Big Questions: ESG and climate
After an exodus from the Net-Zero Insurance Alliance, is there room for industry collaboration on climate goals?
Sven Althoff, board member, Hannover Re: "Even though the NZIA played an important role, cross-industry collaboration on combating climate change already takes place outside of the alliance. Therefore, despite our departure from the NZIA, we continue our work with other entities such as the Insurance Development Forum (IDF) to enable society to adapt to climate change."
Jean-Paul Conoscente, CEO, Scor Global P&C: "The alliance is a means to deliver on the industry commitments, it is not the commitment per se. The work done as part of the alliance has allowed us to come up with an industry-wide approach to the quantification of a carbon-emission footprint on insurance underwriting. This in itself has been a huge achievement.
"We are now able to leverage this achievement individually to set our own interim targets to deliver on our long-term commitments. There continues to be a need for further collaboration on methodologies to assess greenhouse gas (GHG) emissions for the areas that have not yet been addressed, such as reinsurance underwriting."
Silke Jolowicz, head of sustainability, Munich Re: "Global issues such as climate change need a joint effort, not just across the insurance industry but across different industries and especially within an adequate political framework.
"Munich Re continues its work through the Net-Zero Asset Owner Alliance (NZAOA) and through sharing knowledge on climate risks in insurance initiatives such as the IDF. In addition, we work across industries with our solutions in the green tech sphere, to insure for example the performance of photovoltaic and battery storage."
Gianfranco Lot, CUO P&C reinsurance, Swiss Re: "Swiss Re firmly believes in the need for an open, global, transparent, expert-driven dialogue on standard-setting in the climate space. Our sustainability strategy remains unchanged and our commitment to the Paris Agreement and net-zero is unwavering.
"Swiss Re is doing its part to promote the transition to a low-carbon future and has committed to net-zero carbon emissions by 2030 in our own operations, and by 2050 in our underwriting and investment portfolios. We have dedicated frameworks and policies to support decarbonising our insurance and reinsurance underwriting portfolios. Within our underwriting business, we continue to advance the net-zero transition by providing risk-transfer solutions to mitigate risks associated with renewable energy infrastructure projects and helping to unlock the funds necessary to advance the energy transition."
The work done as part of the NZIA has allowed us to come up with an industry-wide approach to the quantification of a carbon-emission footprint on insurance underwriting. This in itself has been a huge achievement
Rachel Delhaise, head of sustainability, Convex: "The industry collaborates extensively on various aspects of our business and has done on climate matters for more than 12 years, such as through ClimateWise.
"In particular, it makes sense to develop and manage the data we will use for informing net-zero goals as efficiently as possible, and to adopt a collaborative approach. Having common principles underpinning our transition plans is a strength. This is why so many insurers are supportive of the Principles of Sustainable Insurance, the Principles of Responsible Investment, and why they remain members of the NZAOA."
Katy Reyner, climate change regulatory lead, Guy Carpenter: "Despite the unravelling of the NZIA, there is still plenty of room for cross-industry collaboration. For example, there is an opportunity for stakeholders to develop uniform data standards to achieve transparency between cedants and reinsurers on the nature of the underlying exposures to physical and transition risks."
Insurers that have left the NZIA can now pursue their own processes to gather data on, and measure, underwriting emissions. Won’t negotiating different methods be a big headache for brokers and insureds?
Reyner: "While there will inevitably be an adjustment period, there are sufficiently robust reporting frameworks and standards to foster consistency over the long term. Many jurisdictions have transposed Task Force on Climate-Related Financial Disclosures recommendations into national law and upcoming European Sustainability Reporting Standards will contribute towards harmonisation.
"The disclosure standards prepared by the International Sustainability Standards Board (IFRS S1 and IFRS S2) were recently endorsed by IOSCO, which also indicates a trend towards achieving consistency in the long run. There remain challenges around availability of data, particularly for carbon emissions from treaty business where methodologies do not exist yet, but other guidance from the Partnership for Carbon Accounting Financials (PCAF) or external accreditation bodies such as Science Based Targets will assist navigating these disparities."
If the PCAF methodology for reporting emissions is what we deem useful collectively as an industry, we ought to try to refine it as we use it
Delhaise: "Transition plans should be specific and bespoke to every insurer. However, it makes sense if the methodologies we adopt to report investment or insurance-associated emissions are aligned. If the PCAF methodology for reporting emissions is what we deem useful collectively as an industry, we ought to try to refine it as we use it. I don't think we should be reinventing the wheel and trying to disclose information under separate methodologies."
Conoscente: "There is a global standard for measuring GHG emissions: the PCAF. This remains a potential standard for reporting. There is a need for convergence and Scor is confident that this will happen in the years to come.
"It is of utmost importance to move from transparency, as the regulation will do, to comparability, but this may take more time. Succeeding in reaching net-zero by 2050 is a challenge that can only be tackled collectively. All actors in the value chain, including reinsurers, insurers, brokers and clients will have to work hand in hand."
Althoff: "A standardised methodology for calculating insurance-associated emissions is important for the insurance and reinsurance industry because it would also set a common understanding for data requirements from our value chain.
"The same set of data requirements would reduce the burden for our counterparties and for us as well. We would welcome the prevention of too many different methodologies as this could otherwise lead to non-comparability of emissions data from insurers and reinsurers. Therefore, industry collaboration continues to be the right forum for developing future methodologies."
Lot: "I cannot comment on the methods used by our peers. However, Swiss Re remains fully dedicated to effective methodologies for gathering data on, and measuring underwriting emissions. We aim to continue to measure our insurance-associated GHG emissions based on established and publicly available methods, such as the PCAF Global GHG Accounting and Reporting Standard Part C and the CRO Forum carbon footprinting methodology. These standards and methodologies provide a solid basis to measure and report emissions, and to track progress towards reaching net-zero goals."
Tim Ronda, president, Howden Tiger: "The NZIA did a lot of good in terms of bringing insurers together to agree principles and approaches in an aligned direction. We’re seeing a lot of value in other forums, such as the Lloyd's Sustainable Markets Initiative and IDF, not only in aligning our industry behind common goals but, even more so, to build on the groundwork the NZIA has established."
How concerned are insurers about the growing threat of climate litigation against major corporates in terms of D&O/liability risk?
Delhaise: "Climate litigation has seen a very notable rise in the number of cases in the last couple of years. The total number of climate-change-related cases from around the world has more than doubled since the Paris Agreement in 2015, with more than 2,000 ongoing or concluded climate cases as of October 2022.
"What makes climate litigation particularly concerning is the systemic nature of climate-related cases. Also, the nature of the cases are different to usual litigation; often the case is driven by claimants not necessarily looking for financial compensation but looking to influence the net-zero plans of firms in certain sectors. These could potentially be long-term cases with material defence costs."
Lot: "While we have not yet seen many decisions in favour of plaintiffs in cases against corporates, and therefore no significant insurance losses, climate-change litigation has the potential to cause moderate losses in the short-to-medium term for certain segments of casualty insurance, certainly to defence costs and possibly for indemnity as well. Swiss Re is closely monitoring the litigation landscape and continually assessing its exposures."
Given their commitments to net-zero, how can insurers ensure that they themselves are not open to climate lawsuits on fiduciary duties or greenwashing?
Jolowicz: "Our climate ambition is implemented as an integral part of our business strategy which aims to ensure the long-term success of Munich Re. The key to credibility is to implement effective measures, as we do with our investments in renewables, and transparently report on progress against targets. We’ve done so annually for many years and the report is independently audited."
Delhaise: "This area is receiving more attention. We need to understand the transition plans for the sectors we operate in, as well as for our individual clients, and ensure our own commitments (both short and longer term) reflect this reality.
"We should not underestimate the complexity of building a robust, realistic transition plan. However, the good news is that by really leaning in to understand the transition of these sectors, this will not only inform our management of transition-related risks but help develop the opportunities associated with such enormous change."
Ronda: "On the fiduciary side, yes, insurance carriers and fund managers must fulfil their fiduciary duties to shareholders and policyholders first and foremost. Again, we don’t think fulfilling sustainability commitments conflicts with either. A sustainable risk is safer and better for policyholders and more profitable for shareholders."
A sustainable risk is safer and better for policyholders and more profitable for shareholders
Conoscente: "(Re)insurers have a critical role to play in tackling climate change. This means, among other things, aligning with international objectives [such as] the Paris Agreement and science-based trajectories based on the latest IPCC reports. An articulated strategy to reach individual commitments, aligned with science should prevent greenwashing. Ultimately, aligning with fiduciary objectives will also protect the business model of the company in the long run."
Can you give any good examples of how the industry is insuring the transition to net-zero?
Althoff: "Hannover Re is supporting the expansion of sustainable technologies through coverage of renewable energy projects such as wind power onshore and offshore, photovoltaic or geothermal energy. In addition to building and preserving specialised underwriting knowhow around the world, we support special covers for the adoption of innovative technologies."
Conoscente: "Deploying capacity for low-carbon (re)insurance and engaging with clients on their own commitments and strategy are at the core of insuring the transition to net-zero. Projects such as green hydrogen plants, solar panels, offshore interconnectors and wind farms are contributing to the transition. They require heavy investments and generate complex insurance needs from construction to operational stages that only a qualified pool of technical experts and underwriters can manage."
Ronda: "Carbon markets will play a vital role in the transition to a low-carbon future. Howden recently helped to develop a world-first carbon-credit invalidation insurance solution to increase confidence in the voluntary carbon market. The product, which is wrapped around books of independently verified, high-quality carbon credits, provides cover for third-party negligence and fraud. This product provides buyers with a layer of security combined with independent verification from established, reputable bodies, helping buyers to purchase with confidence."
Jolowicz: "Munich Re offers long-term performance covers for green technologies to reduce both the business risk for manufacturers and the risk for energy-project investors and operators. Another concrete example is the African Energy Guarantee Facility, an initiative supported by the European Commission and further public players, as well as local primary insurers. We offer insurance coverage for political risks connected with renewable energy projects in Sub-Saharan Africa."
Delhaise: "At Convex we are keenly supporting renewable energy, notably onshore and offshore wind. An example that comes to mind is on the casualty side of the growing US offshore wind market, where we have taken a lead in developing appropriate wording for this risk and where the market is now dominated by London underwriters."
Reyner: "Insurance can act as a positive enabler and many in the industry continue to work towards the transition to net-zero. In addition to international reporting standards, the National Association of Insurance Commissioners continues to lead a revised and thorough climate change questionnaire that has been adopted across 16 states, accounting for over 80% of GWP in the US.
"From a resiliency and mitigation standpoint, the insurance sector continues to drive the conversation between private and public sector entities. Innovation in the modelling and scalability of technologies, as well as risk-transfer solutions will continue to be crucial going forward.”