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July 27, 2022 Eleanor Ewen
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news.
The focus this month: Developing a global standard to measure and disclose greenhouse gas (GHG) emissions associated with insurance underwriting portfolios.
Read our summary and analysis below.
One of the requirements for strong Environmental credentials will be the an understanding of clients’ emissions. This should become easier as ESG data becomes more widely available and the methodology develops further.
This month has seen an important step taken on this journey with the publication of the insurance-specific consultation document from PCAF. This lays out the approach that insurers may consider taking in accounting for the GHG emissions of their clients as part of their scope 3 (category 15) emissions. It recognises that insurers play a different (and smaller) role than shareholders, and that their potential to impact the actions of their customers is therefore different. This is reflected in the definition of the attribution factor to determine the specific insurance-linked emissions.
Whilst not mandatory and unlikely to be possible for small and mid-sized insurers in the short term, many large insurers are already building capabilities in this space. Ignoring GHGs in the underwriting portfolio will not be a tenable position in the medium term, even for smaller insurers.
The Bank of England’s recent climate stress test has highlighted how missing data and inconsistencies around insureds’ ESG ratings is hampering the way insurers respond to climate risks. Anil Kashyap, a member of the Bank of England’s financial policy committee, pointed out that while insurers tend to rely on ESG scores for judging whether their portfolios are transitioning consistently with their ESG aims, every single respondent had some examples in their submission for which they could not fully respond because they did not have the information they needed available.
Allianz has been named as one of the investors in the $35 million Series B funding round for ESG Book, a global provider of cloud-based sustainability products and solutions. ESG Book makes ESG data accessible, consistent and transparent, enabling financial markets to allocate capital towards more sustainable and higher impact assets. The company covers 25,000 companies globally. Allianz cited the need for better availability of ESG data as the core reason for the investment.
A Swiss Re Institute report published 8th July 2021 has laid out three main ways in which insurers can contributed to carbon removal by scaling up the carbon removal industry. As risk-takers, they can provide risk management knowledge and transfer solutions, as well as insurance capacity for evolving risk pools. As investors, they can provide capital in long-term carbon removal solutions. Finally, they can stimulate the market by purchasing green products and services to run their own operations.
European companies turning to coal as an alternative to Russian gas are likely to face a negative impact to their ESG ratings. As burning coal emits more carbon dioxide than alternatives like oil and gas, companies’ emissions are likely to increase, leading to a reduction in their environmental credentials. Despite this, major European investors say they will not relax their investment principles of reaching net-zero targets on greenhouse gas emissions by 2050 or earlier. Therefore, companies may have to counter-focus on S and G initiatives or utilise green bonds to preserve ratings. Ultimately, European reliance on unreliable Russian gas is an issue of energy security that is in conflict with long-term plans of decarbonisation.
Massachusetts Mutual Life Insurance Company (MassMutual) has announced it will transition both its portfolio and operations to net zero. These commitments include achieving net zero greenhouse gas (GHG) emissions in MassMutual’s operations by 2030 by reducing emissions, purchasing renewable energy, and removing the remaining footprint through credible offsets, as well as a transition to a Net Zero investment portfolio by 2050. MassMutual is the first US-based mutual insurance company to make this pledge.
IAG, Australia and New Zealand’s largest general insurer, has joined the United Nations Net-Zero Insurance Alliance (NZIA), aiming to transition their re/insurance underwriting portfolios to net-zero greenhouse gas emissions by 2050, with an intermediate target of a 50% reduction in emissions by 2030. This will build on their status as a carbon neutral business since 2012. As a NZIA member, IAG – and its brands NRMA Insurance, CGU, AMI, State and NZ – joins 28 other leading insurers globally, representing close to 15% of the world’s premium volume, according to the announcement.
The insurance provider’s workplace DEI collaborated with Work Shield to create a secure working tool for individuals to confidentially report, manage and resolve concerns securely and impartially via mobile, desktop, or human-controlled call centre. By implementing the Work Shield platform, an organisation can immediately improve its own governance criteria, fulfilling governance metrics tied to management controls, oversight and Equal Employment Opportunity Commission standards.
As the regulatory focus on environmental, social and governance-related disclosures intensifies and grows more complex, greenwashing accusations like those against the investment management arm of BNY Mellon (resulting in a $1.5 million penalty) are likely to become more frequent. Key targets for lawsuits would include D&O policies as well as insurance coverages such as reputational risk, errors and omissions, product liability, environmental and commercial general liability. Insurers and insureds should be much more careful about writing and accepting coverage, respectively, if they wish to avoid potential liability.
This month has seen an important development in the journey to develop the first global standard to measure and disclosure GHG emissions associated with insurance underwriting portfolios. PCAF have published an insurance-specific consultation document, laying out the approach that insurers may consider taking voluntarily in accounting the GHG emissions of their clients as part of their scope 3 (category 15) emissions (albeit accounted for separately). It recognises that insurers play a different (and smaller) role than shareholders, and their potential to impact the actions of their customers is therefore different. This is reflected in the approach taken on defining the attribution factor to determine the specific insurance-linked emissions.
Individuals and NGOs are increasingly using the court to enforce board responsibility regarding corporate compliance with regulations, targets and broader environmental principles. Insured companies must focus on improving their ESG regulatory frameworks to cover environmental liability risks like lawsuits targeting inadequate climate policies or greenwashing. Insurers, meanwhile, should adapt their underwriting to price climate risks for companies with environmental liability claims in mind.
Welcome to our ESG roundup, keeping you up to date on the
Welcome to our ESG roundup, keeping you up to date on the