Joachim Faber, member of the administrative board of Allianz Investment Management (AIM), discusses the impact of climate change, the limits of insurability and the opportunities presented by pension funds
Published in Frankfurter Rundschau on December 23, 2011
At the recent environmental conference in Durban, an agreement was reached to establish a new world climate treaty by 2020. Critics think this fight against climate change is taking much too long. The Allianz Group sees an opportunity to use private funds to create more investments in environmental protection. The condition: They must be insured.
Mr. Faber, we want to talk about the global climate. Just what makes this issue so interesting to an insurance company?
Joachim Faber: We have already begun to really feel the impact of climate change in our insurance business. The year of 2011 was another wake-up call for those people who have just not gotten it yet. Sure, we did not experience a mega-disaster that really opened our eyes, something along the lines of a Hurricane Katrina or a forest-fire disaster in Russia.
Nonetheless, insurance companies have never before paid out so much money to cover disaster-related damage caused by so many events, ranging from flooding in Australia in the spring to flooding in Thailand in the fall. The risks and sums are mounting.
Does this pose a threat to your business?
Faber: Not over the short term. But if climate change is not slowed, this could happen. If 100-year storms occur in 10-year cycles, if sea levels rise by more than one-half meter by 2050, if 70 percent of Indians lose their livelihoods because the summer monsoons are delayed, then the limits of insurability will be exceeded.
It is the responsibility of political leaders to quickly address this problem. The recent environmental conference in Durban decided to perhaps get serious about the issue beginning in 2020.
Faber: This would be far too late. I view this very critically. To ensure that the global economy can function in an environmentally conscious way, a ton of CO2 must have a price that flows into the business calculation, and a global emission-trading system for it must be in place by 2020 at the latest.
If we lose a decade before climate protection is addressed on a global level, the introduction of such a market-based system will also be delayed. With each year that we let slip by, the costs of efforts to limit the rise of global warming to 2 degrees Celsius will climb. Every true entrepreneur would act quickly in such a situation.
If political leaders are out of the picture, what can help?
Faber: They are not completely out of the picture. There are some pacesetters, including Germany and the EU. China is also doing a lot. For instance, Beijing is developing a CO2 trading program for several provinces. The biggest barrier is the United States, which refuses to go along and thus provides developing countries with an argument for not agreeing to any internationally required CO2 goals for the moment. I am very pessimistic and do not think this will change soon.
No rescue plan then?
Faber: It does no good to give up hope. One strategy is: The pacesetters must remain active. Europe should decide to cut greenhouse-gas emissions by 30 percent, and not by 20 percent as planned, by 2020 compared with the base year of 1990. This will benefit not just climate protection.
Combined with the right conditions, this would be a powerful and focused economic stimulus program for the entire continent. Such an avowal would be an act of liberation. Investors would then know who is calling the shots and where they could profitably invest their money in new sectors.
But German industry, of all groups, is expressing doubts about the 30 percent goal.
Faber: I am really puzzled about why German businesses and their trade associations do not focus more on the opportunities offered by this approach. Thanks to its pioneering role in renewable energies, Germany is a world leader. There are few sectors about which you can say that. In terms of green energies, the Chinese are hard on our heels, and we will have to really pick up the pace if we do not want to fall behind.
In 2010, investments made in renewable energies around the world hit a new record at 211 billion US dollars. Still, this is not nearly enough to finance the transition to a sustainable energy system and the adaption to climate change. Where could the required huge sums come from?
Faber: The money is there. It just has to be mobilized. Around the world, about 55,000 billion US dollars is currently invested in life insurance and pension funds. If just 1 percent could be activated each year for climate-protection projects, that would be 550 billion US dollars, or five times more than the Green Climate Fund approved by the Durban climate conference is to invest every year in developing countries beginning in 2020.
Many developing countries are demanding that rich countries increase their government development aid in order to fill the climate fund.
Faber: This is not a realistic request – particularly because of the budget squeeze facing many highly indebted industrial countries. This would not bring the necessary money together. The private sector can fill the gap, particularly because the pending projects – wind farms, expansion of the public power grid, storage technologies, energy efficiency – are long range and, as a result, ideally fit into the profile of life insurers and pension funds. For their customers, they need long-term investment options that will produce secure, stable returns.
Nonetheless, only a minute amount of the funds has flowed into climate protection thus far. What must change?
Faber: The key factor is: The investments must be safe. The main job of life insurers is not to save the world. It is to profitably and safely invest the money of their customers so that they can finance their retirement. But it is possible to do both.
Faber: Governments or international development banks, including the World Bank, the Asian Development Bank or the African Development Bank, should issue long-term guarantees for these investments – particularly in developing countries where the willingness to invest has been restricted by rapid changes of government, proclivity to corruption or high inflation. Countries could tax the interest generated by such “climate bonds” at lower rates than that of other investments.
Another key requirement is a purchase guarantee for renewable energies like the one contained in Germany’s Renewable Energies Act. This would mobilize private capital for energy change – and would be much cheaper for a government than if it had to make the necessary investments itself.
What impact are the new “Solvency 2” capital requirements for the financial industry being debated by the EU having on climate investments?
Faber: This is a controversial issue. If the plans currently being discussed are approved, they would strangle investments in climate bonds. The risk capital requirements must be lowered. Otherwise, insurers would be completely eliminated as investors.
With Solvency 2, unrealistic assumptions are being made at times. Under current drafts, for instance, sovereign bonds of an EU member would not have to be covered by any risk capital in the standard model – even though the euro crisis has shown all too clearly that the default risk can be very high. A 30-year infrastructure bond, on the other hand, would have to be backed by 49 percent risk capital. I forecast one thing: The push needed to bring about global energy change will not occur in this way.
The interview was conducted by Joachim Wille.
About Joachim Faber
Until the end of 2011, Joachim Faber was a member of the Board of Management of Allianz SE and Board Chairman of Allianz Global Investors AG. Since 2012, he has been a member of the administrative board of Allianz Investment Management (AIM). AIM handles the investments of Allianz insurance companies worldwide. The lawyer worked at Citicorp in Frankfurt and London before joining Allianz in 1997. Faber has been an active proponent of climate protection and sustainable investments for years. He is a member of the Council of Sustainable Development that advises the German government.
As with all content published on this site, these statements are subject to our Forward Looking Statement disclaimer, provided on the right.
The statements contained herein may include statements of future expectations and other forward-looking statements that are based on management’s current views and assumptions and involve known and unknown risks and uncertain-ties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements.
Actual results, performance or events may differ materially from those in such statements due to, without limitation, (i) general economic conditions, including in particular economic conditions in the Allianz Groups core business and core markets, (ii) performance of financial markets, including emerging markets, and including market volatility, liquidity and credit events (iii) the frequency and severity of insured loss events, including from natural catastrophes and including the development of loss expenses, (iv) mortality and morbidity levels and trends, (v) persistency levels, (vi) the extent of credit defaults, (vii) interest rate levels, (viii) currency exchange rates including the Euro/U.S. Dollar exchange rate, (ix) changing levels of competition, (x) changes in laws and regulations, including monetary convergence and the European Monetary Union, (xi) changes in the policies of central banks and/or foreign governments, (xii) the impact of acquisitions, including related integration issues, (xiii) reorganization measures, and (xiv) general competitive factors, in each case on a local, regional, national and/or global basis. Many of these factors may be more likely to occur, or more pronounced, as a result of terrorist activities and their consequences. The company assumes no obligation to update any forward-looking statement.
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The company assumes no obligation to update any information contained herein.
Q&A with Clare George-Hilley, co-founder, Centropy PR
Clare George-Hilley is the co-founder of Centropy PR
Global Banking and Finance Magazine recently caught up with Clare George-Hilley, co-founder of fintech and financial services specialist PR agency Centropy, as the company toasts to three years of trading. We asked Clare about what life is like running an agency in the city, the trends she is seeing in the financial services space and what the future holds following the Covid-19 outbreak.
Why did you decide to set up Centropy PR?
I was looking for an opportunity to launch my own agency, both my husband and I had been in the public affairs and public relations industry for over a decade and we thought the time was right to go out on our own.
We could see that the financial services industry was surging, with challenger brands and new technology transforming traditional banks and setting new standards of customer service. There was a huge market opportunity to create and launch a PR agency that could provider first class comms support, alongside a deep understanding of complex regulations such as AML, KYC, and the GDPR. Likewise, many traditional technology firms are diversifying their offerings, to tap into the growing market opportunity posed by the fintech boom.
So, we worked on a business plan, designed a strategy for winning clients and officially launched in September 2017. Within a few months we had a growing portfolio of clients and a thriving business, since that point, we have never looked back!
How is Centropy doing now and what are you plans for growth?
The last three years have flown by and our client portfolio has grown and diversified quickly. We now manage PR campaigns for clients on everything from cryptocurrency, wealth management to payments and trading software.
We’ve also hosted parliamentary debates with key industry figures, including Members of Parliament (MPs) on topics such as the future of the financial services industry and the impact of challenger banks on traditional providers. The team is expanding quickly and we’re investing heavily in the latest training and support to ensure our team members are equipped to reach their full potential.
How do you see the next 12 months?
The Covid-19 outbreak has crippled the economy, forcing millions of people to work from home due to the very serious health risks. The knock-on effect of this crisis will lead to companies cutting costs where possible to save jobs, so tech will play a vital role in ensuring many businesses stay afloat.
We are already working with contactless payments specialists and other fintech companies that offer solutions to help companies survive and thrive despite the inevitable challenges ahead.
We aim to continue building our portfolio of expertise, testing ourselves with new challenges and delivering the best possible service to clients
This is a Sponsored Feature.
Lessons from past recessions and advice for business owners during the coronavirus pandemic
By Neil Davis, managing director and co-founder of Sterling Networks
What is Sterling Networks?
“Sterling Networks is a professional organisation founded in 2014 which facilitates networking events for businesses across the Midlands, Oxfordshire, Wiltshire and the South West. Over 300 members attend our fortnightly breakfast and lunchtime meetings.”
What is your background prior to establishing Sterling Networks?
“During the 1990s, I worked in the corporate team for Halifax. My wife, Tracey, and I went onto own a manufacturing business, which was also called Sterling, and produced a range of gifts, merchandise and promotional items.
“We soon realised tradeshows were a great way to meet distributors and clients. From there, the business grew exponentially, and we managed to build a network of around 500 distributors. Eventually, we became ground down by the manufacturing business – in part because the local manufacturing sector was being devastated by competition from China – and took the decision to sell the business and relocate to Spain.
“After spending several years living abroad, we moved back to the UK to set up Sterling Integrity (EXPO’S) & Sterling Networks (Networking) We were inspired by a desire to help businesses make meaningful connections with one another, and we haven’t looked back since.”
The UK has recently entered a recession, brought about by the coronavirus pandemic. What have you learned from past recessions and how are these experiences helping you to navigate the current crisis?
“I’ve lived through a number of recessions and have seen the pain that insolvency causes companies on a large scale. It’s taught me that there are those who win and sadly those who lose, and that businesses must adapt to a rise in demand for certain products or services at a time of financial crisis.
“Given the nature of what Sterling Networks offers [an opportunity for business owners to connect and grow together] I decided we could build upon the brand due to the demand for new business during the pandemic. We therefore moved our networking events from face-to-face to virtual via tools like Zoom and have gained a steady stream of new members in recent months, reaching an overall total of well over 300.
“On top of that, we’ve taken new staff on during the crisis and have launched a number of new regional groups across the country. I was determined that Sterling should come out of the pandemic with a head start, so my attitude to the recession has been much more positive than those who are forecasting nothing but doom and gloom.
“We can’t pretend high street retail wasn’t suffering long before the pandemic came along, and thousands of new businesses are sure to start up to meet the demand for the products and services that people require at a time such as this. In order to develop and grow businesses need to focus on where changes need to be made to meet this demand.”
Sterling Networks has been providing emotional support to its members throughout the pandemic. What advice have you been giving to members that could be useful to other business owners?
“I try not to be too opinionated and respect other people’s views when giving advice to members, as there are always two sides to every circumstance. I’ve been careful not to say to people that they should be doing one thing or another, as I don’t know their business and its needs quite like they do. The only thing that I have been telling members is the importance of setting up one-to-ones with one another. By doing so, they can listen to the needs and concerns of other, like-minded business owners and work out ways that they might be able to help one another.
“The pandemic has meant we all have a bit more time on our hands, so the advice I would give to people is to use this extra time wisely. Not having to travel physically from one meeting to another means there is a greater opportunity to connect with more people. It’s important to remember that individuals outside of your business can be just as valuable as those within it.”
What makes you hopeful for the future and are there any words of encouragement you can give to budding entrepreneurs?
“The key events that have happened to this country during my lifetime – whether wars, recessions, or the pandemic – have enabled me to take stock of things. While these experiences are certainly challenging, we all become stronger for living through them, and it gives me great confidence that the world will ultimately improve as a result of the pandemic.
“The whole world is effectively rebooting right now, as is the business community. I like to think entrepreneurs will recognise this opportunity to take better care of their peers, and this translates to greater collaboration between organisations. Speak to as many people as you can, ask all the questions that you need to and do your homework. This might well be a difficult time for us all but planning for the future must start now if it is to become as prosperous as I know it can be.”
Exclusive Interview with Ugo Loser, CEO of ARCA Fondi SGR
Arca Fondi SGR is a mid-sized Italian active asset management company. Founded in 1983 by a consortium made up of 12 regional banks, the company has grown in time, expanding its network of distributors and its client base. Nowadays Arca manages Mutual Funds, Pension Funds and Institutional Accounts with total AUM exceeding 30 € bln, reaching more than 100 banks and financial institutions and serving more than 800,000 final clients.
What are the key contributors to ARCA Fondi SGR’s success over the past 35 years?
Arca has always put clients and distributors first. That is to say we have always privileged fair pricing for funds and developing high quality products and services for our customers. This requires constant innovation as an objective and looking for people’s talent to be free to produce its effect
Why are people the founding element of ARCA Fondi SGR and how have you sustained this vision over the years?
We work in small teams, people are young and motivated and can perform duties with a high level of autonomy and responsibility. Innovation is asked to everyone, everyday
What makes Arca Fondi SGR different from other asset management firms in Italy?
Arca is a company focused on doing what it can do very well, that is to say mutual and pension funds, services for clients and banks. We never follow short term trends but always look for long lasting impact on the industry, like we’ve done may times in the past
What products/services has ARCA Fondi SGR pioneered?
Arca has been the inventor of “Arca Cedola”, fixed-horizon, coupon paying funds, which have been with no doubt the greatest product innovation of the past 12 years on the Italian market. This type of funds, at first strictly based on bonds and later as a balanced product, has encountered an enormous success both with clients and distributors due to its simple and effective value proposition. Arca is a market leader also in the “PIR” segment of funds, a range of product focused on mid and small sized companies, that have been the best performers in the Italian stock market for the last few years. In services, Arca is a leader in technology applied to asset management. Our website, app and digital services for clients and banks are award winning, state of the art combination of data, technology and channels, and the best is yet to come on this side.
What strategies do you have in place to sustain your market position and withstand professional competition in the country?
As I mentioned, we do not waste resources on projects with dubious results, instead we constantly invest on people, products and services. The high level of profitability that Arca has been able to maintain even in difficult years for the markets of the banking sector is a further testimony that this strategy works very well
How do you use technology to create meaningful experiences for your customers?
First of all, we have created a whole new division, Arca InnovAction Lab, dedicated to technology, data and processes. This ensures projects are delivered quickly and they are free to leave bad past practices behind. Arcaonline.it, Arca’s website, provides distributors with detailed information on clients’ portfolios, asset under management and subscription/redemption requests. It monitors aggregate selling data offering to our partners a suite functions and analytics to track commercial campaigns. And if the banks branches need assistance, they may ask Sara, our digital chatbot. A broad and timely multimedia production, covering exclusive reports, comments, presentations, videos, webinars and newsletters is also available on the website.
Customers, subscribing Arca’s funds through its distributors’ network, may access Arcaclick, a dedicated area on Arcaonline.it. With Arcaclick the client can easily browse through her portfolio of funds, analyze its characteristics, view transactions and historical funds’ performance in customizable views. Arcaclick is also a powerful source of information on Arca product range: Prospectus, KIIDs and other literature is easily accessible along with news, comments and reports. Arcaclick may also be accessed via Arca Fondi App, a free application for mobiles and tables, running on both iOS and Android. Available 24/7 and in mobility, Arcaclick gives clients the opportunity access information, news and details of their personal portfolio anytime and anywhere.
What key trends will drive pension growth in 2020 and beyond?
The Italian market for pension funds is still very small and therefore there is a great opportunity to grow. Arca Fondi manages the biggest open ended Italian pension fund and it’s been constantly at the top of its rankings. As people and workers are looking for yield and to weather short term volatility, the pension fund is very well poised to profit from this trend.
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