It would have been a great end to 2022 if the 27th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP27) in Sharm el-Sheikh had ended with something other than bitter disappointment.
Many looked to COP27 for pointers on how we were going to hold global warming steady before starting to see it reduce. But the final agreement reached by representatives of the nearly 200 nations in attendance went no further than pledging to phase down polluting coal power and phase out inefficient fossil fuel subsidies.
UN secretary-general António Guterres said that more needs to be done to reduce emissions drastically. “The world still needs a giant leap on climate ambition,” he said.
Fingers were pointed at oil- and gas-producing countries as being responsible for the weak outcomes of COP27. It is suggested that these nations felt they were in a strong position to push back against a stronger resolution because their outputs are in such high demand as a result of the energy crisis.
The World Energy Outlook 2022 published in October by the International Energy Agency said that Russia president Vladimir Putin’s invasion of Ukraine has accelerated the world’s transition to cleaner energy sources.
The report said the demand for fossil fuels is expected to peak within 15 years and that even if efforts to phase out fossil fuels are not stepped up, demand for coal will start declining within a few years and oil demand will level off by 2035. The outlook said the demand for gas is forecast to plateau from the end of this decade.
Anyone who watched the final episode of David Attenborough’s Frozen Planet II would have seen a procession of the world’s top scientists begging the world to wake up to the fragility of our world.
So where does this leave energy businesses in MENA and the (re)insurers that underwrite their projects?
The Middle East’s governments already know that they need to diversify away from carbon-based energy. Most have development plans in place that emphasise such diversification goals.
The problem is that they have not yet arrived at the point where they can simply turn their backs on oil and gas revenues. Their books would not balance without them.
As the region moves away from dependence on oil and gas, so must the underwriting community that services the MENA region move into more ESG-friendly areas of risk.
Already some of the big global insurers and reinsurers have figured out that they can no longer offer cover for polluting industries when these same sectors are responsible for exacerbating the costly Nat CAT events that tip reinsurers into loss with increasing frequency.
The only thing we can be sure of is that the move away from coal, oil and gas will continue to accelerate from here on – and underwriters had better be ahead of the curve or suffer the consequences.
Paul McNamara
Editorial director
Middle East Insurance Review