Why financial industry must act now to mitigate climate-driven losses #IndustryFinance

The global financial services industry is facing climate-driven losses
of up to Ksh.232.5 trillion ($1.8 trillion) by 2050. This staggering amount will
shake the industry and wipe out companies that will be found
unprepared.

But as the threat looms, only 25 per cent of financial services firms
globally have set measurable (Environmental, social, and governance (ESG)
targets. Instead, players in the fiercely competitive industry are still
focused on metrics that define success—Return on equity (ROE), Return on
investment (ROI), EBITDA (earnings before interest, taxes, depreciation, and
amortization) and embedded value.

These terms shape our strategies and measure our achievements. Yet, as
we focus on these traditional profitability indicators, we must confront a new
reality: the escalating financial risks posed by climate change.

Recent research from the Network for Greening the Financial System
(NGFS) and Swiss Re Institute projects that the global financial services
industry could face climate-related losses of up to $1.8 trillion by 2050. This
is Ksh.232.5 trillion at the current exchange rate.

These losses are no longer distant since the effects are already upon
us. Unseasonable weather patterns, unexpected heavy rains, and severe droughts
are no longer rare occurrences—they are the new normal.

These climate
disruptions are not just environmental anomalies; they are financial realities,
leading to increased insurance claims, damaged properties, and heightened risk
of loan defaults.

As leaders in the financial sector, we must ask ourselves whether we are
prepared to operationalize sustainability in a way that redefines success. It’s
no longer enough to pursue profit alone; we must aim for Profit Plus—profit
with a purpose. Profit Plus embodies the idea that profitability must now go
hand in hand with sustainability, creating value not just for our shareholders
but for society and the environment.

The frequency of climate-related disasters is driving up the cost of
insurance and increasing the risk of loan defaults, making it harder for many
to afford the protection they need. If we fail to integrate these risks into
our core strategies, we risk more than just our profits; we risk the stability
of the very communities we serve and, ultimately, our relevance in the future.
This is why integrating Environmental, Social, and Governance (ESG) principles
is not just a smart move—it is essential for our shared future.

While many of us understand the importance of ESG, the real challenge
lies in moving from understanding to action. How do we transform this knowledge
into strategies that not only protect the planet but also enhance our
businesses? Too often, ESG initiatives are viewed as costs or obligations
rather than opportunities to build stronger, more resilient companies.

Without setting targets, we miss out on opportunities to strengthen our
operations and meet the growing demand for responsible business practices. To
truly benefit from ESG, we need to set clear, actionable goals—whether it’s
reducing operational costs through energy efficiency, entering new markets with
sustainable products, or enhancing governance to build trust with customers and
investors

Operationalizing ESG is not about ticking boxes; it’s about embedding
these values into every decision we make, ensuring our businesses remain
profitable, resilient, and relevant in a rapidly changing world.

For example, banks that finance sustainable projects are tapping into
new markets by offering green loans for initiatives like solar energy, water
conservation, and sustainable agriculture, which is known as green lending.
This isn’t just about environmental stewardship; it’s about driving growth in
areas that will only become more critical as regulations tighten and consumer
preferences shift.

In the insurance industry, climate-resilient agricultural insurance is
helping farmers adapt to unpredictable weather patterns. This is not just risk
management—it’s about offering solutions that meet real market needs, fostering
loyalty, and opening up new revenue streams.

Also, there is a need to expand financial inclusion through
microinsurance. These microinsurance products designed for low-income
populations, offered through mobile platforms, are not just corporate
responsibility; they are smart business. By reaching underserved markets, we
expand our customer base and build trust in communities that are often
overlooked.

These examples demonstrate that when we integrate ESG into our
operations, we are not just complying with regulations; we are positioning our
businesses to thrive in the long run.

This is how we remain relevant, resilient, and profitable in a changing
world.

As we reflect on these insights, I encourage leaders to ask themselves:
Are our ESG initiatives aligned with our financial goals, and are they truly
influencing our product development, risk management, and customer engagement?
Are we investing in the right areas to overcome barriers and create value under
the Profit Plus framework?

The decisions we make now will determine not just our profitability but
our legacy and sustainability. Let’s not just be part of this change—let’s lead
it. Together, we can build a future where sustainability and profitability go
hand in hand, creating a legacy we can all be proud of.