Sustainability and Insurance: September Roundup
October 10, 2024
Welcome to our monthly sustainability roundup, keeping you up to date on the insurance industry’s most significant sustainability-related news. September’s topic: Transition plans in a post -“ESG” world
Read our summary and analysis below.
Analysis
Transition plans in a post -“ESG” world
“ESG” as we know it is going out of fashion. Despite decades of commitments by businesses to the environmental, social and governance agenda in its various forms, carbon emissions are not slowing, and we remain on the path towards unmanageable climate risks. In the last few years, we have seen a noticeable shift by some actors away from the language of “ESG.”
Arguing that the ESG agenda in its current form has not delivered, Lindsay Hooper set out a provocative view of the business case for sustainability in a recent piece for the Financial Times. Hooper writes that sustainability needs to be understood as a matter of competitiveness rather than responsibility. The sustainability activities of leading companies can demonstrate possibility and generate momentum, especially where a critical mass of businesses push for government action to ensure it is economically viable to phase out damaging activities.
Even if the idea of ESG is losing power, the underlying work continues. Transition plans are central to this, functioning as public statements of intent signifying that a company or institution is serious about the shift to a low-carbon economy and outlining how they will meet regulatory requirements. Given the critical role (re)insurers play in the climate transition as risk managers, risk carriers and financers of climate solutions, their transition plans can and should be subject to scrutiny.
Following in the footsteps of other insurers, Zurich Insurance Group were the latest to publish their climate transition plan. While this is their first formal transition plan, Zurich have previously published commitments in this space. In 2019 they first set out a commitment to net zero by 2050, updating this in 2021 by shortening the timeline to 2030 and including investment-related targets.
While Zurich’s plan signifies commitment to the transition, there are some gaps. It does not yet cover all scope 3 emissions, for instance, on financed and insurance-associated emissions across the entire portfolio. As regulations surrounding sustainability reporting continue to develop, the extent of disclosures are likely to increase.
Looking forward, the US elections will have some impact on the trajectory of the ESG agenda. Across Europe, regulations like the EU’s Corporate Sustainability Reporting Directive are already in train. The fragmented landscape of reporting requirements across some jurisdictions is producing uncertainty, with many companies wary of overcommitting to a level of disclosure beyond that which will be required by the final rules and instead opting to ‘wait and see.’
In our view, the situation is more pessimistic than Hooper suggests. While there is a serious need for companies to consider how they will position themselves to win in a low-carbon future, the fundamental need for regulatory compliance looms large.
The minimum threshold is going up and (re)insurers need to be ready. Those companies not publishing comprehensive transition plans risk being left behind.
Summary
Hurricane Helene causes devastation
Hurricane Helene damages could reach $35 billion (Axios)
Hurricane Helene, the record eighth Cat 4 or Cat 5 Atlantic hurricane to make landfall since 2017, has had a devastating impact across the southeast United States. More than 100 people have lost their lives and thousands of people are in temporary shelters. According to Moody’s estimates, damages could be up to $35 billion. It is not clear, however, whether Helene will cause the same insurance turmoil seen in the aftermath of Hurricane Ian, given the solid financial standing of insurers and particularly reinsurers at present. At the time of writing, the full extent of the damage caused by Hurricane Helene is yet to be seen.
Transition plans
Zurich’s Climate Transition Plan (Zurich Insurance Group)
Zurich Insurance Group have published their Climate Transition Plan, updating their 2019 commitments to achieve net zero emissions across internal operations and business arms by 2050. In 2021 the net zero timeline for operations was shortened to 2030 and investment targets were introduced. The plan published a few weeks ago showcases a more detailed roadmap of insurance-linked metrics and targets, and will be updated on an annual basis to report on progress.
Insuring carbon technologies
Aon: Insurance can play key role helping VCM become $100bn market (Sustainable Insurer)
It has been estimated that the voluntary carbon market (VCM) could exceed $100bn by 2030, and insurance can play a key role in facilitating this. At present the VCM is volatile, with carbon credits subject to natural and political risks including non-delivery, invalidation or reversal. According to the directors of Aon’s Climate Risk Advisory Practice, these risks are not novel for the insurance industry (even if the contexts are), so insurers can feel confident underwriting projects generating high quality carbon credits. The directors at Aon discussed the types of opportunity for (re)insurers in the VCM, for example recognising that some clients may require multi-year policy periods.
CFC Unlocks Climate Finance Opportunities For Standard Chartered Bank (Carbon Herald)
Specialist insurer CFC will offer insurance cover for a pioneering transaction in which Standard Chartered provide debt financing for an enhanced rock weathering carbon removal project. The investment bank are making a loan to project developer UNDO, creating 4,000 tons of carbon credits to be purchased by airline British Airways. Debt financing was key to bringing down the cost of renewable energy in previous decades, but it is unusual for it to be used in carbon removal projects where the risks of new technologies are less well-known. CFC enabled the deal by reducing the risk of providing debt financing to carbon removal projects, setting a precedent for scaling up investment in this space.
Insurance and climate resilience
New climate resilience initiative by Humanity Insured targets vulnerable areas (Insurance Business UK)
Humanity Insured has been launched as a new not-for-profit organisation. Backed by insurance industry players including Howden, Allianz, Tokio Marine Kiln and Beazley, the charity aims to use insurance to help build climate resilience, making insurance more accessible to climate vulnerable communities by paying a proportion of premiums. For example, it targets previously uninsured smallholder farmers who are at risk from more frequent and severe climate shocks.
FERMA urges EU to establish expert group on climate protection gaps (Insurance Business UK)
Following the release of the EU Climate Resilience Dialogue Report, the Federation of European Risk Management Associations (FERMA) has re-affirmed its proposal that the European Commission develop an Expert Group on Climate Protection Gaps. The outcome of an 18-month multi-stakeholder project by the European Commission, the Report identifies potential solutions to reduce the climate protection gap and boost climate resilience across the continent. The proposed Expert Group would have a clear mandate from the Commission to provide policy recommendations around risk management solutions.
Lloyd’s in major partnership with World Bank Group (Insurance Business UK)
Lloyd’s have demonstrated renewed commitment to sustainable development by offering reinsurance for the World Bank Group’s Multilateral Investment Guarantee Agency (MIGA). Collaboration between Lloyd’s and MIGA has been going on for several decades, supporting global projects focused on poverty alleviation and improving living standards alongside climate change mitigation and adaptation efforts. Reaffirming this partnership provides financial security for MIGA, increasing the agency’s capacity for investment guarantees.
Howden unveils platform for climate risk management (Insurance Business UK)
At New York’s Climate Week, Howden have announced their new Resilience Laboratory platform for climate risk management. Powered by Microsoft’s cloud services and Planetary Computer, the Laboratory allows asset owners or investors to model different climate scenarios and evaluate the potential financial implications of those risks. The platform then offers users customised strategic scenario planning and risk transfer solutions.
About the author
Anna Gardner is a Consultant at Oxbow Partners who has worked on strategic engagements. She recently supported the design and implementation of a follow-only strategy for a global specialty insurer and writes about sustainability for Oxbow Partners’ publications. Anna has a particular specialism in carbon credits, having previously advised a provider of high-quality carbon credits on their communications strategy and led a delegation to the UN climate change conference at COP27. Anna holds a Masters degree in Geography from the University of Cambridge.
