Brussels, 10 October 2022
“Check against delivery”
Good morning, it is a pleasure to once again open FERMA’s annual European Risk Forum.
Last year, I stressed how our work on strategic foresight in the European Commission is closely intertwined with your role as risk managers.
In an increasingly uncertain world, we are both trying to identify risks and prepare in the best way we can for the next shock or crisis headed our way. This is the essence of true risk leadership.
At the Commission, and as I announced to you last year, I now lead a regular horizon scanning exercise. This allows me to warn the rest of the College on a quarterly basis about new trends that our experts across the European Institutions see over the horizon.
We need this risk leadership model more than ever as we live through the most transformational period in Europe since the Second World War.
First, the COVID-19 pandemic disrupted our lives and triggered the largest global economic crisis in more than a century.
Now, Russia’s military aggression against Ukraine is directly attacking our democracy, our values, and our European way of life. It has led to higher energy and food prices and put even stronger pressure on public finances in the context of high inflation rates.
It has also accelerated key megatrends like climate change and environmental challenges. Digital and technological transformation. Pressure on democracy and values. And shifts in the global order and demography.
We also see disrupted supply chains and access to critical raw materials.
In 2021, when updating our New Industrial Strategy, we identified around 130 products in sensitive ecosystems on which the EU is highly dependent.
These include critical raw materials crucial for the green and digital transitions. And yet, the EU’s dependence on imports of these raw materials from third countries like China is greater than our dependence on Russia for fossil fuels was before the Kremlin’s invasion of Ukraine.
At the same time, achieving the EU’s clean energy goals will require rising amounts of raw materials. For instance, we estimate a 3,500% increase in the demand for lithium, a key component for electric mobility, by 2030.
In 2022, we thus focused our annual Strategic Foresight Report on the twinning of the green and digital transitions, that is on how they can reinforce each other and still be achieved in an increasingly multipolar world.
Russia’s aggression against Ukraine has underscored the need to speed up the transitions and strengthen our resilience and open strategic autonomy.
For example, the current geopolitical turmoil is galvanising the transformation of our supply chains, adding pressure to move to less vulnerable, more diversified, and reliable ones. This includes working with like-minded partners to diversify our sources of critical raw materials.
And it means increasing our domestic mining and refining capacities, while developing supply chain monitoring systems – a task being undertaken by our partners, such as South Korea, the U.S. and Japan.
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In this increasingly challenging strategic environment, risk managers and insurers play a key role, both as institutional investors and as suppliers of risk coverage. You underpin the risk leadership that we need to reinforce Europe’s resilience and open strategic autonomy.
For instance, with the very real risk of recession looming, EU businesses increasingly depend on financing from insurers to support the recovery and the transitions.
We will need at least 650 billion euros per year until 2030 in public and private investment to achieve our green and digital goals.
That is why, in our Solvency II review, we are working on facilitating long-term equity investments by insurers.
We have also put stronger emphasis on the management of climate and other sustainability risks in the prudential rules for the insurance sector.
Insurers are being asked to consider sustainability risks in their governance, risk management systems and investment decisions. It means identifying any exposure to climate change risks as part of their own risk.
This is crucial, as climate change adaptation and mitigation in the context of our transition to a carbon-neutral economy will pose a massive challenge for risk managers.
Here, even a small increase in insurance coverage can significantly reduce the economic cost of climate-related disasters for businesses, taxpayers, and governments.
That is why last year we launched a Strategy for financing the transition to a sustainable economy, which aims to support companies and risk managers in making our societies and organisations more sustainable.
A key building block of the Strategy is the development of the EU taxonomy for sustainable activities, as well as sustainable financial products like green bonds. These solutions will be key in scaling up financing of private and public investment for the low-carbon transition.
In addition, the Commission will initiate a Climate Resilience Dialogue between insurers, re-insurers, public authorities, and other stakeholders.
The goal is to exchange best practices and identify ways to address the climate protection gap – which currently represents 70% of climate-related losses in the EU – through recommendations or voluntary commitments.
Foresight will play an important role here: to enhance economic and financial resilience, the Commission will integrate sustainability risks into risk management systems and the supervision of insurers, including by proposing the introduction of climate change scenario analysis.
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Something similar is happening with the EU’s Civil Protection Mechanism, which has been at the forefront of our efforts to provide aid to the Ukrainian people.
By the end of this year, we will put together Disaster Resilience Goals to better anticipate and prepare for large-scale and cross-border disaster risks.
They will be underpinned by Union wide, cross-sectoral, and cross-border disaster scenarios, developed by our Joint Research Centre. They will cover 16 key areas of concern around civil protection and emergency response, such as heatwaves, wildfires, floods, and pandemics, as well as nuclear, industrial, and cybersecurity incidents.
The goal is to make the EU and its Member States better prepared to tackle large-scale, multi-sectoral, cross-border disasters that will be occurring more and more frequently within and outside the Union.
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Finally, let me stress that as key institutional investors, risk managers and insurers are well placed to directly finance sustainable investments and offer products that help build up buffers for households exposed to shocks.
In this way, you can contribute to the third transition that is at the core of the Commission’s objectives, underpinning social cohesion during these uncertain times where many households struggle to make ends meet.
I believe that the social dimension will play an ever-bigger role in future investment decisions.
In this context, a Sustainable Finance Research Forum will be launched on 27 October to strengthen the role of science and encourage knowledge sharing between the industry and research community. It will raise awareness on the use of sustainable finance and guide investors on how to unleash the potential of sustainability data.
I am convinced that by working hand in hand with the private sector, we can not only answer the challenges of today but also equip ourselves to build a better tomorrow. That’s ultimately what ‘risk leadership in a fast-changing world’ should be about.
I would now like to hear from our distinguished panellists how they see the business sector, and specifically risk-managers, be “part of the solution” by contributing to mitigate the current [geopolitical, energy, and food] perma-crisis as well as increasing Europe’s resilience, for instance in terms of supply chains? What more is needed?