UnNatural Alliances Insurers Bankers Institutional Investors and Environmentalists

Un-Natural Alliances: Insurers, Bankers, Institutional Investors and Environmentalists Should Cooperate to Address the Growing Contagion of Climate Change Multiple Criteria Decision Making 2017 Dr. Blair Feltmate Head Intact Centre on Climate Adaptation bfeltmate@uwaterloo. ca July 10, 2017

AGENDA 2 1. Climate change is real, human-induced and irreversible 2. Climate change is costly (Property & Casualty insurance) 3. Examples of applied Multiple Criteria Decision Making a) Basement Flooding: uninsurable housing (P&C insurance) → mental health impacts (Health insurance) → mortgage arrears (banking/mortgage market) b) Loss of Wetlands: has an impact on urban/rural flood risk, and an impact on biodiversity → both impacts viewed as unrelated 4. Business sector impacts of climate change § Institutional investors § Securities commissions § Credit rating agencies 5. Conclusion § Multiple Criteria Decision Making could be used as a tool to materially reduce Canada’s climate risk profile

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What Science Tells Us About Climate Change 4 It is extremely likely that human influence has been the dominant cause of the observed warming since the mid -20 th century (0. 08 o. C/ decade for past 100 years)

5 World Energy Supply Million Barrels Oil Equiv. /Day build 1, 500 new coal plants now Source: International Energy Agency 1. 3 billion new people

Costs of Extreme Weather: Catastrophic Insurable Losses 6 5, 5 5, 0 4, 5 Uninsurable Housing Market Growing Loss + Loss Adjustment Expenses Fort Mac Fire Alberta and Toronto Floods $ Billion 4, 0 3, 5 3, 0 Eastern Ice Storm 2, 5 2, 0 1, 5 Quebec Floods Ontario Wind and Rain 1, 0 0, 5 0, 0 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Courtesy: Insurance Bureau of Canada (Values in 2015 dollars). Note: Cost to government and homeowners 3 -4 X that of private insurers.

Limited flood coverage will lead to mortgage defaults § § § 60% of Canadians do not have sufficient funds to cover 1 month’s worth of necessary costs 48% of Canadians live pay cheque to pay cheque (Canadian Payroll Association) [Intact Centre working with RBC and Canadian Tire on basement flood protection programs] “Serious flooding has happened more than once on some properties and there are people who can’t get insurance. If we can improve their risk profile maybe they can get insurance. ” 7

Home Flood Protection Program: CSA Standard 8 Purpose - Home Flood Protection Program § Limits potential for basement flooding § Limits potential damage if basement does flood Technical Aspects of Assessment § Assessment time per property = 2 hours § Homeowner required to accompany assessor § Assessment reviews 50 points of reference – for example: • direct water away from foundation • disconnect downspouts • place plastic covers over window wells • Connect battery back-up to sump pump, etc. § “HFPP Lite” – a simplified, electronic version § ROI – $1 yields $7 avoided basement flood losses per 10 years

Flood Resilient New Community Design Program: SCC Standard 9 Purpose – establish best practices for designing new residential communities that are flood-resilient

The Health Stress of Flooding is Pan-Canadian 10

Loss of Wetlands 11 Retaining wetlands helps to lower flood risk § § § Environmentalists Wetlands Biodiversity Ecosystem services Natural capital Deep ecology § § § Capital Markets Business continuity Cash flow Lower insurance Lower cost of capital Fiduciary duty

Hydro Electric Power: California Drought (2011 -2016) 12 § § California in its 5 th year of drought Hydro power generation is impacted Hydro typically constitutes 18% of California’s electricity supply – drought of 2011 -2015 reduced supply to 10% – some hydro dams can become stranded assets Conversely, repeated flooding can create stranded substations

Fire Impact: Ft. Mac Fire Costliest Insurable Natural Disaster in Canadian History 13 § 2, 400 structures destroyed § About $3. 6 billion in insurable losses § Increases in P&C premiums § Oil production from Suncor stopped for 1 month § Fuel shortages across Petro-Canada gas stations in Western Canada § estimated cost > $1 billion in provincial GDP (figures not final) § Fire created a suspended asset in the oil sands sector

Recreation: Ski Resorts in Western Canada 14 Over past 100 years Whistler snowfall has dropped 20% “When it doesn’t snow and it just rains all winter, well then it doesn’t matter what kind of snow -making equipment you Ski resorts can become stranded assets have – it’s over. ”

CAPITAL MARKETS: PAYING ATTENTION TO CLIMATE RISK 15 Canadian Securities Commissions [Administrators 51 -333] Institutional Investors Credit Rating Agencies

CONCLUSION 16 Climate Change and Extreme Weather § Events will get worse (climate change is irreversible) § Every day we don’t adapt is a day we don’t have MCDM Applied to Climate Change – Must Coordinate Across… § Property & Casualty Insurance Requires § Health Insurance Stakeholder § Banking/Mortgage Market Coordination/ § Environmentalist Community Integration to § Securities Commissions Limit Climate § Institutional Investors Change § Credit Rating Agencies § Governments (Federal, Provincial, Municipal) Risk/Impacts