Written by InsuranceERM
Nick Jessop, senior director at Moody's Analytics, is a scenario modelling expert, risk management specialist and quantitative financial modeller. He leads a team of quantitative analysts, economists and financial engineers focused on researching climate risk management solutions.
The tools he has developed help firms understand the potential risks and uncertainties associated with climate risk. He has also supported insurers' efforts to integrate climate risk into their own risk and solvency assessments, and developed climate-aware strategic asset allocation strategies. As well as helping insurers, Nick has provided feedback to a number of supervisors as they develop climate stress tests and risk assessment guidance.
What inspired you to work on climate change issues?
During a work trip a few years ago, I listened to a presentation by Steffanie Pfeiffer of the IIGCC on finance and climate change to the Moody's London office. I also attended an actuarial meeting at Staple Inn focusing on the implications of climate change on long-term financial assumptions. I became acutely aware from then that climate change was going to become a significant focus for long-term investors.
What are your work priorities right now?
I am spending a lot of time talking to our customers and the insurance sector about climate scenarios and how they can be incorporated into their disclosures and risk assessments. We are getting clear feedback that while organisations develop these capabilities, they want to go beyond reporting. They are thinking about their asset allocations, whether it's sector exposures or interest in sustainable and climate aware mandates and solutions.
Tell me one step the insurance industry needs to take, to improve its response to climate change?
I think the investment industry needs to start measuring ex-post performance in terms which go beyond risk-adjusted returns. If the rate of decarbonisation of portfolios was measured and combined with a ratcheting portfolio cost of carbon, this would help position investors for transition. Importantly, the rate of decarbonisation needs to be measured before rebalancing - if not all you do is reward disinvestment from industries that need to transform and create a loophole which guarantees the target can be hit.
Are you optimistic or pessimistic we can avoid the worst effects of climate change?
Following on from the previous point, I will remain pessimistic up until the point where we start to see absolute decoupling of greenhouse gas emissions and economic growth at the global level. Until then, I don't think we've really started to deal with the issue.
What are you doing personally to reduce your climate impact?
Not enough! I have significantly reduced my travel over the past couple of years, but a lot of that is due to Covid. I will be pushing back on international work travel going forward. When I travel to London, I take a train. I have an old home which is challenging to insulate and heat – I am struggling to work out how to best deal with that. I've travelled to work by bike for more than 30 years but working from home has interrupted that. I am one of a minority of people that would welcome a resumption of the daily commute.
"The investment industry needs to start measuring ex-post performance in terms which go beyond risk-adjusted returns"
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