Insurance companies are well positioned to contribute in the global combat against climate change and it is encouraging to see that the insurance exposure – which stands for a large portion of the total emissions of an insurer – is receiving more and more attention.
Due to the increased focus on scope 3 GHG emissions, more and more financial institutions have begun reporting their scope 3 emissions. That’s good news from a climate perspective, because in order to define meaningful reduction targets, one must first understand the emission sources. It is, however, also worth acknowledging that there are challenges involved in determining these emissions.
Preparations for the the next UN Climate Change Conference (COP26) in Glasgow later this year are in full motion. 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. 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.
Motor insurers, according to our estimates, contribute ~15% of the revenues of the global automotive industry, through repairs and cash settlements of insurance losses. Under the assumption of proportionality, this indicates that ~0.5% of all global carbon footprints stem from motor vehicle repairs and cash settlements from insurers.
Besides being “the right thing to do”, we believe that having a laser sharp focus on GHG emissions across the entire value chain makes perfect business sense for insurance companies. The early adopters will be in a unique position to meet the needs of stakeholders and attract new customers through public disclosure of GHG emissions, progress toward GHG targets, and demonstration of environmental stewardship. Our mission is to help the insurance industry decarbonize insurance.