Permissive Protocol may not Accelerate Insurers’ Net Zero Pathway

Net Zero Insurance Alliance plan leaves door open to greenwashing, claim campaigners.

A three-pronged framework to guide insurance firms to net zero by 2050 was unveiled at Davos yesterday as proof the industry could “walk the talk” on net zero transition.

But there are concerns the flexibility handed to members and other insurers will not change the sector’s current slow pace of decarbonisation.

The UN-convened Net Zero Insurance Alliance’s (NZIA) new protocol, launched at the World Economic Forum, is designed to decarbonise the underwriting portfolios of members and other insurance firms by setting targets in three areas.

The protocol includes two targets for reducing greenhouse gas (GHG) emissions in underwriting portfolios, one overarching, the other sectoral; and two for client engagement, one seeking to increase the share of clients setting science-based targets, the other focused on deeper engagement with selected carbon-intensive clients.

The third category covers transition opportunities, asking firms to set a target for the development of insurance solutions to support activities that avoid, reduce, or remove emissions “or that help cope with the negative impacts of climate change”.

Renaud Guidée, NZIA Chair and Group Chief Risk Officer at AXA, said the alliance had moved quickly to provide support to the insurance sector since its initial statement of commitment in July 2021. “NZIA is showing the way,” he said. “It [the protocol] shows we are walking the talk. We are putting our balance sheet where our mouth is.”

Left to own discretion

According to the NZIA, the protocol enables members to “independently set science-based, intermediate targets” for their underwriting portfolios in line with a net zero transition pathway consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100.

The alliance’s 29 existing members, which represent 15% of premium volume globally, are required to set at least one target in each of the three categories by the end of July 2024, then report annually on progress. This first set of targets should be achieved by 2030 at the latest, with new interim targets published every five years.

The NZIA protocol allows members to use their own discretion when setting targets with consideration to “the latest available scientific knowledge and associated impacts”, including the Sixth Assessment Report by the Intergovernmental Panel on Climate Change (IPCC) and the Net Zero by 2050 report by the International Energy Agency (IEA).

Campaign group Insure Our Future has estimated that the protocol’s emissions reduction targets allow insurers to aim for reductions of around a third by 2030, well short of the reduction targets of the IPCC’s recommendation of 43% and the 50% reduction targets mandated by the Race to Zero campaign.

In its second net zero protocol, published last January, the UN-convened Net Zero Asset Owner Alliance committed members to halving portfolio emissions by 2030.

Peter Bosshard, Global Coordinator of Insure Our Future, said the protocol would not align insurance underwriting with a 1.5°C pathway and would “open the door for corporate greenwashing”, citing its timeline, loopholes in definitions, and lack of ambition.

“The protocol is a microcosm of the challenges facing the industry. A few firms are taking ambitious steps but overall insurance is not living up to its potential,” he told ESG Investor, arguing that the alliance had been forced to move at the pace of its slowest members.

Insure Our Future publishes annual rankings based on the underwriting policies of major insurers, awarding high marks to those that exclude the underwriting of new fossil fuel extraction. The rankings reflect increasingly ambitious efforts by large European insurers to reduce underwriting to carbon-intensive sectors, but much more limited progress in other regions.

Limitations and challenges

The NZIA does not require members to set targets for all portfolios, due to current “limitations and challenges”, instead proposing they “set portfolio target boundaries for a material and relevant portion” of their portfolios, where reliable data allows. The protocol defines ‘in scope’ emissions and lines of business with reference to the Partnership for Carbon Accounting Financials (PCAF), with which the NZIA recently developed a carbon accounting standard for the insurance sector. Most commercial lines of business are included, but most personal lines are currently out of scope.

Insure Our Future published a list of “gaps and loopholes” in the protocol, noting that it does not mandate insurers to set targets to reduce the Scope 3 emissions of customers “even where emissions are significant and data are available”.

Although the protocol asks insurers to disclose operational emissions from the fossil fuel firms in their underwriting portfolios, they are free to “ignore the much larger emissions from burning the fossil fuels which their cover enables”. It also notes that lines of business currently omitted from the protocol include some typically used to insure new power plants.

Bosshard also criticised the shortcomings around reporting and escalation in the guidelines for engaging with clients on emissions reduction. “It condones talk, not action. Engagement needs consequences,” he said.

AXA’s Guidée insisted the protocol was ambitious, encouraging members to “start now” in order to prepare for setting targets in 2024, and called on non-members to “start their net zero journey via use of the protocol”.

NZIA said the protocol would be updated before the end of next year, with expected developments including target validation processes, scope expansion, refinement of target types and “quantitative minimum ambition levels for the portfolio target boundary for a given target type”.


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