Willis Towers Watson’s climate transition framework helps insurers to be a force for good

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by Jonathan Kent

Re/insurers are coming under increasing pressure to wield their influence to mitigate the impact of climate change and to drive the transition to a low carbon global economy.

Because big businesses cannot function without insurance, insurers’ risk selections and investment decisions play a significant role in determining which economic activities take place, particularly if the industry acts collectively. Herein lies the opportunity for insurers to be a force or environmental good.

The risks and rewards of sustainability for re/insurers are fast becoming evident, in areas such as reputation, regulation and competition for talent. Environmental, social and governance (ESG) metrics are attracting more attention from the public – including clients and investors, whose business decisions may be influenced by them. Likewise, existing or potential employees increasingly seek employers whose values reflect theirs.

On the regulatory front, insurers are already preparing for required sustainability disclosures in the pipeline in the European Union and the United Kingdom. The Bermuda Monetary Authority also plans to integrate sustainability into its oversight.

The industry is responding to the pressure. Eight of the world’s largest insurers, including Axa, which has an operation in Bermuda, last year formed the Net-Zero Insurance Alliance, vowing to shift their underwriting portfolios to net-zero greenhouse gas emissions by 2050.

Many Bermuda re/insurers have publicly promised not to underwrite Australia’s massive Adani Carmichael coal mine project, whose vast scale has made it a plum target for environmental protesters.

However, high-carbon-emitting businesses present something of a quandary for re/insurers. Fossil fuels still comprise about 80 per cent of the world’s energy use and participants in the coal, oil and gas sectors all need insurance. So how should an insurer evaluate what is acceptable to underwrite and what is not? If coal is out of bounds, should they also be avoiding oil or natural gas projects? Where should they draw the line?

Willis Towers Watson, a global risk management, insurance broker and advisory firm, has acted to help insurers answer such questions in a systematic way and also to help organisations committed to a more sustainable future to find insurance, through a global accreditation framework. 

Liz Lister, Willis Towers Watson’s head of strategy and chief of staff, international, said: “As the world focuses on building a net zero, cleaner and more resilient future, insurers are focusing on the role they will play as stewards of the transition.  

“Many insurers have already started to take a stance to exclude or restrict capacity for high-carbon-emitting industries, and are looking at ways to reduce the carbon exposure within their underwriting portfolios.”  

Ms Lister added that Willis Towers Watson had identified the need to create a consistent approach to help insurers meet their net-zero commitments and help insured organisations who are committed to a low-carbon future to have continued access to insurance capacity as they transition.

“Last year WTW launched Climate Transition Pathways (CTP), a global accreditation framework that accredits climate transition plans that are aligned to the Paris agreement,” Ms Lister added.

“Energy companies and others in carbon intensive sectors will be able to apply for CTP accreditation to demonstrate that they are serious about not just setting low carbon targets, but also have a robust climate transition plan.  

“CTP will unlock the continued access to insurance capacity as they transition. Insurers see the value in having a consistent approach across the industry.”

Since the launch, several insurers have announced that they will recognise the CTP accreditation when underwriting risks, including three based in Bermuda — Liberty Specialty Markets, Arch Capital and Fidelis – as well as French giant Scor. 

CTP effectively supports transition to a low-carbon economy, recognises ongoing progress and provides independent validation.

Ms Lister added: “Enabling insurance to act as a force for good, Climate Transition Pathways is an innovative solution created for the whole industry, open to all insurers and brokers.  CTP will incentivise and accelerate the move to a low carbon economy, helping to build a cleaner future.”

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