How is China embracing environmental standards?

January 29 2020 by Yvonne Lau

Conversations at this year’s Davos summit hosted by the World Economic Forum were undeniably dominated by issues of global resilience and sustainability.

China’s delegates would have been paying close attention as it is facing significant challenges in the form of natural catastrophe exposures along with man-made pollution and disasters.

“China has been increasingly firm on the implementation of environmental regulations.” Erik Bleekrode, KPMG 

With the government increasingly prioritising tackling environmental risks, the Chinese market is well-placed to undertake green market measures – in the form of new products, services and ESG integration to build environmental resilience.

The concept of green finance is not new to the country. In 2016, China’s Insurance and Regulatory Commission (CIRC), released its ‘Guidelines for Establishing the Green Financial System’ – in which the development of green insurance was listed as a key priority.

A green model
Overall China is heading in the right direction and insurers have the power to ensure other businesses are becoming cleaner.

Erik Bleekrode, head of insurance for KPMG in Asia Pacific, told InsuranceAsia News (IAN): “China has been increasingly firm on the implementation of environmental regulations. A green insurance model will provide insurers with business opportunity and product innovation.”

Bleekrode added: “Known polluters may ultimately need to pay more for coverage or end up having difficulty to get the insurance they need to operate.”

According to the United Nations’ Principles for Sustainable Insurance (PSI), the green insurance system in China has largely revolved around the environmental pollution liability coverage for heavy-polluting industries. While this was first undertaken through years of pilot programmes, by 2018 the Ministry of Ecology and Environment (MEE) finally mandated compulsory coverage of this kind.

High-risk businesses – those involved in chemical production, coal and metal mining, for example, were obligated to have coverage.

Despite the emphasis on environmental pollution liability coverage, gaps and challenges remain, particularly when looking at implementation and accountability. Should a greater green insurance model be developed in China – the scope and coverage must be expanded to other green products and services to address a wholesale look at all of China’s environmental risks and liabilities, says the PSI.

Corporate movements
There have also been greater corporate movements and awareness. Hong Kong-headquartered Peak Re has signed up to the Principles of Sustainable Insurance while the likes of Axa, Munich Re, Scor and Swiss Re which operate in China are also signatories.

“As risk managers, carriers and investors, the insurance industry has a vital interest and plays an important role in fostering sustainable economic and social development.” United Nations’ PSI.

Also joining soon will be Shenzhen-headquartered giant Ping An which told IAN: “Ping An will be a signatory for the PSI (Principles for Sustainable Insurance) in first half of 2020.”

It should help address responsible investments in corporate portfolios – meaning a deeper delve into ESG and sustainable finance. Ping An has also become the first Chinese asset owner signatory to Climate Action 100+, an international investor network tackling corporate emissions.

In addition, Ping An responded to the G20 Financial Stability Board (FSB)’s call and signed up to a pilot scheme for UK-China Climate and Environmental Information Disclosure on Taskforce on Climate-related Financial Disclosures; the company has already issued its first TCFD report.

Long road ahead
Though there has been traction in China’s green insurance and ESG space, there are plenty of risks and challenges ahead alongside opportunities for change. And later this year, the CIRC will also make environmental disclosures mandatory for listed companies.

“As risk managers, carriers and investors, the insurance industry has a vital interest and plays an important role in fostering sustainable economic and social development,” says the United Nations’ PSI.

China’s market will play one of the leading roles.