Insurers: a force for sustainable change

#CriticalThinking

Climate, Energy & Sustainability

Picture of Philippe Donnet
Philippe Donnet

Group Chief Executive Officer of Assicurazioni Generali S.p.A.

The climate crisis is more tangible and urgent than ever. The last decade was the warmest on record, with greenhouse gases (GHG) in the atmosphere rising to new highs. This summer, a number of severe natural catastrophes erupted across Europe and beyond, taking heavy tolls on entire cities and regions.

The urgency for immediate global action on climate change was further confirmed by the publication of the Intergovernmental Panel on Climate Change (IPCC) report in August 2021. As the report highlighted, global temperatures are expected to rise between 1.5°C and 2.0°C above pre-industrial levels during the 21st century, if we do not succeed in reducing carbon dioxide (CO2) and other GHG emissions in the upcoming years.

It is in this context that the European Commission adopted one of the most ambitious and all-encompassing policy action plans to reach climate neutrality by 2050, with robust, targeted measures to re-channel environmental, social and governance (ESG) investments in support of a sustainable economy.

Players in the financial system must join forces and act quickly to mitigate climate change, and insurers like Generali are well positioned to make a significant contribution both from an investment and risk management perspective. In order to fully grasp the various ESG risks our societies face, it is crucial that insurers, both as risk-takers and investors, have access to measurable, assurable, high-quality ESG-related data.

The decarbonisation of investment and insurance portfolios is fundamental to reaching carbon neutrality

The EU’s leadership on sustainability reporting, including on the concept of ‘double materiality’ is laudable, but it remains to be seen if convergent, or at least equivalent, reporting standards will be adopted on a global scale following the upcoming COP26 summit in November. Political leaders have an important role to play in achieving a truly global harmonised reporting standard, to allow for genuine comparability and prevent market fragmentation.

Insurers require robust ESG-related data to specifically consider the price of climate change-related risks. The decarbonisation of investment and insurance portfolios is fundamental to reaching carbon neutrality by 2050, a commitment consistent with the Paris Agreement’s goal to limit global warming to 1.5°C. For example, at Generali, we will no longer underwrite risks associated with the exploration and production of unconventional fossil fuels from tar sands. In 2021, as part of our updated strategy for climate protection, we set the target of reaching €8.5bn to €9.5bn new green and sustainable investments by 2025. This is in line with the previously achieved target of €4.5bn between 2019 and 2021, which we achieved one year ahead of schedule.

As insurers, we know the price of risk, and more specifically the price of climate-change related risks. Our industry should also work together to develop best practices for underwriting specific risks in the renewable energy sector. We can also take action to stop the coverage of coal while working for a just transition. In this aspect, the development of an EU taxonomy system for sustainable economic activities is helpful.

Achieving ambitious targets and embracing sustainability at all levels requires time and effort. There are economic and social costs that come with it: some companies will no longer exist and specialised workers will be forced to seek new employment. The objectives should be reconciled with their potential social impact by engaging with stakeholders and actively supporting their evolution towards more sustainable methods, in the context of the just transition.

There is a tangible push, both from the public and private sectors, to reduce our impact on climate change

To this end, Generali plans to engage with at least 20 carbon intensive companies that are part of our investment portfolio by 2025, to encourage their decarbonisation pathways and drive their transition towards net-zero emissions. Early this year, for example, this activity led us to divest and terminate property underwriting for two companies as they did not communicate their just transition plans proactively. On the other hand, it also had the effect of pushing a primary power supplier in Eastern Europe to disclose an ambitious coal-decommissioning plan.

Joining forces with peers who share the same objectives and commitment is also key. In this regard, the UN-convened Net-Zero Insurance Alliance (NZIA) was launched on the fringes of the G20 finance summit in Venice this summer by eight of the world’s leading insurers and reinsurers. The founding members of the NZIA have expressed their commitment to individually transition their underwriting portfolios to net-zero GHG emissions by 2050, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100. Each company will also individually set science-based intermediate targets every five years, as well as independently report on their progress publicly and on an annual basis, to contribute to the achievement of the Paris goals.

The European policy agenda has put sustainability risks at the top of the list of priorities. There is a tangible push, both from the public and private sectors, to reduce our impact on climate change – and it is critical that no one takes a back seat. We must take united action now to better understand and consequently overcome the “tragedy of the horizon”, in the words of the former Governor of the Bank of England, Mark Carney. Only through global action will a sustainability-centric economy and society be possible.

This article is part of a series published around our annual flagship event, State of Europe – the festival of politics and ideas: a new Renaissance, held on 14 October 2021.

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