Special feature: Moving to a low carbon future

We need to reduce greenhouse gas emissions to reach net-zero by 2050. The re/insurance industry can help accelerate this transition.

By keeping global warming to well below 2˚C from pre-industrial levels, the target is to reduce greenhouse gas (GHG) emissions to net-zero by 2050. Achieving this is a daunting prospect but, in our view, both a mission possible and necessary. The cost of meeting the target is estimated to be 1–2% of global GDP.1 Failure to meet the target would be far more costly over the longer term.

Emission reduction and removal

How to get to net-zero? First, all sectors of the economy need to limit emissions as much as possible (see infographics on this page). Second, remaining emissions need to be removed from the atmosphere through biological or technical means, and be permanently stored (see SONAR 2020 report “Locking it up – carbon removal and insurance”).2 To achieve net-zero by 2050, climate science says that 10–20 billion tons of carbon emissions will need to be removed from the atmosphere each year.

The transition to a low carbon future presents many opportunities for insurers but also new climate-related risks. Insurers themselves can commit to net-zero emission strategies, combining GHG reduction and carbon removal. Economywide, transition success depends on awareness and management of the potential hurdles, risks and unintended consequences inherent in change projects. The insurance industry can play a pivotal role by providing specialist risk transfer knowledge and capacity to partners in other sectors of the economy, and also as long-term investors in the net-zero journey.

Risks and insurance opportunities in energy production,…

Energy production accounts for about two-thirds of global GHG emissions. Moving from fossil fuels to renewables while also boosting energy efficiency is crucial to achieving net-zero. The transition will take time and comes with new challenges, including increased volatility of power production, transmission and storage. Fluctuating weather patterns affect wind, hydro and solar power generation and, subsequently, put a strain on existing power infrastructure. Innovations in largescale storage technology and digitalisation will go some way to offset such problems but will also create new interfaces, additional complexities, and risk of prototype failure.

The shift to renewable energy will need insurance solutions to facilitate innovation, infrastructure and operational needs. For some engineering insurers, the surge in renewable energy capacity has already been a key source of growth. Product innovations such as revenue insurance coverages for no-sunshine, no-wind and drought in the case of hydro energy can complement traditional P&C covers for construction, operation and maintenance. While the opportunities are enormous, insurance market prices need to increasingly reflect this changing risk landscape. Caution is warranted with the accumulation risks from increasing complexity of systems, the number of interfaces, and the exposure to extreme weather events.

…in construction and manufacturing,…

The building and manufacturing industries are energy intensive. Adding the indirect emissions from upstream generation of electricity and commercial heat, the two sectors account for more than 50% of all energy-related GHG emissions. Thus, a shift to renewables and more energy efficiency are crucial to reduce emissions in these sectors. Mitigation measures are also needed for processrelated emissions (eg, from chemical processes). One possibility is to substitute emission-intensive goods or materials like cement with alternatives that require less emission-intensive processes (see SONAR 2020 report “Green buildings – will they pass the test of time?”). Carbon capture, utilisation or storage (CCUS) processes that capture emissions from point sources and either re-use or store them, are included in many reduction scenarios. However, technologies such as cement substitutes and CCUS are still at prototype stage. When deployed fast at scale, risk accumulation may result from undiscovered shortcomings. Insurers can partner with industry to establish risk assessment standards and procedures, including judging degree of success for new technologies, and contribute risk management know-how. Insurance solutions can then be provided to foster increasing deployment. In the case of solar panels, for instance, there are schemes to compensate insureds for replacements when climate-related risks inflict damage.


The transport sector accounts for around 15% of global GHG emissions. With the trend of increasing urbanisation, a move to low carbon transport systems is most pressing in cities and for connections to urban centres. Electrification, autonomous driving, ride-sharing schemes and the rise of mobility ecosystems3 are transforming travel. Yet, still more than 70% of the global emissions from transport come from road vehicles. Currently the main alternatives to combustion engines are electric and hydrogen fuel-cell vehicles but challenges remain, including the availability of charging infrastructure and safety concerns around fire risk (see SONAR 2020 report “Burning question – risky lithium-ion batteries” and “Hydrogen fuel cells – propelling the future?”).

The insurance industry needs to keep pace with the changes in the mobility market. The developments present enormous opportunities for more flexible and digital insurance solutions, which can also encompass new forms of electric transport like e-bikes and scooters. InsurTechs already provide more flexible solutions, such as insurance models for gig economy workers covering both work and personal use of electric vehicles. An underwriting challenge lies in the uncertainties about the risks involved in modes of mobility, given the still short history of associated data observations.

…and forestry & agriculture

Climate change impacts forestry and agriculture significantly. At the same time, there is significant potential to reduce emissions in the sectors. Global warming has already increased the frequency and severity of droughts and wild fires, which in turn accelerate the GHG emission rates from soils and forests. The wildfires in New South Wales and Queensland alone spewed more than 300 million tons of carbon dioxide into the atmosphere between August and December 2019, more than half of Australia’s total GHG footprint last year.4 In agriculture, increases in productivity can help reduce emissions per unit of agricultural output and thus generate significant mitigation benefits. Parametric tools tracking, for example,  soil moisture can support the required increases in productivity.

On the asset side

The insurance sector also contributes to the net-zero target by providing long-term investments in renewable infrastructure that comply with ESG criteria. As institutional investors, insurers are well positioned to invest in the transition to a low-carbon economy. Our analysis has shown that complying with ESG criteria makes economic sense as the risk-adjusted returns are higher.5 Moreover, assets are particularly vulnerable to stranding where the level of emissions associated with extracting and processing a resource would exceed the available carbon budget.6 Failure to switch to low-carbon portfolios bears elevated risk of assets experiencing pre-mature write-down or devaluation (eg, “stranded assets”). The industry can do more. In a survey, sector executives said there is need for more “green” technology investment opportunities and structures that are close to the insurance industry’s risk appetite.7

Hurdles, trade-offs and unintended effects

While many risks along the envisioned transition can be addressed through classic insurance offerings, others cannot be tackled by insurance alone. These will require collaboration among governments, supranational organisations and society. The transition will face hurdles, some lessening but others growing in stature along the journey. While CO2-intense assets may become stranded, price dynamics for low-carbon assets are also likely to shift significantly in the long run, and sometimes not in ways favourable to any net-zero investment. Some innovative low-carbon or negative emissions business models and technologies are likely to prevail, but others will not break through. It is not always possible to foresee unintended consequences of transition. It will not always be easy to foster and maintain favourable framework conditions, and questions of fairness and justice will also be raised. There will be losers along the way, like workers in the coal or other sectors who will need re-skills to find new employment in a low-carbon economy. The transition will also require changes in traditions, and social and cultural habits. To ease tension and avoid the build-up of political resistance that could slow down, halt or even reverse progress, societies and governments will need to alleviate resulting social hardship and address the interests of all stakeholders. Trade-offs, gains and losses have to be monitored and balanced over different social, geographical and time scales. This includes reconciling different dimensions of sustainability and avoiding potential clashes, for instance between an afforestation project on the one hand, and land rights on the other.

Apart from potentially increased domestic political tensions, there are also likely to be geopolitical shifts. Some nations are better prepared and will gain, while others are unwilling (or unable) to prepare as they will not profit in similar ways. Among the latter are those economies – rich and poor – currently very dependent on fossil resources. Such nations and actors might use the prospect of carbon removal as an excuse to delay and obstruct the transition.


The transition to the low-carbon economy with net-zero and even net-negative emissions requires political, technological and behavioural change. Finding new ways to cope with the required changes calls for innovation and offers new opportunities for business across different sectors, and in all core areas of insurance including risk knowledge and transfer, and investment. Traditional covers already contribute to the required risk-taking. Our industry also needs to be ready to accommodate emerging technologies with no or very limited loss histories. As green technologies mature, the focus may shift from support in risk assessment and know-how, to risk transfer solutions for rapid upscaling.

Insurers need to act now. Evermore, clients, investors and employees demand consideration of ESG criteria. Supporting and adapting to the transition will be necessary to keep businesses future fit. Moreover, as the impacts of global warming become more apparent, the risk landscape may change fundamentally. This can raise insurability and affordability concerns in the long-term, especially in property and speciality lines. Being part of transition is not only an opportunity for insurers, but also a prerequisite for longer-term competitiveness and sustainability.

Defining net zero emissions

Net-zero emissions are achieved when any humancaused greenhouse gas (GHG) emissions remaining after emission reductions are balanced out by removing GHGs from the atmosphere. Carbon dioxide (CO2) is the most prominent but not the only form of GHG emission. In 2010, CO2 emissions accounted for around 76% of total GHG emissions resulting from human activities (IPCC, 2014). When referring to netzero GHG emissions, noncarbon emissions converted to CO2 equivalents are included.


1 N. Stern, Stern Review on The Economics of Climate Change, Gov. of the UK, 30 October 2006.
2 J. Mulligan, G. Ellison and K. Levin, Foundational Questions on Carbon Removal in the United States, Working Paper, World Resources Institute, Washington DC, September 2018.
3 Mobility ecosystems: striving towards a seamless interface for customers, Digital Ecosystems Series, Swiss Re Institute, May 2019. https://www.swissre.com/dam/jcr:7762f0e7-6ee7-4cf6-b4d0a3d21d023dc0/ZRH-19-03239_Mobility_Ecosystems_Exptertise_Publication_FINAL_WEB_III.pdf.
4 H. Lee, “Bushfires Release Over Half Austrialia’s Annual Carbon Emissions”, time.com, 23. December 2019.
5 https://www.swissre.com/our-business/managing-our-assets/responsible-investing-in-practice.html.
6 The heat is on: Insurability and Resilience in a Changing Climate, position paper, CRO Forum Emerging Risk Initative, 2019.
7 Climate Change and the Insurance Industry: Taking Action as Risk Managers and Investors, The Geneva Association, 2018.


​Special feature: Locking it up ‒ carbon removal and insurance

Stories Net-zero emissions: do our best, remove the rest