A View From Me on ‘23 – 2023 – the moment of truth for net-zero insurance companies

Peter Bosshard, coordinator of the international Insure Our Future campaign, says as the world stands on the brink insurers need to follow the science not look to the industry’s lowest common denominator.

The past year, climate change has brought unprecedented floods, heatwaves and droughts to large parts of the world. In early December Swiss Re estimated the economic costs of this year’s natural disasters at $260 billion (and counting). These figures don’t do justice to the human impacts of climate disasters. The floods in Pakistan displaced at least 33 million people, and the summer heatwaves claimed 20,000 lives in Europe alone.

We are currently experiencing 1.2°C of global warming and with the climate policies adopted so far,      will reach 2.7°C by the end of the century. Already scientists are warning that we are at the brink of several global tipping points, which are likely to trigger cascading disastrous impacts if crossed.

Insurance and reinsurance companies have responded to the escalating losses from climate disasters by raising their premiums and by withdrawing from regions particularly exposed to climate risks. Yet their models do not account for the chaos which may ensue across the planet once we cross climatic tipping points.

Scientists of the IPCC, the International Energy Agency and other bodies agree on what we must do to limit global warming to a somewhat manageable level of 1.5°C. We need to immediately stop expanding the extraction of coal, oil and gas and phase out the production and consumption of fossil fuels throughout the global economy over time.

Given their role as global risk managers and their privileged access to climate science, insurance companies are well placed to champion a rapid shift from fossil fuels to clean energy sources. So far 29 major insurers have committed to reduce their operational and insured emissions to net-zero by 2050 as members of the Net-Zero Insurance Alliance (NZIA), consistent with a maximum temperature rise of 1.5°C.

The UN Race to Zero campaign has defined what net-zero commitments need to mean in practice. Under the Race to Zero criteria, the NZIA members will need to “phase down and out all unabated fossil fuels as part of a global, just transition” by 2050, set targets to contribute their fair share towards a 50% reduction of global emissions by 2030, and prepare a plan on how they will meet these criteria by June 2023.

The NZIA is currently developing a protocol on how its members must set targets for reducing their insured emissions. The draft protocol which the alliance has shared remains far below what climate science demands and what its members have committed to as part of the Race to Zero:

The draft protocol remains silent on the phasing out of fossil fuels and declares the business lines typically used for underwriting new power and energy projects (Construction/Erection All Risk) to be out of scope.

Against the guidance of the Race to Zero criteria, the draft protocol only mandates insurers to set targets for reducing the scope 1 and 2 emissions but not the scope 3 emissions of the companies it underwrites. This would allow them to ignore the emissions from burning the fossil fuels which their underwriting enables.

The draft protocol only requires insurers to reduce their insured emissions by 31% by 2030 – far      below the 50% which they committed to under the Race to Zero criteria.

After drawn-out processes and preparations, net-zero insurers will face their moment of truth in implementing their net-zero commitments in 2023. In June they will have to report how they plan to implement the Race to Zero criteria and in July, they will need to publish their targets for reducing insured emissions under the NZIA protocol.

NZIA members have justified the many loopholes of their draft protocol with the need to reach a consensus among 29 different insurance companies. Yet they know that as a society we are standing at the brink of unmanageable climate breakdown. When they set their emissions reduction targets and start implementing them, they should not take guidance from the lowest common denominator within their industry, but follow climate science. Campaign organizations will pay close attention and will continue to call out leaders and laggards.