“A change of thought has to take place”

Talking to Nikolaus von Bomhard

The Munich Re Foundation has for the first time compiled the findings of the dialogue forums in a brochure. Under the title “Positionen”, the new publication presents important, and sometimes also controversial, opinions. We talked to Nikolaus von Bomhard, CEO of Munich Re and member of the foundation’s Board of Trustees, about these issues.

At the beginning of “Positionen”, globalisation expert Prof. Franz Josef Radermacher claims that “we need growth for ten billion people if we want to fight poverty on a sustainable basis”. Can growth really resolve the problem of poverty?
 
von Bomhard:
Economic growth can, in any case, contribute to resolving the problem of poverty. The growth of the Chinese economy has saved approximately 600 million people from poverty over the last three decades. The challenge involved in doing this is to increase peoples’ material living standards without damaging their health and the long-term basis of their livelihoods by ruthless exploitation of resources or environmental destruction. A further crucial aspect is the sustainability of economic growth. In Ireland, for example, the strong economic growth of the past years created a substantial increase in prosperity for many people but was unfortunately not permanent, as it was based on a debt bubble.
 
A more intensive use of renewable energies would help slow down climate change. Climate research scientist Prof. Mojib Latif believes that restructuring the economy away from fossil resources has long been possible. Why are politicians reacting so slowly?
 
von Bomhard:
The politicians are faced with a dilemma: in order to create incentives for long-term, efficient restructuring of the energy infrastructure, the climate-damaging effects of fossil fuels would have to be taken into consideration, for example by imposing a CO2 tax. If this policy were to be implemented in the short term, it would cause a substantial burden for economic growth, depending on the amount of the additional tax payments, and could only be coped with within narrow restraints. The same applies to financial incentives for renewable energies: they are currently being financed by the taxpayer but the benefits will only be felt by future generations.
 
Munich Re plans to invest over €2bn in the renewable energy sector in the course of the next few years. Where do you intend to make a start?
 
von Bomhard:
At the moment, most of our renewable energy investments are in wind farms and solar projects. Our aim is to extend our investment spectrum over the next three years by making sustainable investments offering attractive yields. We will also be happy to consider other interesting renewable energy projects, and the necessary technology, in areas such as geothermal energy, biogas and energy storage. We feel confident that the technical know-how we have gained from dealing with different aspects of renewable energy insurance enables us to take sound investment decisions.
 
In 2009, Munich Re initiated the foundation of the Dii GmbH to satisfy future power requirements with wind and solar energy plants in the Middle East and Northern Africa. Whereas this project is planned to take up to 40 years, Prof. Hans Joachim Schellnhuber from PIK is convinced that we only have a chance if we combat climate change immediately. Every year that goes by not only costs time but also makes the goal practically unachievable. What chances do you see for Munich Re to be able to support immediate measures over and above Dii GmbH?
 
von Bomhard:
We have several options for taking action. On the one hand, we must ask ourselves within the Group which measures we have adopted to minimise our own CO2 footprint. We have been able to achieve quite a lot in this respect in the past years. In 2009, our headquarters in Munich became carbon-neutral, and by 2012 the entire international reinsurance group will conduct carbon-neutral operations. We achieve this by increasing efficiency, by using green electricity, by supporting projects for the promotion of renewable energies and by acquiring emission certificates. But we could still do more. By offering a dialogue, we want to make people aware of the subject matter as a whole, and by developing new insurance concepts we could accelerate the introduction of new technologies, even making their use possible in the first place. 
 
The world of microfinance emerged from the financial crisis relatively unscathed, although a number of countries faced major problems. What future does this tool have for tackling poverty in developing countries?
 
von Bomhard:
Microloans can help sizeable sections of the population to alleviate dire poverty through their own efforts. And in countries where insurance penetration levels are still low or where there is virtually no social security system, microinsurance has the potential to protect the lower income groups against losing their livelihoods. We believe there is need for such tools to be further developed and to become established in developing and threshold countries. For the insurance industry, the segment constitutes both a challenge and a growth market.
 
How can the outbreak of a new financial and economical crisis be prevented? Have companies and financial service providers learned the right lessons?
 
von Bomhard:
Crises will never be completely unavoidable. However, such grave upheavals as experienced during the recent crisis could jeopardise the stability of our economic and social system in the long term. For this reason, it is everyone's duty to draw the right consequences from the crisis. It will not suffice to trust in an amendment of the regulatory framework conditions. They can only reduce the probability of another financial crisis to a certain extent. Regulation will always lag behind the dynamics and innovative power of the financial markets. It is more important that a change of thought takes place among all the economic players. Not every business transaction that is legal and profitable in the short term is morally acceptable and advisable for the company or the national economy on a long-term basis. Some of the players in the financial industry must make a bigger contribution to this change in attitudes.
 
At the end of “Positionen”, the former MP for the German Social Democrats and energy expert, Dr. Axel Berg, protested that the G20 was not nearly enough to cope with the global challenges of our times. Do we need new organisations?
 
von Bomhard:
During the financial crisis it became evident that international cooperation can indeed succeed in the face of global challenges: internationally coordinated reactions from governments and central banks have helped contain the economic impact of the crisis. And within the framework of the G20, progress on the regulation of the financing system has already been made. What is more important than new, global organisations is that the politicians resolutely address the problems of our times in the interests of the human race. This does not always require global solutions. Leadership by providing an example is an important contribution in an often disoriented environment.