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Advertorial feature by sponsored by Aon

Quantifying climate

Liz Henderson, the head of Aon’s Climate Risk Advisory team, on new approaches to risk.

The planet’s climate is changing. We’re witnessing temperature records being broken every few months. Extreme weather events are becoming the norm. Even as governments try to manage the transition, industry needs to understand the risks and adopt extensive climate mitigation strategies, or risk serious impacts on their property and people. 

Keeping global heating to below 1.50C above pre-industrial levels is one of the most important efforts humanity has ever undertaken. But even as we pursue that with singular resolve, the UK’s public and private sectors must understand and manage climate risk more effectively. 

To discuss how all this affects industry, we sat down with Liz Henderson, head of Climate Risk Advisory at Aon. 

Could you tell me how Climate Risk Advisory has augmented Aon’s long-standing climate work?  

Aon has been working with insurers for over 30 years on how to manage catastrophe risk. This includes understanding the impact on climate both today and in the future. Our decision to set up Climate Risk Advisory was driven by an acceleration in demand for climate risk analysis.  

What we’re finding more and more is there is a significant need in financial institutions, the public sector, construction, and other corporates for both data and advice to help them make better decisions. Plus, there’s a significant amount of work around the impact of climate, with new regulations around the world. In response, at Climate Risk Advisory we need to stay nimble and stay on top of those changing dynamics to be able to quickly bring our clients insights when they are most in need of them.  

Far too often, risk is the last thing you’re thinking about when working out where to put a new warehouse, or where to build a solar farm. We can start to help our clients to think about risk first and understand it in a holistic way.  

You’re now working with public sector and financial institutions. Do your traditional engagements with insurers transfer to these new sectors?  

We tailor our work to address the specific needs of each client. If you don’t do a good job at collecting information about your assets, then you’re creating a lot of uncertainty in your decision-making. Any resilient risk management programme will have to consider all sources of uncertainty and create a framework which can be applied to the data and to decision-making.  

The challenge that we often face is in helping customers implement information in a way that is helpful to their decision-making. If you have understood the risk, there is often a challenge of thinking “OK, what do I do now? How do I move forward?” That’s where things can get really exciting and much more impactful, but we have to build ourselves up to get there.  

Once the risk is understood, it is often crucial to involve insurance in the process in order to reduce and mitigate the volatility caused by climate effects.  

Has Aon reorganised itself internally to facilitate this new approach?  

What we have learned by thinking about climate risk is that we need to embed more data and analytics across our services for many more clients.  

A common theme when we’re talking to clients in every industry about risk is analytics. So, we have reorganised our business around risk capital and around human capital. A good understanding of your risk can lead to better outcomes, and bring new capital into the solution. Leveraging analytics can unlock capital – and open new markets for clients, as we saw in the mortgage credit space.  

We know that conversations about climate – among other things – are driving demand for solutions. So, our reorganisation is combining capabilities and helping us to be better at scaling analytics to support strategic planning, event response and a changing climate.  

Aon is approaching advisory in this area through the lens of risk and capital, and thereby delivering solutions in a connected way across data, advisory and placement to reduce volatility and shape better decisions around climate.  

How does Climate Risk Advisory utilise other technology and capabilities, such as catastrophe modelling and Aon’s global academic partnerships? 

That goes back to the practice that we’ve built up in the insurance industry of understanding the pros and cons of any single solution. Our approach has always been to provide our clients with multiple views. Our team understands the old adage that some models are useful, but all models are wrong. And what we’re finding is that access to multiple views, and helping our clients get their heads around multiple views, is really beneficial to anybody who is making a decision about climate. The other thing we have recognised is we need to understand that climate science and climate data is changing every day. What we knew five years ago is completely different to what we know today, and what we will know five years from now. This is not a challenge that is at a single point in time, it’s something we constantly reanalyse.  

With our wide range of global academic collaborations, our goal is to fund the research that is so essential to helping people understand climate change. We don’t live in a world where global mean temperature means something to an individual, we live locally. Bringing knowledge down to a local level is hard. But we want to accelerate that understanding because it’s so important to decisions we make.  

We believe that through leveraging the advances made by academic research, companies can develop more robust climate risk resilience. 

As we move towards Cop28 what will be the key themes under discussion, and how can climate risk advisory further the conversations?  

One of the key things will be the question of data, and how do we get better and more accurate data into the hands of decision makers. Better data will help us to facilitate the green transition. We can look at solutions such as carbon capture and storage and ask what do we actually need to invest in these things? How can we unlock the investment capital?  

Another will be starting to understand the impact of extreme weather events on humans, particularly how heat affects people and businesses in a much more extreme way than we have previously considered. Heat is the number one climate peril for humans, by a significantly large margin, and awareness of that has always been there. But what’s happening now is society quantifying how heat will affect human productivity, health and well-being. These are the building blocks we need to create so that we can accelerate the transition. 

This article appeared in a 10 November New Statesman-Spotlight supplement on sustainability and climate. To read the full report click here.

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