Digital Dialogues


November 2021

Digital Dialogue No. 6:

Driving Decarbonization through the Insurance Sector

The Challenge

The insurance industry plays a critical role in climate adaptation and building climate resilience. It can also, however, play a pivotal role in driving climate abatement. This role can range from their own asset management and underwriting to their support of clean technologies and changes to their own operations. The digital dialogue explores the full range of roles the insurance sector can play in supporting decarbonization.


How can insurers best support the goal of reaching net-zero emissions for the global economy?


Managing Director for Climate, MarshMcLellan, MMC Advantage and Former Executive Director, Wharton Risk Center

The latest report from the UN’s Intergovernmental Panel on Climate Change is a warning—yet again—from scientists that we are already experiencing “pre-lapses” of a dire future filled with devastating extreme events. This is an all-hands-on-deck moment for addressing climate change.  We both work closely with the insurance sector and while most of the public conversation has been focused on their essential role in building climate resilience, we believe they can also play a pivotal role in driving climate abatement through five key activities. We are pleased to present this Digital Dialogue, with reflections from experts, each highlighting some of the key contributions insurers can make in moving us to net zero:

1. Adjust asset management and underwriting.

Insurers can redirect their capital away from certain carbon-intensive industries and engage directly with clients on the risk implications of their transition strategies. Supporting these efforts are new organizations like the Net-Zero Asset Owners Alliance and the Net Zero Insurance Alliance that seek to inject science-based analyses into understanding and reducing the carbon intensity of both sides of insurers’ balance sheets.

2. Reform internal operations.

Insurers, like other firms, can make themselves net zero in their operations. This includes building retrofits and utility choices that promote energy conservation and renewable energy. It also means changes to workplace requirements, such as encouraging greater use of virtual meetings instead of travel. For some, it also includes the establishment of internal carbon prices and the use of carbon offsets.

3. Vocally support climate policy.

Insurers can also use political influence to support key public sector carbon abatement initiatives, such as setting a price on carbon emissions. The industry has a proud history of advancing resilience planning and risk financing proposals but has not fully engaged on the ultimate risk-reduction strategy, namely achieving the Paris Accord carbon reduction targets.

4. Innovate on product offerings.

Beyond offering discounts as incentives for carbon-friendly behavior, insurers can help support the transition to net-zero by providing risk financing tools for new technologies, business models, and instruments that reduce carbon emissions, such as renewable energy products, sustainable agriculture practices, and multi-benefit, verified, carbon offset projects. Insurance is a critical enabler of economic activity across sectors, and by quickly developing product offerings for cutting edge low- and zero-carbon technology, the insurance industry can facilitate – if not accelerate – the rapid deployment and scaling of climate solutions.

5. Expand risk assessments.

New technologies with broad societal impact—such as carbon-infused cement, carbon capture and sequestration, and enhanced battery storage capabilities—will require in-depth risk assessments to become viable at scaled levels. Insurers can harness their risk advisory capacity to help accelerate the testing and deployment of carbon-friendly technologies.

As we all reassess our carbon footprint in light of the “code red for humanity” issued by the UN, we hope insurers will see this as an opportunity to lead. They have many paths to do so.


Associate Professor of Insurance and Capital Markets, Director of the Institute of Insurance Economics
University of St. Gallen (Switzerland)

Limiting global warming to well below 2, preferably 1.5 degrees Celsius, as targeted by the 2015 Paris Agreement, will require a concerted effort by societies worldwide. How can the insurance sector help with regard to these decarbonization efforts? An obvious way for insurers to actively support the transition to a low-carbon economy is by reducing their own carbon footprint. There are many means to this end, such as energy-efficient office buildings, the introduction of paperless business processes, the avoidance of long-haul flights and the restructuring of the corporate car fleet, just to name a few.

Furthermore, the insurance industry could play a role through product innovation. Particularly in the property-casualty lines, policies can be redesigned to incentivize low-carbon behavior by customers. Home insurance, for example, could offer a higher payout if the owner builds back ecologically after the loss of the house. Similarly, policyholders could be offered special rebates on their motor insurance policies in case they purchase low-emission or electric vehicles.

Upon second glance, however, the responsibility of insurers stretches way beyond the aforementioned measures. Through their underwriting and investment businesses, insurers command a major part of the global capital flows. Worldwide insurance assets are estimated to amount to more than 15 times the annual private sector funding needed to achieve all UN sustainable development goals. Hence, insurers have a substantial power that can be harnessed to exert influence on firms in other sectors of the economy. By rebalancing their investment and underwriting portfolios, insurers can, and have already started to induce a shift away from CO2-intensive business models. As firms with the latter face a tightening of both financing and insurance coverage, their costs of capital and their costs of insurance will rise. This should ultimately provide strong incentives to innovate towards a new carbon-neutral or even green business model.


Partners, Oliver Wyman

Say vs Do: Climate Change and Property Casualty Insurance

The October 16th issue of the Economist highlights some of the challenges embedded in the transition to a lower carbon energy future.  While world leaders gather in Glasgow for COP 26 to address their part in a net-zero future, global demand for hydrocarbons (and prices) have soared.   Presently the property / casualty insurance and reinsurance industry seems to be struggling with how best to meet the demands of investors, activists and employees – and their own net-zero ambitions – while also addressing the needs of the overall economy and those carbon intensive insureds that support it. Satisfying one does not preclude the other, but it requires a nuanced approach in a world of absolutes.

So what do these competing demands mean for property and casualty insurers and their approach to underwriting the energy transition?

  • The vast majority of emissions reductions must occur in carbon-intensive industries. Insurers can have the biggest impact by engaging with companies in these sectors to support their decarbonization efforts.
  • Decarbonization in high-carbon sectors is predicated on new technologies and processes. To effectively underwrite large scale transformation, insurers must invest in understanding, and then underwriting, the fundamentals of these critical technologies.
  • Rates of decarbonization will vary across sectors and geographies due to factors beyond insurers’ control. Portfolio strategies must accommodate this variation.
  • The transition will affect multiple lines of business and create underwriting opportunities as new markets, technologies and risks emerge. Insurers should consider the full spectrum of coverages, not just physical damage to assets in carbon-intensive industries.
  • There will be limited tolerance, over time, for insurers which focus on highly visible exclusionary language that is unsupported by their underwriting. Insurers should ensure that words align with action.

Amidst an often confusing corporate commitment landscape, exclusions may cleanse the corporate conscience without making any material difference. Put differently, supporting continuous improvement in high carbon sectors will achieve more than starving them of capital.


Managing Director and Senior Associate, Ceres Accelerator for Sustainable Capital Markets

Facing a steady onslaught of extreme weather events, the insurance industry is ideally positioned to be a leading industry assessing the financial risks of climate change. Climate change has now surpassed insurance companies’ concerns over diseases and pandemics, according to a new report released recently by French insurance company AXA. But insurers need to accelerate their actions on climate change, including risk assessment, disclosure, and strategies to reduce risks.

Climate change poses significant material risks to the financial system, but particularly for the insurance sector. Ceres examined this exposure in 2016 with a report on the risks to the portfolios of insurance companies. A recent Ceres discussion focused on the opportunities.

While a few insurers have announced climate goals and disclosed progress towards their commitments, there are inconsistencies around both measurement and methodologies. This is particularly challenging for financial market actors, such as investors and regulators, who seek out comparable disclosure metrics from insurers to assess financial health.

A disclosure framework already exists to address these discrepancies. Financial market stakeholders would receive better information from insurers if they used the framework created by the Task Force on Climate-related Financial Disclosures (TCFD) in 2017. Recognized by G-7 Finance Ministers and more than 2,000 companies, the TCFD has become the global standard for corporate climate risk disclosure across industries, including insurance.

For insurers, disclosure practices are moving in the direction of TCFD reporting. In 2020, eight insurance companies filed TCFD reports in response to the annual National Association of Insurance Commissioners (NAIC) climate survey administered by 6 states. By 2021 this coalition had grown to 17 states and 28 more insurance companies that filed their TCFD reports. For 2022, the NAIC is considering whether to integrate the TCFD framework into the NAIC questionnaire, or replace it entirely with a TCFD reporting requirement.

In March of 2021, the New York State Department of Financial Services proposed guidance for insurers on managing the financial risks from climate change and set expectations for insurers to “[d]isclose its climate risks and consider the TCFD and other initiatives when developing its disclosure approaches.”

And in the last few months, the SEC has received letters from institutional investors concerning improving climate-related disclosure in SEC filings. 71% want SEC disclosure rules aligned with the TCFD’s recommendations. 587 investors ($46 trillion AUM) have asked governments worldwide for mandatory climate disclosure aligned with the TCFD.

With the TCFD as their toolkit, the insurance sector has a promising opportunity to lead the rest of the financial system on climate risk assessments. But first, insurers and regulators need to embrace TCFD reporting. Insurers will be more secure and better positioned to offer climate risk advisory skills to other sectors of our economy once they have a handle on their own climate disclosure practices.


Deputy Commissioner on Climate and Sustainability, California Department of Insurance

The strongest long-term strategy for climate resilience is reducing the greenhouse gas emissions that are intensifying climate impacts. The insurance sector has opportunities to reduce climate risks and emissions through their operations, risk information capacities, products, and sustainable investments. As the public and private sectors develop strategies they need to be communicated to be scalable.

Thought-provoking disclosures can lay the groundwork for cross-sector partnerships working towards collective goals. Climate Risk Disclosures such as the TCFD (Task Force on Climate-related Financial Disclosures) and the recently-launched TNFD (Task Force on Nature-related Financial Disclosures) provide opportunities to build capacity and accountability among insurers and other businesses. Partnerships can help the insurance sector set ambitious new directions and action on climate change. In 2019, the California Department of Insurance launched a partnership with the United Nations Principles for Sustainable Insurance Initiative to develop the California Sustainable Insurance Roadmap. This roadmap set out to encourage a more sustainable insurance sector, with a focus on piloting nature-based solutions, and strengthening climate risk disclosure, climate-focused insurance products, and sustainable investments. One part of this roadmap has already launched: an initial database on Climate Smart Insurance Products will provide information to the public and encourage further innovation. For example, insurers could prioritize insurance products that would accelerate deployment of emerging technologies like zero emission trucks and buses, and carbon sequestration strategies, and incorporate incentives for emissions reductions into rebuild options after losses.

Two additional opportunities are currently underrated and could be further pursued. First, climate actions related to operations, investments, and products should include strategies to abate short-lived climate “super pollutants,” such as HFCs, methane, and black carbon, with tens to thousands of times the potency of CO2. Secondly, nature based solutions can serve as carbon sinks, and therefore should be a priority to mitigate climate impacts. Insurers that cover farms could provide incentives for sustainable agriculture and soil management. Additionally, insurers could prioritize investments in resilience bonds that reduce destruction of sea grasses or protect developing urban forests, increasing carbon sequestration and protecting communities from heat and storm surges. Nature-based solutions and super pollutant emissions reductions should be integrated into operations, products, and investments, and should be part of climate risk disclosures.


EY Global Insurance Leader

 How insurers can promote decarbonization on the road to a greener economy

Senior insurance executives and boards are paying close attention to the transition risks faced by individuals, businesses, and communities as they adjust to a lower-carbon future. While this historical shift will require engagement and collaboration among all sectors, insurers have an important role to play in decarbonization, a critical step in achieving sustainability and shifting to a greener global economy.

There are two areas insurers can focus on to maximize their contribution towards achieving net zero. The first is by redirecting capital in terms of investments, underwriting, and innovation. The second is through engaging with counterparties, suppliers, and customers to influence their transition to green.

As large institutional investors, insurers can allocate capital to companies and sectors looking to innovate for a more sustainable economy. From energy and transportation, to agriculture and construction, to consumer goods and packaging, there is huge opportunity across the entire global economy. In addition, insurers can direct their investments towards climate resilience efforts (e.g., flood resilience schemes or technology that warns of floods in advance), potentially mitigating claims and safeguarding customers.

Insurers must also solve issues related to specific transition risks. This is not just a matter of denying coverage to “brown” sectors (e.g., oil and gas), but also of developing new solutions and advisory services as business models change. In some cases, insurers should challenge transition plans to ensure they are sufficiently bold and detailed.

Shared value insurance can help insurers support the transition while encouraging customers to become greener. For example, insurers can offer incentives to small business customers who embrace more sustainable practices, such as upgrading their delivery fleets with electric vehicles (EVs) or shifting operations out of environmentally vulnerable areas. And some insurers are already rewarding personal lines customers who commute less, buy EVs, or adopt smart home technology. Industry leaders must be aware of the risk that product incentives and innovations may create capacity problems (such as those that have emerged in the renewables market).

Sustainability is one way insurers can live their purpose. But the trillion-dollar impacts of decarbonization can also help grow the business – a historical opportunity to do well by doing good.


Senior Research Fellow, Climate Program, Center for Law, Energy & the Environment, UC Berkeley School of Law

Insurance, Heat, and Decarbonization

Extreme heat threatens more lives than any other climate-related risk. Tens of thousands of heat-linked premature deaths occur each year in the US; that number could exceed 100,000 per year by the end of the century if we fail to slow warming trends. These deaths are the most significant aspect of a landscape of heat-related human impacts: low birth weights, increased mental distress, more emergency room visits across the board.

This summer was the hottest on record in the US, with nearly a fifth of the country experiencing record temperatures. Areas from the Mediterranean to the Pacific Northwest (where hundreds died and thousands visited emergency rooms) registered temperatures up to 10°F above previous highs. This heat would be virtually impossible without human-induced climate change, and it will become more common in the coming decades without significant emission reduction.

While insurance clearly should play a role in managing this risk, the gap between heat impacts and mitigation policies leaves little workable space for risk transfer. Proposals for heat insurance innovation to date have focused on resilience and public health, but heat impacts extend to areas with more immediately discernible private financial implications, from labor productivity to transportation networks to electric utility safety and performance. Insurers should be prepared to help defray these costs; if they aren’t, emergency events will become even more acute.

Until policymakers develop more robust heat protection standards and plans, the feasibility of insurance products may be limited. But insurers can leverage their expertise in risk assessment and management by advocating for policies that achieve emission reduction and heat resilience simultaneously—specifically, government-supported programs to aggressively upgrade our existing buildings through a combination of weatherization, energy efficiency, and decarbonization efforts.

Buildings cause almost 30% of US greenhouse gas emissions; cutting those emissions will be essential to slow future heat increases, particularly in urban heat islands. Technology like cool roofs and surfaces can reduce indoor (and outdoor) temperatures, save energy costs, and reduce emissions; comprehensive energy and building envelope retrofits can do the same, slowing the rise of dangerous temperatures while ensuring that residents, particularly those with limited resources, are as safe and healthy as possible. By calling for stronger regulatory standards and more investment in these building upgrades through programs like California’s LIWP—including new community-scale business models—insurers can help drive significant risk mitigation and potentially develop new roles in decarbonization and extreme heat resilience.


Managing Director for Climate, MarshMcLellan, MMC Advantage

Seeing the forest through the trees: An argument for a broader climate policy agenda

While today’s climate headlines focus on the likelihood of global agreements at the COP26 or the size of the Biden Administration’s budget reconciliation package, looking deeper into the apparatus of government one sees clear signs that the slow-to-move systemic levers of policy, regulation, and finance are beginning to coalesce around a US climate strategy. Admittedly, the plan appears haphazard, as a dysfunctional federal legislative branch cedes its leadership role to a host of others. But just look at what happened in a 10-day span in October that never made front-page news.

The largest property owner in the United States committed to new building standards and land use plans that incorporate climate forecasts. The standard-setters in home mortgages, crop insurance, and flood coverage committed to risk-based pricing that reflects both the threat of climate risks and the opportunities of meaningful adaptation. And the primary generator of climatic data and science promised to make better information more accessible.

All of these actions – as well as a host of others – were part of a series of White House climate adaptation announcements, and represent the most ambitious and meaningful commitment to climate adaptation in US history. A game-changer. A transformational moment. A fundamental reset that recasts the insurance sector, not an isolated voice, but as an empowered partner in a holistic approach to “leveling the curve” and protecting families, businesses, and communities.

Ideally, this would be an opportunity for the insurance industry response to identify and prioritize collaborative efforts; after all, the Administration essentially committed to implementing the same principles on climate adaptation that were recently endorsed by the IBHS and more than 20 leading insurers, reinsurers, and brokers.

But that was not the industry’s response. In fact, beyond the few outlier voices for comprehensive climate leadership (such as Roy Wright and Daniel Kaniewski, to name the most active), there was no response. No press releases. No tweets. No urgent calls for action or collaboration. Instead, the institutionalized leadership of the US insurance sector kept its head down and remained focused on its traditional Stafford Act/FEMA focused agenda. Important, clearly. And groups like the Build Strong Coalition are driving meaningful progress in this space, as reflected in the recent introduction of the Resilient America Act. But focusing only on the mechanics of disaster resilience is in effect seeing only the trees, not the forest, despite the wildfires that rage around us.

And this is the fundamental shortcoming of the insurance sector’s tactical approach to climate change policy: that we fail to internalize that only system-level changes will dramatically alter the course of climate risk insurability. Our focus on the individual tiles of risk transfer hampers our ability to see the bigger mosaic taking shape. A mosaic that captures the turbulence of transitioning how we fuel the global economy. A mosaic that challenges fundamental beliefs in how and where many of us live. A mosaic that exposes a vacuum in leadership, as our political institutions demonstrate their inability to solve intergenerational problems.

All this creates a historic opportunity for the insurance sector to build on its risk-transfer role and drive system-level solutions to the most complex, interdependent, and profound risk-facing society today. It would require the industry to take a stand on the broader issues of climate mitigation, such as addressing externalities through a carbon tax, accelerating transitions through regulatory and tax measures, and picking winners and losers by funding critical technologies. It would require the industry to work directly with the most vulnerable – and often poorest – communities to upskill their risk analytics and finance capabilities. And it would require the industry to imagine new models of risk-sharing and drive a new era of innovation.  In short, for the insurance sector to fulfill its societal risk role it must embrace a broader system-level perspective, as it did when it established Underwriters Laboratory to allow the safe deployment of electricity or when it established the Insurance Institute for Highway Safety to protect passengers on the new interstate highway system.

A few bold industry leaders are leaning on these systemic levers. Allianz is a founding member of a conservative-oriented group promoting a carbon dividend scheme.  American Family Insurance is coalescing key stakeholders to drive holistic climate adaptation discussions across Wisconsin. And the Reinsurance Association of America is advocating a climate resilience prioritization and activation framework underpinned by social justice considerations.

The time is now to show the courage to expand on these efforts and position the insurance sector as a leader in the broader climate efforts to align policy, finance, and local implementation. To do so will require us to think long-term not short-term, and to redefine our role in these debates. We’ve done this before. Let’s do it again.


Senior Climate Policy Advisor, Washington State Office of the Insurance Commissioner

Adjust Asset Management and Underwriting:

Insurance regulators nationally and internationally have been exploring how insurers can support the transition to a low carbon economy. Climate disclosure has been a particular area of focus; in the United States, the largest insurers representing over 70% of the market have been required since 2009 to complete an annual “Climate Risk Disclosure Survey,” the results of which are publicly available.  State insurance commissioners are encouraging insurers to up the ante on disclosure by migrating to the widely-accepted TCFD (Task Force for Climate-Related Financial Disclosures). This effort is well underway, both at the state level (NAIC) and the federal level (SEC).

Another area of great promise in my view is for U.S. insurers to leverage their considerable investments – roughly $8 trillion – to help the U.S. economy get to net-zero by mid-century.  Net-zero represents the conclusions of climate scientists to evade the worst climate change-related outcomes.  The Net Zero Asset Owners Alliance and the newly formed Net Zero Insurance Alliance are paving the way.  Both initiatives foresee insurers discussing the need to achieve a net-zero path with the entities in which they invest. Insurers invest heavily in utility bonds since these are traditionally a secure fixed income asset – the type of asset that insurers want to invest in – and their regulators want them to invest in – to be able to pay out claims.

The utility industry is particularly carbon-intensive: one insurer has noted that while utilities represent only 5% of their investments, this sector represents 65% of their portfolio’s carbon intensity.  U.S. utilities are moving rather smartly away from coal and toward renewables, as an excellent recent Ceres report documents.  However, the pace is still not fast enough, especially if we are to “electrify everything” (transportation, housing, etc.) by mid-century.  As the report notes, we will need 50% more electricity than we produce today to meet that goal, and it all must be renewable.

I certainly support the idea of addressing climate goals also through underwriting – insurers that underwrite the utilities industry are encouraged to engage in a dialog with utilities. However, insurer investments in utilities hold as much or more promise in my view. I would like to see a robust, ongoing dialog between insurance industry execs who invest in utility bonds, and the utility execs, to establish a faster utility trajectory to net-zero.  Such a substantive dialog could well set utilities on a more efficient path to reach the goal that is in our collective interest.


Global Lead Sustainability & Market Development, Swiss Re and Vice President, Swiss Re Public Sector Solutions

How can the insurance sector support the goal to NetZero?

Addressing the devastating impacts of climate change is core for the insurance industry. We are seeing the growth of ESG investors and consumers influence many companies, insurers included, to adopt more climate-friendly practices and grapple with sustainable practices. For Swiss Re and many insurers, these policies have become how we do business; despite the rising frequency and severity of weather and climate-related events, we strive to maintain an affordable and accessible market.

The insurance industry can help lead the global transition to a low-carbon, climate-resilient economy through risk transfer products and investment, and at the same time embrace the importance of drastically reducing our organization’s carbon footprint.

  • Swiss Re advocates for emissions reduction first, then removal – ‘do our best, remove the rest’. While, unfortunately, there will always be emissions– from wildfires, hard-to-abate sectors and historic residual emissions – committing to Net Zero means focusing on reductions and ramping up removals.

Swiss Re has a 2030 Net Zero commitment for our own operations and will fully decarbonize our underwriting and asset management activities by 2050. Key steps towards this include:

  • Early carbon offsetting purchases – this has enabled us to be GHG neutral since 2003
  • Commitment to reduced travel – as a global organisation, travel is a major source of emissions
  • Green energy and buildings – we have been 100% powered by renewable energy since 2020
  • ESG policies –we no longer provide coverage for thermal coal and the most carbon intensive oil and gas companies
  • Internal carbon levy – currently USD100 per ton and will gradually increase to USD200 by 2030, to help business steering and decision-making away from carbon intensive activities
  • Carbon removal purchases – Swiss Re signed the world’s first 10-year carbon removal purchase, which also supports the technology development for high quality carbon removal certificates.

The path to Net Zero brings a new ecosystem of risks, stakeholders and needs, and also the opportunity for insurers to build expertise and commercialize this new risk pool. But in order to de-risk the transition to Net Zero, insurers must first lead by example – and take action now to limit the impacts of global warming.


Chief Research Officer, RMS

New Roles for Risk Modelling

The quest for Net Zero is going to require unprecedented coordination across sectors, including an expanded role for risk modelling in support of risk management and insurance. Catastrophe risk modelling has played important roles in the insurance industry.  Risk modelling helped get reinsurers through a tight squeeze in the early 1990s, enabling eight new reinsurers to be founded in Bermuda without needing to have their own decades of insurance loss history. More recently, risk modelling transformed flood insurance rate-setting, as it enables building specific flood insurance pricing. Risk modelling will also be important in the quest for net zero, the principal endeavour of our time.

I believe this agenda will be a rich one. I see five areas in which risk modelling can play a key role.

First, in a world based on carbon credits, what of the risk that sequestered carbon passes back into the atmosphere prematurely? A role for insurance—and which must be founded on modelling—is to consider and cover the risk that a CO2-filled underground reservoir begins to leak, or the risk that a forest intended to store carbon for a hundred years is blown down in a windstorm, or consumed in a fire.

Second, risk models can help us to look out into the future. Insurers and reinsurers will continue to focus on one-year contracts, but will be expected to sustain insurance into the future and should be looking out ten, fifteen, even twenty years to see what is ahead.

Third, a key part of sustaining insurance will come through adaptation, but which measures to reduce risk will be most cost effective? We will need to measure and compare alternatives, in terms of reductions in monetary or social costs, using our models for future risk.

Fourth, while insurers mainly focus on perils that are currently insured, other perils, like drought and heatwaves, or high frequency flooding will need modelled solutions, whether physical or involving risk transfer.

Finally, we will need to expand modelling, with appropriate exposure categories, more differentiated vulnerabilities, and broader hazard geographies so that insurers can offer suitable insurance coverages for new sustainable sources of electricity generation, like solar panels or wind turbines.


Senior Programme Manager, ClimateWise, University of Cambridge Institute for Sustainability Leadership

Given the urgency of tackling climate change and the transformational changes climate action demands, insurance product innovation is key. Innovations are required in a number of areas – how the industry helps and incentivizes policyholders to decarbonize relevant assets and activities; how it underwrites to enable net zero business models, technologies, and lifestyles; and how it decarbonizes the claims process to establish more environmentally sustainable outcomes on the journey to net-zero. Opportunities exist through the design and pricing of policies, and in the claims and risk advisory spheres to incentivize climate mitigation and low carbon solutions.

We propose seven recommendations aimed at addressing barriers to innovation, in order to support, enable and accelerate progress on this urgent agenda:

  1. Actively engage with government on transition protection needs and private-public partnership opportunities to facilitate blended-finance approaches to scaling risk-transfer capital, for example through state-backed reinsurance pools.
  2. Upskill to enhance an ‘engineering’ approach to underwriting, building on close relationships with technology developers of all sizes.
  3. Coordinate across the insurance value-chain with brokers, insurers and others to reduce duplication through a common industry framework that recognises the unique role of each player in achieving net-zero.
  4. Drive ‘long-termism’ through a culture that incentivizes innovation and works to reduce barriers that tend to embed static business-models.
  5. Enhance structuring of existing climate data and development of key climate models, bringing together model-vendors, in-house analytics teams, and original equipment manufacturers (OEMs) to access key data sources and advise on best practice.
  6. Innovate product structures and new insurance offerings that are aligned to client needs, ensuring clients and customers are aware of how newer products and structures – such as usage-based products or parametrics – can benefit them.
  7. Align insurance solutions with insurers’ commercial and climate objectives, so growth areas – such as IP insurance or risk consulting – appropriately integrate climate considerations in ways that enable additional innovation.

Together, these should inform the industry’s focus on innovation and mobilization of innovative solutions towards a net-zero economy.


Sustainability Director, Design Portfolio

Fiduciary duty – what, who, and why?

A favourite quote of mine about future-focused investment is from Robin Blackburn in the joyfully titled Banking on Death, or Investing in Life: “Pensions may be thought tedious…because they sacrifice the present to a remote future, and spontaneity to calculation, or because they embody a vain human attempt to control the future.” The same could be said of climate change mitigation and adaptation – an exercise in controlling nature, with a focus on numbers, degrees, and caution.

As long-term asset holders, life insurers and pensions play a similar, instrumental role in the building of modern economies, through the provision of liquidity to capital markets. Institutional investors undertake a long-term asset-liability matching investment profile, which adds to the productive capacity in an economy and enables business growth.

Climate change mitigation is now the activity towards which we need to direct our economies. Institutional investors should be attracted to the mid-to-high return of expanding green areas like renewables; moreover, the impact of physical risk means insurers will end up paying out against increasing natural disasters – the topic of Mark Carney’s 2015 ‘Tragedy of the Horizon’ speech. They are also an enormous source of finance that could potentially be guided towards solving this problem: insurers hold almost $27 trillion of global assets under management.

Calculators of risk and reward, insurers act as fiduciaries, so that beneficiaries can be sure that their future lifestyles are secure. Life insurers are mechanisms, in theory, for long-term prosperity. They commit to investing more successfully than individuals, and so take on the responsibility of investing safely on their behalf.

But fiduciary duty does not straightforwardly align with climate mitigation. Climate risk-related policy has faced pushback from investment managers who feel they are being called on to give moral, rather than objective, financially-sound guidance. Part of the problem is the cloudiness of ‘ESG’ investing, and lack of a perfect-information taxonomy. The duties of insurers are also currently less well-defined than those of pension funds, despite having a similar profile in terms of investment profile (and investment exposure to climate risk).

UNEP FI’s 2019 Fiduciary Duty in the 21st Century is clear that fiduciary duty is being reconsidered at a national level around the world, with an aim to incorporate climate needs.  The UN’s Principles for Sustainable Insurance includes Investment Management as a key theme under its first principle. But the definition of fiduciary duty reared its head this summer in the middle of contemporary climate legislation – the Task Force on Climate Related Financial Disclosures (TCFD). Respondents to the Financial Stability Board’s consultation on the TCFD were specifically concerned with how climate alignment metrics criteria could potentially force asset owners to breach their fiduciary duties.

It is clear that standing tediously in the center of climate investment and the directing of economic growth in a green direction is this duty of governance and stewardship. Homing in on how best to exercise that duty should be a primary task for all those working in climate.