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Lloyd’s expects managing agents to create ‘fit for purpose’ ESG strategies

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Lloyd’s has set out expectations for managing agents to develop ESG strategies through 2022 that it will then consider for the 2023 business planning cycle, as the Corporation attempts to harness market-wide efforts to transition to net-zero emissions.

In its new report detailing guidance for managing agents on ESG, which covers the Corporation’s own approach for 2022 and how it plans to track the market’s transition, Lloyd’s said it will use agents’ ESG strategies and frameworks to help measure progress.

Lloyd’s intends to run a pilot across the market through H1 2022 to help establish a reporting regime which will measure progress at an aggregate level towards an aggregated, net-zero underwriting position.

The report also indicates a nuanced stance from last year on underwriting activities around fossil fuels.

In its ESG report published in 2020, Lloyd’s stated that from 1 January 2022, managing agents would be asked “to no longer provide new insurance coverages”, for thermal coal-fired power plants, thermal coal mines, oil sands, or new Arctic energy exploration activities.

But the 2021 report appears to pare this back, stating: “We are not mandating the exclusion of these policies.”

The 2021 report adds: “It is up to each individual managing agent to decide their own ESG targets and policy, including their approach to sustainable underwriting.”

It does however reiterate Lloyd’s commitment to support government policy in achieving net-zero greenhouse gas emissions by 2050, by aligning its own approach with driving market-wide progression.

The report acknowledges that continuing to provide (re)insurance for carbon-intensive businesses will become “increasingly unsustainable as climate and transition risks intensify”.

But the report also says that it would be “irresponsible and detrimental” to Lloyd’s’ competitiveness and performance to risk becoming “a market of last resort” for carbon-intensive industries where business models will become “increasingly unviable”.

The Corporation adds in the report, however, that it will continue to support “harder-to-abate” sectors where there is a credible climate transition plan in place, which can be measured or tracked in the years ahead.

The new report comes as a number of insurers update their previous fossil fuel and investment policies.

Axis became the latest insurer to update its ESG stance, making commitments to phase out thermal coal globally in under 20 years and to invest $20mn in a climate finance partnership.

The news follows similar announcements from global carriers, with Hannover Re recently committing to achieving net-zero emissions across its business operations by 2030 and in its reinsurance portfolio and investments by 2050.

Swiss Re said earlier this year that it will stop underwriting thermal coal projects by 2040.

During a recent fireside chat for Insurance Insider’s (Re)Connect conference, Lloyd’s CEO John Neal urged the (re)insurance marketplace to see the transition to a sustainable future as “an opportunity, not a threat”, as he said new products being developed to support sustainable energy as part of the Lloyd’s ESG agenda will be stood up this year.

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