UNEPFI PSI final session wrap-up
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The 4th and final event of the PSI-Swiss Re virtual event series on sustainability leadership in insurance focused on an emerging agenda: how to align insurance and reinsurance portfolios with the Paris Agreement.
Today a growing number of insurers and other investors, such as pension funds, have already committed to transitioning their investment portfolios to net zero by 2050 to support the 1.5 degree target of the Paris Agreement via the UN-Convened Net-Zero Asset Owner Alliance. Panellists at our public discussion clearly agree it's time to move beyond investments. A key question across all sessions was what insurers can and are doing to align insurance portfolios with the ambition to achieve 1.5 degrees.
Collaboration is key
There is a sense of urgency on climate change: the less we do now, the greater the impact in the future. Ovais Sarmad, UN Assistant Secretary-General & Deputy Executive Secretary, UN Framework Convention on Climate Change (UNFCCC), acknowledged the important and extremely relevant role of the insurance industry in managing the climate emergency facing us today. As an industry, insurers can drive better climate related risk management and awareness of how we can work together to achieve the Paris Agreement goals.
To achieve net zero by 2050 or earlier, we need to partner up within the insurance industry, with NGOs, the UN, the supervisory community, and also across different industry sectors because the challenge to reach 0.5 degree or well below two degrees is much bigger than the insurance sector alone.
Providing solutions to propel transition to low carbon economies
Linda Freiner, Group Head of Sustainability, Zurich Insurance Group, a signatory of the UN Global Compact Business Ambition for 1.5 Degree pledge, called for more innovation. The industry will need to develop new products and services – including add-ons to existing products – that really incentivise climate risk mitigation. Importantly, she feels that to succeed as an industry, we need to engage with and capitalise on the measures our customers are taking to transition to a low carbon environment.
Renaud Guidée, Group Chief Risk Officer, AXA Group, highlighted AXA's pioneering role on the investment side. AXA divested from coal as early as 2015. Since then, actions on the investment side have been less about exclusion and more affirmative, enhancing new opportunities such as transition bonds launched in 2019 and specifically designed to support the move towards low carbon economies.
Aligning insurance portfolios poses its own challenges. Given the variations across client portfolios in terms of values and industries, how can re/insurers measure how aligned or misaligned portfolios are with the 1.5 degree target?
The findings of a first technical paper produced by the Chief Risk Officers Forum on a carbon footprinting methodology for underwriting portfolios shows the importance of finding ways to really measure the climate change impact of our portfolios. This methodology gives an indicator of a portfolio's exposure to carbon emissions at a given point in time, helping re/insurers understand the 'warming potential' of insurance portfolios.
At Swiss Re, we want to achieve net zero on both our assets and liability side of our businesses and by 2030 on our operations. For us, it's also about providing solutions, particularly around renewables, so we can help accelerate the global transition to a low carbon environment. When it comes to aligning insurance portfolios, no longer insuring carbon intensive activities provides a clear signal that such risks or business propositions are unsustainable and harmful to the environment.
Butch Bacani, Programme Leader, UNEP’s Principles for Sustainable Insurance Initiative (PSI), underscored the importance of engaging with real economy players as they decarbonise their business models. In this context, the re/insurance industry as an investor and insurer can be a real partner and amplifier of the net zero agenda.
Managing climate change risk more systematically in insurance portfolios
While many insurance industry players have taken a stance on climate change, this has mainly been on a transactional level. Swiss Re, for example, no longer provides insurance on a direct or facultative basis for transactions or companies with more than 30% of thermal coal. Other companies are adopting similar approaches.
Geoff Summerhayes, Executive Board Member, Australian Prudential Regulation Authority (APRA) / Chair, UNEP’s Sustainable Insurance Forum (SIF) / Executive Committee Member & Sustainability Champion, International Association of Insurance Supervisors (IAIS), referenced the Task Force on Climate-related Financial Disclosures (TCFD). Recent findings show that while the larger firms are quite advanced on TCFD maturity and adoption, the vast majority of insurance firms by number are not. According to Geoff, this is of concern to prudential regulators and supervisors globally.
We also tested the pulse during the panel discussions and for Nate Aden, Senior Associate, World Resources Institute (WRI) & Representative of Science-Based Targets Initiative (SBTI), our polling results show some confidence and work on investment portfolios. Unsurprisingly, the responses also show a clear need for more work to be done around insurance portfolios. This matches the findings in Nate's own work: his organisation is beginning with investment in lending portfolios, and is considering moving gradually into insurance and underwriting.
The way forward
Aligning insurance and reinsurance portfolios with the aims of the Paris Agreement is something we need to work on together with clients, governments, regulators, scientists and other stakeholders. To get us there, there's also the need for the right set of data and science-based targets. This will ensure a level playing field beyond a few European industry players and a consistent framework worldwide.
There's still a lot of work ahead of us all, but we believe it is a mission possible worth taking.
Many thanks to moderators Butch Bacani, Ivo Menzinger and Stefanie Ott and to all the speakers.