A New Approach to the Financial Management of Climate Risks

In the 21st century, sustainability has become not only an environmental responsibility but also an economic and social imperative. Threats such as climate change, biodiversity loss, increased natural disasters and resource depletion create both operational and financial risks for individuals, companies and governments. In this context, the insurance sector plays a critical role in promoting sustainability and managing climate risks (Surminski & Oramas-Dorta, 2014).

Sustainability offers a holistic framework encompassing environmental, social and governance (ESG) factors. Within this framework, insurers not only provide coverage for climate-related risks but also become active agents of environmental transformation by directing their investments toward sustainable projects (Clark, Reed & Sunderland, 2008). The increasing incidence of losses from disasters such as floods, droughts, wildfires and storms, particularly in non-life insurance, necessitates the development of more resilient, predictive and climate-responsive insurance models.

The relationship between sustainability and insurance is a two-way interaction. On one hand, the insurance sector strengthens society's resilience to climate risks by pricing risks and restructuring policies on the basis of sustainability. On the other hand, sustainability-focused policies encourage insurers to build portfolios compatible with a low-carbon economy (UNEP FI, 2021). For example, some insurers have begun excluding fossil fuel producers from their coverage and have developed specialised products for green energy projects.

However, there are structural obstacles to sustainable insurance practices. First, the long-term and uncertain nature of climate risks may not be compatible with traditional actuarial calculations (Viegas et al., 2020). Furthermore, low insurance penetration in developing countries increases societies' vulnerability to the impacts of climate change. Sustainability-based insurance therefore requires multifaceted strategies that include not only product development but also education, awareness and policy support.

Consequently, the insurance sector is one of the fundamental mechanisms providing the financial infrastructure for sustainability. By covering natural disaster risks, adopting ESG-based investment policies and designing climate-resilient products, insurers contribute both to climate change adaptation and to the stability of the economic system. In the future, the integration of artificial intelligence and climate modelling tools into insurance practice is expected to produce more effective and equitable sustainability solutions.