Report says Bermuda’s climate strategy lagging
Bermuda is poised to play an important global role in building resilience to climate risk, a sovereign surveillance report on the country has determined.
But the island lags in steps needed to address its own defence.
The report points to gaps in the government’s own insurance against infrastructure risks.
The Kroll Bond Rating Agency (KBRA) report warned that over the medium term, governments will need to prioritise environmental, social and governance (ESG) risk management and disclosure, with the likelihood of expansions in global ESG-related regulations, including adherence to the commitments of the Paris Agreement and rising investor focus on ESG issues.
But while the government works with the UK on mitigating climate risks, and such environmental risks are not of heightened credit concern at present, the outlook is uncertain.
The report said: “Thus far, Bermuda has been less vulnerable to extreme weather events than many other island economies.
“However, global warming and the increased frequency of severe weather events contributes to much uncertainty in this regard.
“Sea level rise has also been identified as a risk.
“The government maintains an insurance policy that covers property damage to buildings. This insurance coverage is limited to the full current market value or replacement cost of government buildings.
“It does not provide coverage for infrastructure assets (ie, roads, bridges) or business interruption coverage.”
Further, Bermuda lags several other island economies in adapting a cohesive climate action strategy, the report says.
It says that the Regulatory Authority’s Integrated Resource Plan aims to achieve an 85 per cent reduction in fossil-fuel use and a corresponding contribution of 85 per cent from renewable resources by 2035.
The government has led the charge with government buildings but businesses and private residents have also invested in solar PV.
The report notes: “There is also a strategy in place to reduce transport related carbon emissions. There is a plan to transition to electric vehicles and the government is leading the change in use.”
But it says that the last government paper on climate change was in 2004 in a coastal-erosion study. The last private sector report authored on climate change was in 2008 by the Bermuda National Trust.
Noteworthy are the 2022 target of eliminating single-use plastics and the government partnership with the Waitt Foundation and the Bermuda Institute of Ocean Sciences related to management of waters.
Meanwhile, the resident world-class (re)insurance and alternative capital sectors, such as Insurance Linked Securities (ILS) was not lost on analysts who conducted the Bermuda review and prepared the October 7 surveillance report for Kroll.
The report said that the prospects for expansion of new niche industries especially in fintech and digital assets underscores Bermuda’s capacity to position itself for investment opportunities, although analysts were uncertain what it would mean for growth and employment.
But since Bermuda’s (re)insurance sector is the global capital of natural-catastrophe risk protection, it is likely to play a critical role in building resilience to climate-related risks.
The KBRA said that it expected that rising risks could improve the demand for insurance products.
“More frequent weather/climate-related disasters have prompted large (re)insurance company payouts,” the report notes, “but trends to date have generally been earnings — not capital — events.
“Bermuda’s (re)insurance (companies) are well capitalised and we believe can withstand claims pressures should they emerge.
“Should weather and climate risks worsen to the extent they more meaningfully impact the sector, this could accelerate further M&A activity.”