000 tonnes of carbon dioxide.

Indian projects to auction carbon

Seventeen Indian energy projects are coming together to launch a novel auction of greenhouse gas (GHG) reduction credits.The auction, organised by two consultancies, is intended to increase the transparency of the carbon market, and place more control in the hands of reduction sellers.

“Before, [sales of GHG reductions] have tended to be dominated by buyers” who can set their own terms, says Christoph Sutter, project manager with Swiss-based carbon consultancy Factor Consulting + Management. “This auction will put the focus more on the project developers.”

Japanese insurers unveil new weather hedges

Japanese insurers have added new products to their weather risk offerings for the upcoming spring season, as interest from end-users in hedging their weather exposures continues to increase.

Sompo Japan Insurance launched a weather contract in mid-February to offer protection against the effects of rainy weekends. The product is aimed at restaurants, amusement parks and car washes that see increased business after the winter season, says Masato Fujikura, manager of alternative solutions at Sompo.

Meanwhile, Tokio Marine and Fire Insurance has expanded its coverage for Japan’s cherry blossom viewing season. It has added an “early flowering” contract to its suite of “late flowering” and precipitation risk coverage for the season.

And Mitsui Sumitomo Insurance has started selling spring rain-linked derivatives to leisure industries and retail stores, to add to its host of other weather contracts, ranging from hedges against the delayed appearance of ice floes to excess humidity.

Bush sets out voluntary GHG targets

President George Bush revealed a raft of voluntary industry commitments to reduce America’s greenhouse gas intensity – the measure of emissions per unit of economic output – on 12 February and immediately faced criticism from environmentalists.

“A year ago, I challenged American businesses to develop new, voluntary initiatives to reduce greenhouse gas emissions,” Bush said. “I am pleased to announce today that 12 major industrial sectors, and the membership of the Business Roundtable, have responded with ambitious commitments.”

go to Features March 2003