The UN Climate Change Conference – a wake-up call for insurers

Preparations for the the next UN Climate Change Conference (COP26) in Glasgow later this year are in full motion. Recently, there was a World Economic Forum (WEF) summit focusing on key actions necessary in the next six months leading up to the climate conference. 

John Kerry, appointed by US President Biden earlier this year as his climate leader, was a key participant spreading enthusiasm about being in a hurry to make an impact following “the four dark years of Trump”.

In a roundtable discussion between Kerry and other stakeholders, Christian Mumenthaler, CEO at Swiss Re, was challenged on where the world of business could contribute the most for reaching net zero emissions in 2050. Mumenthaler responded by describing “scope 3” as an important ingredient, because cooperation amongst businesses and business leaders across industries will be key to success. 

Some reflections based on the roundtable discussion:

  • The Corporate Value Chain (Scope 3) Accounting and Reporting Standard has probably not yet received the attention it deserves among insurance companies.
  • Up until recently, most of the attention around scope 3 emissions has revolved around assets under management, i.e. the investment portfolios of insurance companies.
  • Only a few insurance CEOs have considered scope 3 emissions originating from their claims settlement processes.
  • As focus on scope 3 emissions increases, financial institutions – and insurance companies in particular – will realize that the investment portfolios are only part of the total picture.

During the past few years the trend has been that investment portfolio managers are expected to not only report on the carbon footprint of their assets, but also set clear emission reduction targets. It seems clear that this trend will continue and even accelerate.

Similarly, the next trend could be that we see a surge for insurers to report on the emissions associated with the claims that are being handled and paid, and that relevant actions will be defined and followed-up on.  

In general, when it comes to insurance companies, scope 1 and scope 2 emissions are fairly marginal compared to scope 3. The key drivers of scope 3 will be not only the investments on the asset side, but also the claims settlements on the liability side.