Sustainability and Insurance: April Roundup
May 2, 2024
Welcome to our monthly sustainability roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. April’s topic: The UN pushes a replacement to the abandoned Net Zero Insurance Alliance
Read our summary and analysis below.
Analysis
The UN pushes a replacement to the abandoned Net Zero Insurance Alliance
Remember the Net Zero Insurance Alliance (NZIA)? Formed in 2021, members of the alliance were pledging to transition their insurance portfolios to net zero greenhouse gas emissions by 2050. At its height it contained many of the world’s leading insurers including Swiss Re, Allianz and AXA.
The alliance was dealt a significant blow in May last year, however, after a growing backlash from Republicans in the United States. Their accusations that the group could be violating antitrust laws led to an exodus of many of the leading players. In the end the alliance could not survive, and this month, the United Nations Environmental Programme for Financial Institutions (UNEP-FI) formally discontinued the NZIA.
All is not lost, however, as UNEP-FI recognises that insurance must be an active participant in discussions on net zero given its vital role in the transition. As such, it has now announced a new Forum for Insurance Transition (FIT) which aims to learn the lessons of the NZIA. This appears to be a less prescriptive initiative, with no concrete pledges to reduce greenhouse gas emissions. Rather it will be a hub for the insurance industry and key stakeholders in wider society to engage with each other and advance frameworks, tackle challenges and develop new net zero insurance concepts.
Many will be disappointed that measurements and net zero targets are no longer a focus, even for the top (re)insurers (at least in a collaborative way). However, perhaps we can take some comfort in the fact that the details of the new Forum at least implicitly acknowledge the key role that the insurance industry can play in the journey to net zero.
A recent report from law firm Norton Rose Fulbright has also highlighted how the insurance industry is “highly incentivised” in relation to climate change adaptation as it directly affects the insurers’ balance sheet, and insurers have immense expertise in extreme risk pooling.
Elsewhere, pressure continues to ramp up on insurers to take stronger action to address ESG issues. In a report, the charity ShareAction said half of 65 insurance companies that they ranked were graded as E or F indicating their policies failed to meet fundamental environmental and social standards. Insurers are responding, though, such as Zurich which has announced it will stop underwriting new fossil fuel projects. Further, the release of many carriers’ sustainability reports in recent months shows that attention on ESG issues remains a key concern.
The back-and-forth between pressure groups and insurers on ESG issues, then, remains contentious as ever. Amongst this noise, the UN’s latest initiative is a refreshed opportunity for framework-building and dialogue between insurers and wider society on how the transition to net zero can be achieved. Insurers, intimate as they are with risk, have a crucial role to play in the move to a more sustainable world. Whilst a critic may call the new approach “all talk”, collaboration is vital and we need frameworks iterated and methodologies developed in the constant process of aligning insurance to the global goals of combatting climate change.
Summary
Insurance sustainability initiatives
Net Zero Insurance Alliance Breaks Up Amid ESG Attacks (Bloomberg)
The Net Zero Insurance Alliance (NZIA), once the world’s biggest climate alliance for insurers, is now being discontinued after a wave of attacks by the Republican-led anti-ESG movement. The move comes after the NZIA suffered a mass exodus last year, as key members balked at threats of litigation from attorneys general across mostly GOP-led states. The alliance allegedly raised antitrust questions and risked contributing to inflation by adding to insurers’ costs.
Forum for Insurance Transition to Net Zero – United Nations Environment – Finance Initiative (UN Environment Programme)
The UN-led and convened Forum for Insurance Transition (FIT) is a new structured dialogue and multistakeholder forum to support the necessary acceleration and scaling up of voluntary climate action by the insurance industry and key stakeholders. The creation of the FIT is a major new opportunity for the UN Environment Programme, the insurance industry and key stakeholders to advance net zero insurance thinking and practices. The FIT considers the experience gained with the Net Zero Insurance Alliance (NZIA) that first transformed net zero insurance from theory to practice.
Pressure to improve ESG practices
Lloyd’s of London inadequate on ESG, report says (Reuters)
The Lloyd’s of London insurance market’s environmental, social and governance standards are weak, as its member have exposure to fossil fuel projects and weapons, says non-profit ShareAction. Insurers recorded their performance on up to 30 metrics on issues including whether they have net zero targets, and whether they restrict the underwriting of oil and gas or exclude investment in weapons and tobacco.
Insurance “triple whammy” a major threat to people and the planet (Insurance Business)
A recent investigation conducted by ShareAction, a charity focused on responsible investment, has scrutinised the practices of the world’s 65 largest insurance companies, revealing significant shortcomings in the industry’s efforts to address a “triple whammy” – global warming, environmental degradation, and human rights protections.
Titled “Insuring Disaster 2024”, the report dissects the insurance sector’s role in underwriting and investing in ventures that exacerbate climate change, harm ecosystems, and neglect human rights. Notably, the study uncovered that only two insurers have pledged to avoid underwriting four of the globe’s most contentious fossil fuel initiatives.
EU regulator urges action on climate threat to insurance (Financial Times – subscription required)
The chair of the EU’s insurance regulator has said urgent action is needed to protect Europe from climate risk, as mounting economic damage from natural catastrophes raises concerns that some areas could be rendered uninsurable.
Petra Hielkema, Head of Eiopa, which supervises the EU’s insurers, said a steady rise in losses from natural disasters needed to be addressed by firms, member states and broader society. She proposed a range of solutions including tightening building rules, creating national EU-wide schemes to share risks, and drawing more deeply on reinsurance markets.
Campaigners demand ‘polluters pay’ in letter to insurance CEOs (Insurance Post – subscription required)
The campaign groups of the Insure Our Future network sent a letter to leading fossil fuel insurers, detailing a list of demands relating to sustainability and climate action. The letter, which coincided with the inaugural Global Sustainable Insurance Summit in Los Angeles, included demands to immediately stop insuring coal, oil and gas projects and more.
Pushing forward the ESG agenda
Zurich Insurance to halt coverage of new fossil-fuel exposures (Bloomberg – subscription required)
Zurich Insurance Group AG will no longer underwrite new oil and gas projects and is cracking down on clients planning to expand in metallurgical coal mining. The restrictions also entail asking the highest-emitting corporate customers to reduce their carbon footprints. Further details of the policy will be included in the insurer’s climate transition plan which will be announced later this year.
QBE appoints Nicola Schroder as Group Head of Sustainability (Reinsurance News)
Australian insurer QBE Insurance Group has appointed Nicola Schroder as the new Group Head of Sustainability, effective immediately. In this role, Schroder’s remit will include continuing to drive QBE’s Sustainability Strategy across its three key focus areas. Additionally, Schroder is responsible for sustainability governance, strategy implementation, human rights, and modern slavery initiatives, and driving social impact through the QBE Foundation.
Ping An reveals sustainability report for 2023 (InsuranceBusiness Asia)
Ping An insurance has released its sustainability report for 2023. The report detailed how for the 12th consecutive year Ping An’s cash dividend increased and how it introduced performance metrics that connected sustainability performance to senior management pay.
Ping An has also continued to improve accessibility and inclusivity of financial services through leveraging its integrated finance advantages. It has also delivered on responsible investment strategies as well and incorporated ESG factors into its investment decisions. The insurer also reported a 14% decrease in carbon emissions.
ESG as opportunity
ILS managers can differentiate on ESG factors: panel (Insurance Insider ILS)
ILS managers are showing more signs of differentiation when it comes to matters concerning ESG, according to Scott Lothian, multi-asset investment manager at Baillie Gifford. Lothian said managers were now “more discerning in what they buy, even compared to six years ago, and quite often that is coming down to ESG considerations.” The investor said that ESG as an investment factor would bring greater opportunities for further differentiation between funds in the future.
Climate change and the insurance industry: What next? (Norton Rose Fulbright)
Law firm Norton Rose Fulbright have published a report on climate change in the insurance industry. They note that the industry is very well positioned and highly incentivised in relation to climate change adaptation and mitigation for two reasons:
- The associated risk affects both the assets and liabilities of the insurance balance sheet
- Insurers have decades of expertise in extreme risk pooling, which is critical in relation to the management and mitigation of the catastrophic effects that arise as a result of climate change
Having said this, public assistance will still be needed as systemic perils surpass the capacity of the insurance industry on its own.
