14 December: What’s going on in ESG and insurance?
December 14, 2023
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. This week’s topic: What COP28 means for (re)insurers
Read our summary and analysis below
What COP28 means for (re)insurers
COP28 has just wrapped up at Expo City, Dubai. As discussed in our previous article we anticipated a more action-oriented conference than in previous years, noting resilience building would be a key focus area.
The most significant development was made on the final day. A deal was agreed which will push nations to shift from fossil fuels to mitigate the most adverse effects of climate change, pending summit approval. The agreement recognises the urgent need for significant and rapid reductions in greenhouse gas emissions. It urges parties to contribute to a just and orderly transition away from fossil fuels in energy systems, aiming for net-zero emissions by 2050 in line with scientific guidance. This marks a historic inclusion of language supporting a global transition away from fossil fuels, a first in nearly three decades of climate negotiations. If nations and companies stick to this deal, there will be much work needed from the (re)insurance industry to enable the transition.
A new industry specific taskforce was also launched. (Re)insurance providers, including Alliant, AXA, Gallagher Re, Howden, Mosaic Insurance, Munich Re, and WTW, have expressed their support for the ‘Joint Declaration Regarding Credit Enhancement of Sustainability-linked Sovereign Financing for Nature and Climate.’ This initiative involves a Task Force which aims to enhance sustainability-linked sovereign financing for nature and climate, addressing the long-term fiscal needs of Global South countries without relying solely on short-term debt relief. The Task Force is scheduled to convene its first meeting in January 2024.
At a panel on women and climate resiliency, Hillary Clinton called for a reform of the insurance industry. Clinton earlier this year joined the Arsht-Rock Foundation Resilience Centre which has pioneered new forms of parametric insurance. She warns without insurers continuing to innovate and commit to communities at risk of climate shocks there will be a significant protection gap down the line.
As expected, this year’s COP focussed more heavily on action. Time will tell what this translates to in practice but calls for reform and progress are getting louder, and the consensus view that fossil fuels cannot be a solution in the medium term is crystallising. The (re)insurance industry will have a key role to play and action to take across much of what was discussed at COP28. The industry will be needed to support the fossil fuel transition, to support governments in their risk understanding when drafting policy, and directly to offer innovative products that protect vulnerable assets and communities.
Lloyd’s launches consultation on insuring the transition to a lower-carbon economy (Lloyd’s)
Lloyd’s, a global insurance marketplace, has launched a consultation on its three-year roadmap for sustainability, covering underwriting, investments, exposure management, and capital. The roadmap aims to assist market participants in aligning with evolving sustainability strategies and regulatory reporting requirements, providing clarity on Lloyd’s support for customers in a volatile environment while advancing decarbonisation efforts for global net-zero goals.
The Green Insurer launches on CDL’s Strata (Insurance Age)
The Green Insurer, the UK’s first green car insurance broker, focuses on reducing carbon emissions and promoting eco-friendly driving. Operating on CDL’s Strata, the insurtech offsets all driving-related emissions, offering insurers access to an environmentally conscious customer base. Customers can purchase insurance directly on the company’s website or through popular comparison platforms.
Marsh and Beazley collaborate to reward ESG performance in global construction industry (Reinsurance News)
Global insurance broker and risk advisor Marsh has partnered with specialist insurer Beazley to encourage environmental, social, and governance (ESG) excellence in the construction sector. The collaboration provides construction contractors with additional professional indemnity (PI) cover based on their ESG performance, assessed through Marsh’s ESG Risk Rating (ERR) tool. Contractors globally, excluding the United States, scoring six or higher on the ERR can qualify for an extra US$1 million in PI cover, a 20% increase on Beazley’s maximum line.
Disclosure & investment
Over half of investors plan to increase ESG investments in 2024 (FT Adviser)
In a deVere Group poll of over 800 clients, 56% expressed a readiness to increase their allocations to ESG investments next year. Nigel Green, CEO of deVere Group, attributes this trend to investors recognising the benefits of ESG practices in navigating regulatory changes, reputational risks, and operational challenges. He sees this as reflective of a broader realisation that investing in a sustainable future is not only ethical but also a prudent financial strategy. Additionally, a separate survey by the Pensions and Lifetime Savings Association indicates a rising number of pension funds committing to net-zero goals, reaching 68%, underscoring the increasing influence of ESG considerations in the investment landscape.
FCA sets up adviser working group on sustainable disclosure rules (FT Adviser)
The Financial Conduct Authority has set up a working group for financial advisers to help them establish how its new ESG rules will help them. The measures include a new anti-greenwashing rule for authorised firms, four investment labels and new rules and guidance on the use of sustainability characteristics in marketing of investment funds.
ICIEC and BOAD partnership at COP28 looks to address key areas like climate change (Reinsurance News)
The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) and the West African Development Bank (BOAD) have joined forces to tackle climate change adaptation.
A Memorandum of Understanding (MOU) signed at COP28 outlines their collaborative efforts to encourage significant investments, fostering economic and social development in shared member states. The partnership aligns BOAD’s mission to advance infrastructure and support West Africa’s economic integration with ICIEC’s objective of expanding trade transactions and investment flows.
Re/insurance industry players back new initiative launched at COP28 (Reinsurance News)
Several re/insurance providers, including Alliant, AXA, Gallagher Re, Howden, Mosaic Insurance, Munich Re, and WTW, have expressed their support for the ‘Joint Declaration Regarding Credit Enhancement of Sustainability-linked Sovereign Financing for Nature and Climate.’
This initiative, launched at COP28, involves a global Task Force led by the Inter-American Development Bank (IDB) and the United States International Development Finance Corporation (DFC). The Task Force aims to enhance sustainability-linked sovereign financing for nature and climate, addressing the long-term fiscal needs of Global South countries without relying solely on short-term debt relief.
The Task Force is scheduled to convene its first meeting in January 2024.
COP 28: AfDB unfolds $1bln insurance facility for farmers in Africa (Zawya)
At COP28, the African Development Bank Group (AfDB) announced the Africa Climate Risk Insurance Facility for Adaptation (ACRIFA), a $1 billion initiative to insure over 40 million African farmers against climate change impacts.
ACRIFA aims to mobilise funds for insurance, protect farmers from weather events, and boost private sector investment in agriculture. Success hinges on key partnerships, especially with the World Food Programme. The UN anticipates ACRIFA enhancing investment and resilience in Africa’s agri-food systems amid the climate crisis.
About the author
Philip Allan is a senior consultant at Oxbow Partners. He has recently worked on an ESG strategy project for a European insurer and a transformation project for a UK insurer. Previous projects include target operating model design for a bank, and a global data privacy uplift for a financial services multinational.