Sustainability, ESG and Insurance: Monthly Roundup
February 1, 2024
Welcome to our monthly ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. January’s topic: What to expect in 2024
Read our summary and analysis below.
What to expect in 2024
Should ESG and sustainability only be seen as a (necessary) burden to the running of an insurance company: data that must be gathered, information that must be disclosed, premium that must be rejected and regulation that must be complied with? Or is it an opportunity that can drive revenue?
For some, even asking such a question is inherently problematic, as it presumes there is another option. This group would argue there is no real choice as the globe has no option but to decarbonise. For others, this framing is part of the very reason why ESG-related activities have slowed down. Advocates of this latter point of view, are looking for revenue generating opportunities wherever they come from. They have little time for activities that distract from their core commercial purpose. Regardless of your perspective (which is likely in the middle of the two!), identifying ESG and sustainable opportunities is going to be a focus for many insurers this year, as billions are invested into green technology and green solutions.
One of those opportunities – in our view – is the carbon market. As the globe continues the decarbonisation journey, carbon credits will have to be bought in large numbers. These carbon credits carry risk and the risk associated with these credits will have to be mitigated.
Let’s assume the carbon credit you have bought involves the planting of trees in a country. What happens if those trees were not planted in the first place? What if they were, but they are later destroyed in a fire? What about if the country nationalises the forest? What if the counterparty who owns the forest goes under? These are traditional risks (fraud, catastrophe, political, counterparty) and insurance can play that crucial role in creating greater confidence in this market and as such, supporting the decarbonisation journey.
To showcase this particular opportunity, we have partnered with carbon insurance company Kita, in co-authoring a report on this very topic (to be launched next week on 6th February). We will also be co-hosting a webinar (7th February) in which we will dive into the main findings and talk to industry experts about their perspectives on the carbon markets and the mechanisms needed to generate growth. If you are interested, please do register here: https://lnkd.in/dTSQKewW
As we enter the new year, insurers are able to study the potential of carbon markets and look more broadly at the many new revenue opportunities where insurance can facilitate the world’s decarbonisation journey. The question is, who will move first?
Insurers in talks to overhaul net-zero group after member exodus (Financial Times)
Big insurers are in talks to revamp the Net-Zero Insurance Alliance, an UN-backed initiative aimed at reducing insurers’ greenhouse gas emissions. The alliance faced a setback last year when key members left due to political backlash in the US. Discussions are currently underway to broaden the alliance, potentially including regulators and brokers, to address negative perceptions and establish best practices for calculating and reducing the insurance sector’s carbon impact. The forum may involve insurers, reinsurers, brokers, regulators, and campaign groups, showcasing transparency and collaboration.
WEF Global risk report
Global Risks Report 2024 (World Economic Forum)
Earlier this month, the World Economic Forum published their annual Global Risk Report. In their words, “the Global Risks Report explores some of the most severe risks we may face over the next decade, against a backdrop of rapid technological change, economic uncertainty, a warming planet and conflict. As cooperation comes under pressure, weakened economies and societies may only require the smallest shock to edge past the tipping point of resilience.”
The Carbon market
Carbon credit market to reach $1bn in premium by 2030 (The Insurer TV)
In an interview with The Insurer TV, consultancy firm Oxbow Partners and pioneering carbon credit insurer Kita have described the growth opportunity within the ESG sector, and carbon credits in particular, as “the next cyber” for insurers. Both firms believe that the insurance industry has the opportunity to take the lead when it comes to carbon credits, with plenty of potential risk in the space to insure.
Howden unveils carbon capture and storage insurance facility led by SCOR’s Lloyd’s syndicate (Reinsurance News)
Howden has unveiled an innovative insurance plan to cover potential CO2 leaks from carbon capture and storage (CCS) facilities. Designed by Howden and led by SCOR’s syndicate, it addresses a key risk in CCS technology, encouraging investment and supporting the development of a commercial insurance market for leakage risk. The initiative follows Howden’s 2022 solution for carbon credit insurance, aiming to make CCS projects more secure for investors and accelerate the global shift to net-zero.
Cloverly and Oka launch a new suit of insured carbon credits (Reinsurance News)
Oka, The Carbon Insurance Company, and Cloverly have collaborated to launch a unique type of insured carbon credits for the voluntary carbon market. Available exclusively to over 300 global enterprises, these insured credits offer reversal and invalidation protections for buyers, addressing concerns about unforeseeable risks. This partnership aims to increase trust and transparency in the carbon market, supporting the market’s growth (estimated to reach $1 trillion by 2037).
Kita expands presence to Switzerland & Singapore (Reinsurance News)
Carbon insurance company Kita has expanded its services to Switzerland and Singapore, augmenting its existing coverage in the UK, US, and Canada. As part of its global strategy, Kita aims to support and de-risk investments for companies actively participating in impactful carbon market activities. This expansion follows Kita’s recent collaboration with PYREG on a biochar carbon removal project and the introduction of settling insurance claims with replacement carbon credits.
Bermuda’s BMA aims to better facilitate parametric climate-related re/insurance (Artemis)
The Bermuda Monetary Authority (BMA) has laid out their plans for 2024, focusing on the initiatives to strengthen Bermuda’s regulatory framework. The plan includes enhancing regulatory and supervisory regimes, revising the Insurance Code of Conduct, and exploring an ESG framework for Bermuda funds. CEO Craig Swan also highlighted opportunities in parametric risk transfer for climate insurance. BMA intends to prepare a climate risk disclosure framework and review (re)insurance frameworks for parametric climate-related insurance products, aiming to capitalise on Bermuda’s position as a climate risk capital market.
Axa Climate launches mangrove insurance policy in Mexico (AXA Climate)
AXA Climate partnered with ClimateSeed and AXA Seguros Mexico to develop a parametric insurance product to protect the community of fishermen responsible for the restoration of San Crisanto mangrove forests against the impacts of hurricanes. In the event of a natural disaster, this insurance guarantee will provide rapid financing for damaged mangrove forests to be restored, as well as the repairs of related infrastructure linked to fishing or ecotourism.
The first ESG disclosure guidance for China’s insurance industry released with significant contributions from Ping An (Yahoo! Finance)
Ping An Insurance Group of China recently participated in the launch of the “Guidance for Disclosure of Environmental, Social and Governance (ESG) Information for Insurance Institutions,” led by the Insurance Association of China – representing the first ESG Insurance Disclosure Guidance in China. The Guidance, aligning with international standards, introduces comprehensive ESG disclosure requirements with specific indicators tailored to the Chinese context, including rural revitalisation and green investment.
EU lawmakers back delay to sector specific ESG corporate disclosures to 2026 (Reuters)
EU lawmakers have agreed to a two-year delay in implementing sector specific ESG rules for industries, including oil, energy and mining. The delay, extending until June 2026, aims to relieve regulatory pressure on companies and allow them to focus on broader ESG disclosures mandated by the Corporate Sustainability Reporting Directive (CSRD) from 2024 onward.
EU bans ‘misleading’ environmental claims that rely on offsetting (The Guardian)
The EU has banned terms like “climate neutral” and “climate positive” that rely on offsetting (from 2026) to combat misleading environmental claims. The directive, passed by European Parliament, prohibits using terms like “environmentally friendly” or “biodegradable” without evidence. Only sustainability labels with approved certification schemes will be allowed. This move addresses concerns about the environmental impact of carbon offsetting, often used to label products “carbon neutral.” The legislation aims to prevent deceptive advertising and promote more informed consumer choices.
New resource on emissions reporting using GRI and ISSB Standards (IFRS.org)
The Global Reporting Initiative (GRI) and the IFRS Foundation have jointly published an analysis and mapping resource on interoperability considerations for greenhouse gas (GHG) emissions when applying GRI Standards and ISSB Standards. The resource illustrates areas of interoperability for companies measuring and disclosing Scope 1, Scope 2, and Scope 3 GHG emissions, supporting more efficient reporting for those using both sets of standards.
GRI launches new biodiversity reporting standard (ESG Today)
The GRI has unveiled an updated Biodiversity Standard, GRI 101: Biodiversity 2024, designed to enhance corporate reporting on biodiversity impacts and management. The new reporting standard facilitates detailed reporting across the supply chain, providing information on location-specific impacts and direct drivers of biodiversity loss. It also includes reporting on societal and human rights impacts and their management. The standard will be effective from January 2026, with a two-year pilot phase for early adopters.
Hedge funds target ‘catastrophic’ ESG cases for huge returns (Bloomberg)
There is increasing interest from hedge funds continue to bankroll ESG litigation cases following new European laws. The lawsuits target corporate misdeeds e.g. broken environmental pledges and could lead to returns in excess of 25%.
About the authors
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. Mehul Khera is a senior consultant at Oxbow Partners. He has recently worked on D&A diagnostics project for a leading reinsurer and a growth strategy project for a UK&I insurance company. Previous projects include assessing the UW insights strategy for a reinsurer and conducting an UW workbench assurance for a London Market player.