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COVID-19 Pandemic will last two decades

Strategy

Swiss Re CEO: Negative effects of the pandemic may last for “two decades”

Published 23 November 2022 in Strategy • 5 min read

In conversation with IMD’s Jean-François Manzoni at the Nikkei Global Management Forum, Swiss Re’s Christian Mumenthaler talked about his prediction and highlighted the need for companies to work across value chains to improve their collective environmental footprint.

The CEO of Swiss Re Group Christian Mumenthaler has warned that the negative effects of the pandemic may last for “two decades”.

The startling prediction, made more than 10 years ago by Mumenthaler when he was group chief risk officer, was raised during a conversation with IMD President Jean-François Manzoni at the 24th Nikkei Global Management Forum on 9 November.

Speaking at a session called “Reinsurance challenges in an unpredictable era”, Mumenthaler highlighted modelling that he had prepared at Swiss Re in 2007 to look at the effects of another global pandemic along the lines of the global influenza pandemic in 1918.

“In hindsight, we will see our times as very challenging and dark,” he said.

However, the main issue Mumenthaler highlighted is climate change, something he described as “a monumental challenge”. Even though the threats that it poses have been rising for decades, it is something he says that “the world has more or less ignored”.

Swiss Re started to highlight some of these issues in the 1990s, he says, but this was “without much success”. The difference has come, he continued, over the past three to four years, especially from asset owners.

“They are putting pressure on companies to do more – and the reason that they are doing so is because the world’s population now actually sees climate change,” he said, citing the increase in extreme weather like droughts, bushfires and, in Japan, typhoons.

The knock-on effect is that this comes at a price. “As insurers, we will have to adapt our pricing, [the cost of which] will then go into society,” though “that price is probably by far the smallest one, compared to all other prices will have to pay.”

The second challenge he highlighted was the reaction to pandemics, specifically COVID-19. With the exception of Asia, which had been prepared by the SARS pandemic, he made the point that “even if you know the risks, you are usually not very well protected”.

The third challenge he discussed was Russia’s invasion of Ukraine, which was an “enormous shock”. The dream, Mumenthaler said, had been that the 21st century would be “a century of peace and prosperity”. Instead, there was now “a real fear that Russia might use tactical nuclear weapons as it seems to lose its grip on part of Ukraine”.

Working on autopilot

Even if cutting carbon emissions and limiting the fallout from climate change is the biggest challenge we face as a society, Manzoni wondered why it is that we, as a society, haven’t been responding quickly enough.

Mumenthaler replied that the reason is “for most of the time, all of us are working on autopilot”. “Now people see [climate change], now there’s an effect, now there’s pressure, and now people are waking up.”

One answer is the carbon tax, even if Mumenthaler admits that this is “politically difficult” for governments to engage with. Every company is working to address their Scope 1 and 2 emissions, but the biggest part for most of them is the Scope 3 emissions – those connected with a company but outside its direct control.

“We need massive investment in technology to create products like green aluminum and green concrete,” he said. “These technologies do exist, but they’re not at scale. More to the point, they are expensive.”

If the whole world switches to decarbonization, suddenly it’s not a question of whether you believe in it. If you don’t have ships that can deliver in a green way, nobody will take your products.

The solution he proposed is to work across the value chains – the idea that companies need not only look to their own emissions but take responsibilities for those for the companies from which they buy and those to whom they sell.

All that is required, he explained, is for people to be prepared to “pay a higher price in the beginning”. This would allow companies to work on their efficiency curves and products would become cheaper.

The point is,  “all of our producers within the value chain both upstream and downstream must be at net-zero.”

Manzoni wondered what “the number one hurdle” is. He mused whether it was customers, citizens, governments, or the management of companies. Consumers, Mumenthaler said, play the smallest role.

But there has been a societal shift from government leadership to that by companies. This is partly because they are more agile, but also because they see climate change as a business opportunity.

“If the whole world switches to decarbonization, suddenly it’s not a question of whether you believe in it. If you don’t have ships that can deliver in a green way, nobody will take your products,” he said.

The snowball effect means that the biggest companies will put pressure on the whole value chain.

Reforestation isn’t enough

Finally, Manzoni asked about Swiss Re’s investment in Zurich-based carbon removal company Climeworks. Mumenthaler said the investment has come with the realization that reforestation would not be enough to remove carbon from the atmosphere.

“Forests only provide a temporary 50-year benefit, and then it’s finished,” he said, pointing out that they stop absorbing carbon dioxide after they have finished growing.

While direct air capture is currently expensive, Swiss Re decided to support it with a 10-year carbon removal forward purchase program in August last year. This has also helped the company as it is able to go to banks to get financing for its next carbon capture plant.

“It’s not a return calculation,” he said. “Large-scale solutions like this are simply a necessity for humankind.”

Authors

Kazuo Ichijo

Kazuo Ichijo

Visiting Professor, IMD

Kazuo Ichijo is Professor of Innovation and leadership at IMD. He was previously Dean and Professor at Hitotsubashi University Business School in Tokyo. His research interests focus on innovation through the process of organizational knowledge creation.

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