Kabari Bhattacharya, EMEIA Sustainable Finance Insurance Leader at EY, comments:
“The Insure our Future scorecard provides fresh impetus to drive faster progress in the insurance industry as it moves away from carbon intensive sectors such as coal. Insurance boards increasingly recognise that this is the right thing to do if we are to achieve net zero, but industry-wide consensus at a global level still remains a relatively distant goal, with some insurers very active in their part to achieve net-zero and others with significant ground to make up.
“Ultimately, the pace of change will depend on various factors, including growing societal pressure and stakeholder expectations, the financial cost of divesting, and the longer term reputational and financial risks associated with insuring fossil fuel related risks. From a premiums perspective, those expected to be most impacted are energy and cargo underwriters with a focus on fossil fuels, where the transition could lead to a sharp decline in premiums. However, those nimble enough to pivot to provide renewable energy insurance could unlock significant business growth opportunities and map out a viable alternative line of business. Insurance supporting the transition to decarbonisation through clean energy related household and motor insurance and e-mobility covers is another area of opportunity. On the investments side, insurers looking to access capital through green bonds may face challenges if they are seen to be active in underwriting fossil fuels, whereas those that integrate ESG more widely into their investments through active engagement will likely reap rewards.
“To successfully transition away from carbon intensive sectors like coal, insurers must fully embed ESG considerations into their underwriting and investment processes. This includes detailed climate and energy policies with a clear transition plan, comprehensive due diligence of customers to understand climate risk exposures, climate risk stress testing for underwriting and investments, and a renewed focus on renewable energy opportunities. When looking to exit fossil fuels, insurers need to consider the scope and extent of their exclusions, which could cover a range of carbon-emitting energy types such as coal, oil sands and drilling in protected regions to list but a few. For some insurers this may form a material part of theirs and their clients’ businesses and will require dedicated focus as they transition. Many insurers will apply their exit strategy at a global level, while others may draw boundaries around developing countries that are more reliant on coal. Embedding ESG considerations is a huge exercise, and even the most sophisticated insurers in this space recognise that this will take time to become fully integrated. However, today’s benchmark provides a helpful step in the right direction for insurers as they do their part to achieve net zero.”