3 August: What’s going on in ESG and insurance?
August 3, 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: Industry progress on solutions and standards
Read our summary and analysis below
Industry progress on solutions and standards
(Re)insurers are increasingly developing ESG solutions to better manage their investments, board decisioning, and UW activities. In the last two weeks alone we have seen announcements on:
- MAPFRE / Lobelia earth: a pilot partnership exploring the physical risks associated with climate change across over 5000 assets
- Carbon offsetting: a report from Instech exploring the opportunities for insurers in the carbon market
- WTW climate engagement tool: a solution aiming to support boards’ understanding of their ESG and climate risk exposure
- Better insurance network education tool: an e-learning solution to support upskilling of (re)insurance professionals in insurance sustainability implementation
At the same time, standards are rising around the world – Australia’s ISSB has just released its latest set of standards, and the UK has released a framework that sets out requirements that will form the basis of future regulation.
Those insurers who are ahead of the curve on ESG solutions will be best placed to comply with future reporting standards, and have the best understanding of their portfolios, from a climate risk perspective, to inform long term business decisions.
Much of the work we are seeing is in pilot or early stages, but as we see the value of these solutions we expect the gap between leaders and “the pack” to grow.
Standards and litigation
Global Climate Litigation Report: 2023 Status Review (UNEP)
A report has been released by the UNEP investigating the use of litigation in the fight against climate change. As of December 2022, there have been 2,180 climate-related cases filed in 65 jurisdictions, including international and regional courts, tribunals, quasi-judicial bodies, or other adjudicatory bodies, such as Special Procedures at the United Nations and arbitration tribunals – a steady increase from 884 in 2017, and 1550 in 2020.
The report aims to demonstrate the importance of an environmental rule of law when tackling climate change, providing context on the current state of global trends to support stakeholders.
New ISSB Standards make ESG simpler for companies and investors at the Small Caps end of the scale (msn)
In late June 2023, the International Sustainability Standards Board (ISSB) released its inaugural set of ESG Standards.
“With the ISSB standards we now have a single global baseline of sustainability-related disclosures for the capital markets, which makes ESG a lot simpler,” he continues. “It provides a common language with comparable metrics for companies small and large to report on, which drives simplicity and affordability.”- Brad Gurrie (Socialsuite)
The new ISSB standards will also help inform any government plans to make mandatory ESG disclosures a reality, which is something that several interest groups have been pushing for quite some time.
UK Sustainability Disclosure Standards (GOV.UK)
The UK has released it’s framework to create UK sustainability reporting standards.
UK Sustainability Disclosure Standards (SDS) will set out corporate disclosures on the sustainability-related risks and opportunities that companies face. They will form the basis of any future requirements in UK legislation or regulation for companies to report on risks and opportunities relating to sustainability matters, including risks and opportunities arising from climate change.
Fidelis MGU announces 2030 decarbonisation target (Reinsurance news)
Fidelis MGU has announced a 2030 decarbonisation target in support of its broader aims, with Richard Brindle, Group Chief Executive Officer and Chairman, describing it as a “meaningful step forward” in the firm’s climate change strategy.
This is an initial step towards their net-zero insurance associated emissions (IAEs) target in 2050 (see next article).
Fidelis MGU disclosed that 2022 IAEs totalled 1.2 million tonnes of CO2 equivalent for its in-scope portfolio, with the portion covered by its 2030 target accounting for c.40% of this. Its calculations follow the PCAF methodology and have received limited assurance from Crowe UK LLP.
Fidelis MGU sets 2050 decarbonisation target (Insurance insider)
Fidelis MGU is committing to achieving net-zero insurance-associated emissions (IAEs) by 2050, in line with the Paris Agreement.
SCOR sustainability report: committing to change (SCOR)
SCOR has released their 2022 sustainability report, key action commitments include:
- Underwriting activities: Actions may involve exiting certain risks or sectors, such as coal, oil, and gas.
- Invested assets: SCOR’s invested assets were 8.5% “green” as of end of December 2022. SCOR has also set decarbonation targets for invested assets portfolio and has joined several coalitions to engage with our investees on climate and biodiversity.
- Operations: SCOR have reduced the carbon footprint per employee by 55% (compared to 2014 baseline) and continue to implement environmental management systems.
Tools, benefits, and progress
Sustainability for insurers (Better Insurance Network)
The Better Insurance network has released a sustainability education tool for (re)insurers and brokers, developed in collaboration with nine leading insurance organisations. ‘Sustainability for Insurers’ is a flexible e-learning platform designed to equip anyone working in (re)insurance with a practical grounding in insurance sustainability and how to implement it.
Lloyd’s Market Association and Apollo have already deployed the solution to their members and employees.
Hiscox writes first risk within sub-syndicate ESG 3033 (Insurance Insider)
Hiscox has underwritten its first risk within its recently launched sub-syndicate ESG 3033 in a deal brokered by Aon.
Carbon offsetting: the insurance use case (Instech)
Instech have released a report outlining the use case for carbon offsetting in the insurance industry. The report covers the basics of carbon markets, the distinction between offsets and credits, and the opportunities that lie ahead for insurers in supporting the transition.
WTW reveals climate engagement tool (Insurance Business Mag)
Global broker WTW has announced the launch of Climate Vista, a new engagement tool that aims to assist company boards and senior management in comprehending their exposure to environmental, social, and governance (ESG) and climate-related risks.
A recent survey conducted by WTW and the Nasdaq Centre for Board excellence found only 62% of respondents stated their boards had dedicated sufficient time and resources to climate risk
The tool aims to assess a board’s current level of understanding, identify barriers to action, and determine the level of ambition for climate action.
MAPFRE collaborates with Lobelia Earth to explore the impact of climate change (Fintech Finance News)
MAPFRE and Lobelia Earth have partners to explore the ability to predict the impact of climate change on physical risks in MAPFRE’s insured portfolio.
They are running a pilot across more than 5000 assets to estimate the climate risk affecting them. 14 commonly used extreme weather indicators were automatically assessed and quantified for seven climate hazards, such as flooding, extreme wind, extreme temperature, extreme rainfall, forest fires, and drought.
Insurers’ climate disclosure helps lure investors (IFR)
In a new report that analyses 469 insurance companies in the US, Ceres found that insurers have made substantial progress in climate risk disclosure, though there is still a way to go.
The report reflects that investors are demanding more consistent and reliable information in face of increasingly imminent climate risks, including wildfires, floods, and tornadoes. Some insurers have exited certain regions that are plagued by extreme climate events. Having a net-zero pathway also makes insurance companies more attractive to investors, as many asset managers have made net-zero pledges.
UK govt backing of CCUS projects sets up insurers to facilitate carbon economy (ESG Insurer)
The UK government’s backing for two new carbon capture, utilisation and storage projects presents a key opportunity for the insurance industry to provide viable coverage for such projects, as well as to develop a standardised framework for measurement, reporting and verification.
Risks for (re)insurers
Axa slammed for weakening ESG commitments around new gas projects (Insurance post)
Axa has revealed it is allowing exceptions for oil and gas companies that deem to be “in transition” however they will no longer cover new oil and gas fields – these changes will come into effect from 2025. Campaigners are pushing back, demanding Axa end support for all new oil and gas projects.
Our New Era of ‘Global Boiling’ (Insurance Thought Leadership)
The average global temperature on July 6 was the hottest on record, and the U.N. says we’ve entered “an era of global boiling.”
Challenged by climate change, home insurers in the U.S. have lost money in five of the past six years and continued to rack up losses in the first half of 2023. In response many are raising rates or restricting coverage. The article suggests insurers focus on two key areas:
- More specific risk assessments – e.g. “the vegetation around my house and my shake roof have increased my wildfire risk and thus my premium by X percent”
- Better leverage AI – utilising analytics and predictive models to understand risk at a property by property level
Europeans Lack Insurance Protection as Wildfires and Drought Batter the Region (Bloomberg)
Almost 90% of natural disaster-driven losses in Europe weren’t covered by insurance in the first half of 2023, according to Munich Re. Europeans are amongst the least insured against extreme weather and natural disasters in the developed world. Globally, an average 61% of direct losses were uninsured in the first six months of 2023, which is similar to last year and a slight decrease from the 10-year average of 65%.
Given Europe is warming at a faster pace than the global average, we can expect to see this trend continue.
Greenwashing and insurance – EIOPA interim report (EIOPA)
The European Supervisory Authorities (ESAs), including the European Insurance and Occupational Pensions Authority (EIOPA), have been asked by the European Commission (EC) for input on the key features of greenwashing in their relevant sectors. On 1 June, EIOPA published a progress report on potential forms greenwashing in the insurance sector might take, its potential effects, and the current position of regulators.
The focus areas of the report include:
- Regulatory reporting
- Third party reporting and ratings
Winslow signs letter urging minister to address ‘vital need’ for changes to planning rules (Insurance Times)
Aviva’s chief of general insurance, Adam Winslow, has put his name to a letter urging the government to strengthen planning rules to prevent new developments in current and future flood risk areas.
Industry trade groups slam federal climate disclosure bill (ESG Insurer)
The National Association of Mutual Insurance Companies and the American Property Casualty Insurance Association have criticised a bill introduced in Congress by Democratic Representatives Adam Schiff and Rashida Tlaib that would require insurers to disclose fossil fuel investments.
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.