Insurers call for collaboration and clarity on the climate agenda.
In the latest episode of Insurance Post TV, experts from across the insurance sector came together before the COP26 Climate Change Conference in Glasgow to identify what was needed to remove as many of the obstacles as possible to carbon neutrality. With the Conference having come to an end on 12 November, we set out the actions identified and ask whether they were met.
Hannah Williams, partner and solicitor advocate in Kennedys’ financial lines and professional indemnity team, joined the discussion with Jon Walker, CEO of AXA Commercial and Paddy Arber, head of government engagement – sustainability, Aviva, amongst others.
This video was originally published on Insurance Post.
nsurance Post TV: COP26 Climate Summit special featuring Kennedys, Aviva, AXA and others 45:11
What did insurers want from COP policies?
- COP26 is a great opportunity to bring together government, business and different sectors to collaborate and tackle climate change, both in the UK and globally.
- The key to a successful transition (to net zero) generally is clarity of thought, targets and actions: What is the plan for UK businesses to help them manage the transition?
- Transparency around how we report against progress towards neutral carbon economies is very important. Transparency will help us hold businesses and governments to account for progress against targets. It is also important to ensure targets are robust to help avoid greenwashing.
- AXA’s recent Future Risks survey of 19,000 people found that climate change is a top priority for people but only a third of the public believe that the UK government is prepared and have the appropriate plans to deliver the policies it is setting out. There is an opportunity here for policyholders to prioritise their objectives to help government focus on the policies important to the public.
- Priority should be to technology which has a key part to play in tackling climate change. Businesses, individuals and households should be encouraged and rewarded for being innovative in their approach for adapting and adopting a green agenda.
- Education is also incredibly important and AXA have recently launched the AXA Climate School to help incentivise organisations, individuals and households to do the right thing.
- AXA continue to focus on product and proposition development to make policyholders aware of all green options such as the use of renewable energies throughout their businesses to help policyholders transition to net zero.
- What the insurance industry needs from governments are clear net zero plans (short-term, mid-term and long-term) to avoid the worst impacts of climate change. From a private sector perspective, insurers want to see ambitious announcements from governments to create a positive context for those government negotiations.
- The private sector will not be able to achieve net zero aims without action from governments. Equally, insurers have a role to play in terms of their investment and business practices. The industry needs a broader set of policy and targets to track against their own investment practices and what it wants to achieve.
- At present, UK corporate transition plans are unclear. There is no clear guidance from government on what corporates should include in a transition plan. Insurers would like to see government introduce “tough guidance” and make it mandatory for corporates to have transition plans in accordance with government guidance. It is hoped that government will provide some indication of that direction of travel and strategy at COP26.
- Giving the private sector greater certainty in terms of mandatory guidance for transition plans will help insurers, asset owners and investors to contribute to the net zero transition.
- Combatting climate change is a natural role for insurers as our policyholders are already being impacted by it.
- Insurers are dealing with the immediate consequences of climate change as well as future protection in terms of how we invest our assets and influence government to take action. Insurers are looking at risk in the short, medium and longer term and are pricing this into their products. The industry is already talking to policyholders and governments about what both of these aspects - risk mitigation and rebalancing investment portfolios - could mean to business and the economy generally.
- This year saw the introduction of sustainable reporting for listed companies, namely to assess, quantify and report on climate risks. Underwriters will take into account all climate risks when assessing the risk portfolio of a listed company. However, the data is inconsistent within a sector and across diverse industries. To overcome this disparity, the UK Government needs to provide a reliable indicator and standardisation of ESG data (including climate change data) across the different industries to ensure clarity, consistency and transparency of data, climate risks and reporting obligations. Insurers will then be more easily able to assess the risks of a policyholder’s portfolio to help them adjust policy wordings and premiums appropriately.
- Insurers are helping the transition to a net-zero economy in four ways:
- Sustainable underwriting: Insurers have already started to actively move away from underwriting risks that deal with fossil fuels. Certain insurers have committed to cut ties with companies if they fail to demonstrate meaningful improvement – both with regard to underwriting or investing in them. Insurers are also offering competitive rates for companies involved in offsetting and carbon removals.
- Technology: The insurance industry is placing more focus on technology, for example, underwriters are now using data to understand the weather in certain areas and in turn, identify the severity and frequency of catastrophic events. This data could be shared amongst the industry and with policyholders to help raise awareness of the potential risks that policyholders face. These sophisticated climate change models have been used to create new or alternative risk solutions, such as standalone climate change policies and parametric cover.
- Sustainable investment: Insurers, like other institutional investors, are also considering the environmental impact of their investments. Investment in green investment funds and green initiatives, such as solar power and carbon capture technology, is an area where insurers can take positive action. That said, those responsible for managing assets need to be able to demonstrate to their boards and their shareholders that greener investments are good for the balance sheet, as well as the planet.
- Education: Despite the ‘Greta Thunberg effect’ and growing concern about the climate crisis, insurers have an important role to play in educating policyholders, policymakers and wider society to alleviate climate risk exposure. Insurers are well placed to help manage risk - based on the research required to support insurer portfolio investment strategies and by virtue of claim trends analysis. That can translate to meaningful conversations at the underwriting stage and in helping governments properly understand the impact of climate change in order to help reduce the protection gap.
Has COP26 delivered the requests of insurers?
- The Glasgow Climate Pact, signed by all 197 parties, asked countries to “accelerate efforts towards phasing down unabated coal power (coal burning by plants without carbon capture and storage) and subsidies for fossil fuels.
- The watering down of the wording ‘phasing out’ to ‘phasing down’ was naturally met with disappointment. However, this will provide insurers with more time to support businesses to transition responsibly, minimising reputational damage.
- This is the first time that fossil fuels have been mentioned in a UN climate change declaration and indicates the resolve for global governments to step up transition strategies to tackle the climate emergency.
- The pact will see most countries phasing down, if not ending, the use of unabated coal power by the 2040s.
- Chancellor of the Exchequer for the UK, Rishi Sunak, launched the Glasgow Financial Alliance for Net Zero (GFANZ), which unites global financial institutions to mobilise US$130 trillion to make the energy transition a reality.
- He also introduced the International Sustainability Standards Board which will bring enhanced accountability via global sustainability reporting one step closer for all to transition to net zero successfully.
- The Chancellor further announced new rules on climate reporting. These will require UK financial institutions to publish net zero transition plans by 2023, which will be assessed by an independent Transition Plan Taskforce to guard against greenwashing.
Hailed as the most significant United Nations Climate Change Conference since 2015 – when the Paris Agreement was signed – COP26 confirmed that a more robust global response is needed to slow global warming. This now piles pressure on governments, companies and investors to set concrete, detailed policies for how they plan to mitigate and adapt to climate change and – crucially – to deliver on those promises and policies.
While the COP policies may not have succeeded in every area, they do go some way to progress the themes of clarity, consistency and transparency that insurers have asked for, including with regard to their own reporting requirements. In turn, the industry should be better placed to continue to support businesses in the transition towards carbon-reduction.
Most surprising of all, the unprecedented involvement of the business community at COP26 has now set the standard for future summits, with many businesses already considering their involvement in COP27. This signals the recognition that no single business, sector or government can transition by themselves. A successful transition to net zero (which mitigates risk and liabilities) requires the close collaboration of all.