The first accounting and reporting standard for GHG emissions within the insurance sector is expected by the end of the year.
A new reporting standard for greenhouse gas (GHG) emissions resulting from underwriting will help the insurance sector play a greater role in the net zero transition, the UN Environment Program Finance Initiative’s Global Roundtable 2022 heard yesterday.
Butch Bacani, Lead at the UNEP’s Principles for Sustainable Insurance (PSI), said the first global accounting and reporting standard for GHG emissions within the insurance sector can be expected by the end of the year.
The Net Zero Insurance Alliance (NZIA), convened by the PSI, created a working group to develop the standard in September 2021 in collaboration with the Partnership for Carbon Accounting Financials (PCAF). A consultation on the PCAF’s progress report was published in July.
Giel Linthorst, Executive Director of PCAF, said the new accounting and reporting standard will allow for the insurance sector to “measure and report on” emissions related to insurance underwriting on top of data that stems from areas where practices are more established, such as asset management.
The introduction of such standards within the insurance sector marks a pivotal step in the market’s progression to measuring, disclosing and managing its GHG emissions.
Martin Weymann, Head of Sustainability, Emerging & Political Risk Management at Swiss Re, said that while insurers had kept pace with investors in setting net zero targets, the sector has since lagged by not establishing the methodologies to facilitate the necessary climate reporting and disclosures.
He pointed to the work of PCAF as a basis for insurers to report on insurance-associated emissions. Its standard, expected to be published in November, will outline what is expected of insurers, describing how data from property, personal and motor insurance should be used towards a broader understanding of and insurer’s climate impact.
“The main challenges at the moment are still certain data gaps, but it’s exactly the moment when we need to start to establish this discipline,” he said.
Supporting the transition
The insurance sector has attracted criticism for the slow pace of its withdrawal from providing underwriting to fossil fuel exploration. Although the industry has increasingly moved away from insuring coal production, there has been less progress on oil and gas.
According to the NZIA, a standardised methodology to measure and disclose GHG emissions will give insurers deeper insight into the risk profile of their respective underwriting portfolios, stimulate innovative approaches to decarbonisation, and create comparability for stakeholders.
This will help to lay “the foundation to decarbonise their insurance and reinsurance portfolios through target setting, scenario analysis, strategy development, and individually taking concrete actions that have real-world impact” through emissions reduction in the real economy.
European insurers have taken the largest steps to shift away from underwriting fossil fuel projects. Earlier in October, Munich Re, the world’s largest reinsurer, scaled back its support for new fossil fuel projects, following in the footsteps of reinsurance giants Allianz, Swiss Re and Hannover Re, amongst others.
In a statement, it said: “As an environmentally conscientious business, Munich Re aims to play its part in meeting the targets of the Paris Climate Agreement.”
“The group has therefore set itself ambitious decarbonisation targets for its investments, its (re)insurance transactions and its own business operations.”
Speaking yesterday, Sheri Wilbanks, Head of GRM P&C Climate and Sustainability at AXA, said having specific policies related to fossil fuel activities is “not the only route in supporting the transition” and that engagement can be used to “counsel” clients about particular risks they are facing.
Peter Bosshard, Finance Programme Director at environmental campaign group The Sunrise Project, said that as long as insurers underwrite fossil fuel companies, even if they continue to expand production, there will be “no incentive to change their business model”.
He said insurers’ “shift away from coal has accelerated the transition to clean energy”, but said that engagement efforts “had not produced similar results with the oil and gas industry”, partly due to a lack of escalation measures.
Given their massive exposure to climate risks, insurance companies would be “well placed to play a leadership role in scaling up the transition from fossil fuels to clean energy”” Bosshard added.