The insurance industry is undergoing a transformation in its approach to environmental strategies, evolving toward a broader and more pragmatic sustainability agenda.
After conducting cross-sector interviews, this publication has found that due to geopolitical influences, regulatory requirements and a deeper understanding of the issues faced, there has been a subtle but important shift in terminology and approach.
Where environmental stances were once dominated by bold public commitments and ambitious targets, the sector is now navigating a more complex and fragmented global environment, which is prompting a shift in strategy and language.
There is a marked shift from ESG to sustainability across the board, but this is more than a change in terminology – it reflects a deeper, risk-based approach to long-term resilience.
As one sustainability leader at a major insurer explained: “We are making sure that we're a more resilient business as the physical effects of climate change affect us and affect our clients.”
Green hushing
One major influence in this area is the divergence in geopolitical views on sustainability and climate change across the globe.
This follows several steps by the Trump administration to row back on a number of Biden administration initiatives focused on climate, including on corporate climate disclosures.
By contrast, UK Prime Minister Keir Starmer has committed to reinforcing the UK’s position as a global leader in clean energy and set a bold 2035 target to reduce emissions by at least 81%.
Although sources were not keen to discuss US politics, there was the acknowledgement that if US firms are not doing a complete U-turn on sustainability commitments, they are continuing to commit to them only “very quietly”.
One speaker at the Airmic conference recently referred to this as “green hushing”, where firms continue to invest in green or sustainable initiatives but “they’re just not going to talk about it anymore”.
Overall, this does not signal a retreat from sustainability. “For us, it hasn't had a change, other than maybe in what we're saying publicly,” one source added. “It's business as usual.”
Another added that the transition to low carbon “is inevitable” for businesses because of the efficiencies of it, the costs dropping for renewable energy, and the global drive for action in this area continuing.
Regulatory impact
In addition, and in direct opposition to the paring back of targets in the US, Europe is facing heavier environmental regulation, which is adding complexity to reporting metrics.
In the UK, the Prudential Regulation Authority (PRA) has published a consultation paper outlining proposals to update its supervisory expectations around insurers’ approach to climate risk management.
The primary objective in the consultation paper is improving firms’ identification, assessment and management of climate-related risks, to advance the PRA's ability to promote the safety and soundness of the firms that it regulates.
One source explained that this has made expectations much clearer and plugged some loopholes. They said: “It states they want you to do climate scenario analysis and clarifies what they mean when they want you to set a risk appetite on climate.
“The driver for that is that this is pretty fundamental risk to businesses in financial services and insurance, and as such you need to understand it, and tell people how big a risk you think it is for your organisation and what you plan to do about it."
While no immediate capital requirement changes are proposed, the PRA is exploring how climate risks might be better reflected in the capital framework over time.
Meanwhile, the European Commission’s Omnibus package, announced in February, introduces sweeping amendments to sustainability regulations including the Corporate Sustainability Reporting Directive (CSRD) – which requires companies to set long-term net-zero targets aligned with the Paris Agreement's 1.5 Celsius goal.
While the direct impact may be minimal to insurers themselves – in France, for example, of the 660 insurance organisations and 70,000 intermediaries, only about 30 exceed the new thresholds – the ripple effects across commerce are expected to be substantial.
Even companies outside the CSRD’s scope may face pressure to disclose ESG data due to contractual obligations.
Insurers may respond by “strengthening their ESG questionnaires,” adjusting coverage or imposing higher premiums on companies with poor ESG performance. This could affect products like D&O, liability insurance, environmental liability insurance and professional indemnity insurance.
Sources bemoaned the increased complexity from greater regulation. “From what we've seen, the ramp up in sustainability reporting is here to stay, and we need to work out that challenge of an increase in what we're having to report, but also an increase in complexity where there are deviations of approach from global and local perspectives.”
Despite different approaches and the complexity involved, the direction of travel from UK and European regulators is clear, with no relaxation of the reporting requirements in sight.
“We spend a lot of time reporting largely the same information, but in slightly different formats. Every sustainability professional will tell you that they spend a lot of time reporting and less time doing the decarbonising that they would like,” said a source.
Even with the sometimes onerous and overlapping reporting requirements, insurers are pushing forward with targets. “There might be some changes in content and a slight delay in some of that reporting, but we're still seeing the commitment carrying through,” said a source.
There is also a greater push for transparency to prevent greenwashing, according to sources. “Companies are increasingly being challenged to be clearer and more transparent about what they say they're doing and then what they are actually doing."
Challenges in target setting and measurement
A recent report by non-profit advocacy group Ceres revealed that while major US insurance companies are making progress in disclosing their climate-related risks and strategies, significant gaps remain, particularly in the critical metrics and targets area.
The report analysed the disclosure reports from 526 insurance groups and found that while 99% of insurers reported on risk management processes, 97% on strategy and 87% on governance, only 29% disclosed metrics and targets related to climate risks.
A year-over-year comparison showed improvement in risk management integration, identifying climate risks and opportunities, and reporting greenhouse gas emissions, but the metrics and targets pillar showed virtually no improvement from previous years despite growing climate impacts.
“What we're probably seeing is people managing their expectations in terms of being a bit more effective at risk management,” said one source. “People are thinking a bit less visibly about where they want to be going as a business and trying to not get themselves caught out in terms of setting really clear public plans that are turning out to be really hard to execute on.”
“There's a realisation that there's a lot of thought that needs to be given to that [goal-setting], because you could be doing something that looks climate-friendly, but it has economic impacts in terms of pushing social disparity, for example. People are realising that it's much more complex than it looks,” added a sustainability expert.
The sustainability sector is also “always evolving and constantly expanding” its measurements, standards and data availability, which has led to changes in target setting, sources said.
This recalibration reflects a growing awareness of the complexities involved and is leading to a more focused and nuanced approach to sustainability.
“It may have been a bit ambitious to think that it will all be completed by 2030,” said a source, especially given “the unique political landscape that we find ourselves in with all the changes going on across in various governments”.
Role of government and society
Insurers are also recognising that they cannot drive sustainability alone. One source questioned how far the sector can get on its own without the rest of society in terms of consumers and government supporting a similar agenda.
Another added: “It is a difficult area to navigate for organisations alone, particularly with all of the geopolitical challenges. You need a degree of collaboration across the world to get something like [climate targets] done.”
The industry is focusing on its role in providing insights from claims data and research to support broader sustainability efforts.
The sustainability landscape in insurance is evolving rapidly. Companies are adopting more nuanced, risk-focused strategies while navigating regulatory and geopolitical regimes.