In a fireside chat this morning for Insurance Insider’s (Re)Connect conference, Neal set out the elements of the Corporation’s plans to advance its ESG programme, such as enabling product development, that will materialise sooner.
He also described his views on how the Lloyd’s market will need to evolve to support the economy’s transition to hit net-zero carbon emissions targets by 2050.
“We should see climate as an opportunity and not a threat. Climate is the biggest single opportunity I will see in my career in insurance, on both the underwriting and the investment side of the equation,” Neal said.
The Corporation published its first-ever ESG framework earlier this year, which guides managing agents towards the phase-out of the underwriting of coal, oil sands and Arctic drilling risks by 2030.
While it provides guidance, the document doesn’t impose rules about writing these risks.
When Neal was asked about the challenges of scaling back from risks such as coal, he acknowledged it was not an easy topic, with sustainability and climate inclusion being the critical issues of this age.
But the CEO explained that if carriers can disclose intentions at a customer level, and if progress can be measured, he doesn't think Lloyd’s will “necessarily and absolutely” have to specify activities that managing agents shouldn’t do.
“It might be that we continue to think that particular items – thermal coal, Arctic drilling and others – are things we shouldn’t do for good reasons, but I don’t think we have to [specify].
“If we can demonstrate a clear path to transition, and we can measure it, and we’re prepared to measure that and be public about it at a macro level, or a Lloyd’s level, that’s a good way forward.”
When asked about ESG targets, Neal said they were necessary for the ‘S’ of ESG, but he remained unconvinced they should apply to the environmental piece.
Revealing that Lloyd’s is about to announce its intentions around ethnicity, he added: “Targets are needed to hold people to account to make the change happen.”
But on environmental targets for specific risks, he said: “If you set pure targets of ‘this is what you must do, this is what you mustn't do’, that can be counter-productive, because where do you draw the line? I understand why the argument starts with thermal coal, but do you insure a car, or do you not insure a car?
“So on the cultural change, yes I’m for targets, because targets will bring about the change that’s needed quickly. On the environmental and climate aspect, we’ve just got to be a little bit smarter.”
The road to net zero
His appearance at (Re)Connect came as Lloyd’s continues to orchestrate seminal cross-industry activity on climate change.
In July its climate roadmap detailed the Corporation’s role in de-risking decarbonisation activities, closing protection gaps in, for example, the growing market for electric vehicles, and convening groups to expedite product launches.
If we're going to insure the transition, we need to do two things; understand the net zero plans of our customers and be prepared to disclose that information
This report followed the creation of the Sustainable Markets Initiative (SMI) Insurance Task Force, launched at Lloyd’s by Prince Charles in June, which unites (re)insurance executives to work towards building a net-zero economy.
When Neal was asked this morning which parts of the roadmap the market will see progress on sooner, he said Lloyd’s was “very keen to stand up two new products this year”, in advance of Cop26, the UN Climate Change Conference in Glasgow that starts at the end of October.
Amid targets established by various countries for their economies to achieve net zero, Neal told of his passionate belief that carriers should be insuring the transition.
“Why wouldn’t you?” he said, adding: “If we don’t insure the transition, it can’t happen. But if we're going to insure the transition, we need to do two things; we need to understand the net-zero plans of our customers, and be prepared to disclose that information. So let’s understand what each customer’s plan looks like, and be prepared to measure net zero.”
Neal acknowledged the challenges around measuring net zero for carriers, and emphasised that the market was pushing for net zero, rather than gross.
Lloyd's is now working on a framework to create a form of measurement for universal adoption.
“It won’t be right at first attempt, but let’s try to get a framework in place, that legitimately takes us from 2021 to 2050. Then at least we can say to people, here’s our pathway,” he added.
The full agenda is available here.
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