Climate change is a global problem that needs solutions from all sectors. But the role of finance may be the key to decarbonising the economy. After all, implementing renewable energy targets and ambitions would be unattainable without finance solutions.
During Africa Climate Week 2021 (Sept 26 – 29) we spoke with insurance and climate risk finance expert, Julian Richardson from Parhelion. Previously working in the oil & gas industry across Africa and the Middle East, his focus over the last fifteen years has changed. What he brings to the fight against climate change is deep insurance expertise to drive more capital into sustainable investments on a global scale.
His reasoning is simple: “It’s the right thing to do. But more importantly, we know that Africa and other emerging economies will feel the worst effects of climate change and are the least able to adapt and deal with the impacts.”
For Richardson, finance is also absolutely essential to addressing climate change. “Historically, when it comes to climate finance, it’s been focused on mitigation.” And while that’s lucrative, Richardson wants solutions to address the fact that we’re already in the midst of a climate emergency. “We must therefore be able to finance the other side of mitigation—that is, adaption and resilience. And resilience finance is insurance.”
Supporting Africa’s energy transitions
Increasingly, nations across Africa and the world look to sustainable energy transition as the central aspect of their climate strategies. But the continent faces the challenge of tackling climate change, while coping with the consequences of production, growth and employment in all economic sectors.
Parhelion supports Africa’s energy transition through its work in the geothermal sector in East Africa. And while an abundance of opportunity exists in the region, Parhelion is implementing measures so that the benefits are equally and appropriately distributed. As such, “we’re collaborating on a work programme with FSD Africa to ensure the domestic insurance market is equipped and informed, and participates in the work we’re doing in the geothermal sector in East Africa.”
Richardson explains that within the international insurance market, complex international transactions have a tendency to be backed into a small cohort of one or two local fronting insurers. “So, we want to make sure the whole market participates. And that there is appropriate transferring of knowledge, skills, and that we’re mobilising local expertise and capital in place.”
Moreover, forecasts by IRENA indicate that with the right policies, regulation, governance and access to financial markets, sub-Saharan Africa could meet up to 67% of its energy needs by 2030.
The East African Rift System alone has geological attributes that make it so rich in geothermal energy resources that – if harnessed – could provide a reliable, affordable and indigenous source of renewable energy for several countries in the region.
Currently, only about 900 MW of installed geothermal electricity capacity exists in the region, with power plants in Ethiopia and Kenya according to IRENA.
This is where Richardson and his team comes in: Parhelion have developed an innovative facility and fund ‘GeoFutures GreenInvest’, which was awarded scale-up funding by P4G in 2020, to take the risks often acting as barriers to invest in the geothermal space. “What we’ve been able to do here is to mobilise insurance capital to de-risk sustainable investment opportunities in the geothermal space in East Africa.”
With an initial focus in Ethiopia and Kenya, GeoFutures GreenInvest will directly support the creation of 600MW of low-cost geothermal power, thereby boosting energy transition away from fossil fuels (SDG 7). Richardson estimates this will avoid 3.1 million tonnes of carbon dioxide annually, with further positive impacts which includes generating local employment, increasing equity and livelihoods.
Insurance may be an overlooked form of capital, but Richardson stresses its value as the ‘great enabler’ of other forms of capital to be invested. “And of course, nothing is invested unless it is insured.”
Parhelion is also partnered with African organisations including Kenbright in Kenya, a leading insurance and reinsurance broker in East Africa. Speaking with Chief Actuary & CEO at Kenbright, Ezekiel Macharia on this partnership: “Kenbright appreciates its partnership with Parhelion on the GeoFutures GreenInvest program which has enabled local investors in the energy sector to tackle climate change by leveraging on the power of insurance as a derisking tool. We look forward to working with Parhelion to build human resource capacity and support uptake of facility in the East African market ”
Closing the protection gap and climate resilience
Climate vulnerable nations are also the least able to adapt and deal with the impacts of climate change and extreme weather changes. Some visible manifestations are the droughts in southern Africa, floods in West Africa, and desertification of entire areas in the Maghreb region.
Ultimately, Richardson wants to see insurance protect people in the way that they should be and need to be. “Insurance is fundamentally for communities and families, companies and countries, to withstand the disastrous events created by climate change.” But he warns, a massive protection gap still exists.
For this reason, Richardson is on a mission to close that protection gap. Earlier this year Howden (the international insurance broker) announced the launch of their new venture—Parhelion, “the world’s first fully sustainable insurer.” Parhelion is targeting a capital raise of $500m and plans to begin underwriting from January 1st 2022.
Their vision is to support customers in their transition to a more sustainable and resilient future. “It will have sustainability at its heart and throughout its remit.”
Through partnerships and regional centres, like their longstanding partnership with Kenbright, the new venture “will deliver insurance solutions to close the protection gap, enable more finance to flow to sustainable energy technologies like geothermal rather than fossil-fuel based industries.”
Moving forwards, the new venture will operate and look at risk not just in Africa but on a global scale. “The point is to really drive the insurance industry’s contribution to dealing with sustainability and climate finance globally.”
Beyond Africa Climate Week
Closer in the future, Richardson looks forward to meeting with diverse stakeholder groups in two upcoming conferences this year.
First, at the World Geothermal Congress 2021 taking place in October 24 -27 in Reykjavik. We can expect dynamic contributions and discussions by Parhelion:
- Panel discussion by IGA: Green Finance & Investment Session (Julian Richardson, panellist)
- Panel discussion by Parhelion Risk Finance for Geothermal Projects
- Parhelion co-Host WING Drinks Reception with Ann Robertson-Tait from GeothermEx (off-site)
Second, the pivotal COP26 in Glasgow where Parhelion and Howdens will be co-hosting a panel session addressing disaster risk finance and closing the protection gap. This session is part of the World Climate Summit, an official side-event of COP26. The panel will be chaired by the UK government minister Lord Grimstone and panellists will include Adam Bornstein of the Danish Red Cross and Daniel Stander of the UNDP alongside Richardson.