Beyond the Net-Zero Insurance Alliance

Vol 47: Issue 1 | April 2024

At the 2021 G20 Climate Summit in Italy, eight major insurance companies — AXA, Allianz, Aviva, Generali, Munich Re, SCOR, Swiss Re and Zurich — established the United Nations’ Net-Zero Insurance Alliance (NZIA). Subsequently, many smaller insurers joined. By May 2023, however, AXA, Allianz, Munich Re, SCOR, Swiss Re and Zurich had all left the alliance. 

A statement from the UN pointed to “recent discussions within the United States” as a deciding factor for many. Essentially, Republican politicians in the US suggested that by working together to influence clients to reduce their carbon emissions, NZIA members might be violating antitrust laws.

With only 11 members as of January 2024, is the NZIA still a force for good in the insurance sector? How has leaving the alliance impacted former members, and where are insurers in their journeys to net zero?

Progress being made

“There has been some modest progress towards achieving net zero; however, momentum has slowed,” says Peter Bosshard, co-ordinator of the global Insure Our Future campaign. 

“Insurers that joined the Net-Zero Insurance Alliance committed to publishing transition plans — decarbonisation targets and organisational plans about how they will achieve these targets over the short, medium and long term, by the [northern hemisphere] summer of 2023. If every alliance member prepared a transition plan and set targets, we could then compare them and see what Company A is doing and consider why Company B has a more ambitious target. It would have created some peer pressure.

“However, out of the 31 insurers who were or are part of the alliance, we’re only aware of seven that have published such plans.” These include Allianz, AXA, Fidelis, NN Group, SCOR and Tokio Marine. In July 2023, the UN changed NZIA’s rules so that members were no longer required to set or publish emission targets and plans.

Still committed

In addition to Allianz’s transition plan, its Australian arm is making significant strides towards the organisation’s net zero goals, according to Sema Whittle, general manager, Corporate Governance and Sustainability at Allianz Australia. She points to a reduction of just over 70 per cent in greenhouse gas emissions since 2019 in its operations, which includes paper, waste, travel and energy. Plus, Allianz Australia already sources the equivalent of 100 per cent renewable energy for its operations from various sources.

Like Allianz, IAG left the alliance in June 2023 but says the move hasn’t changed the organisation’s approach to achieving net zero. In fact, the insurer won the Excellence in Environmental, Social and Governance (ESG) Change category at the 2023 ANZIIF Australian Insurance Industry Awards.

As Lee McDougall, IAG executive manager, Group Sustainability and Climate Action, explains, “Our membership with the NZIA helped us to better understand the role we can play to decarbonise our insurance portfolios. 

“The work of the NZIA on the insurance-associated emissions methodology and target setting was particularly useful to help insurers prepare for meeting net zero commitments, transition our businesses and deliver on stakeholder expectations, including upcoming mandatory climate reporting.”  

In New Zealand, 38 per cent of IAG’s vehicle fleet is either hybrid or electric vehicle (EV), with an emission reduction of around 86 per cent per EV driver.

The Sydney and New Zealand offices have NABERS ratings of 5.5 and 5 respectively, and, among its targets, the company aims to be using 100 per cent renewable energy sources for IAG-operated Australian sites by FY25. 

Allianz Australia and IAG are not the only APAC insurers taking action. In June 2023, Singlife became the first South-East Asian insurer to commit to the UN’s Principles for Responsible Investment (PRI). The PRI requires signatories to integrate ESG priorities into their investment and ownership processes with the aim of funding green technology and finance, and accelerating progress towards net zero. 

Singlife was founded in January 2022 and has prioritised ESG and net zero targets from day one. It produced its first sustainability report for 2022 (its first operating year) and, in the same year, invested more than SG$500 million in green investments, including the Altrium Sustainability Fund.

Chia Ko Wen, Singlife’s head of sustainability, says that initiatives such as the PRI and the UN’s Principles of Sustainable Insurance (PSI) have more signatories than the NZIA does. 

“Speaking for Asian insurers, I think many of them are not part of these alliances, yet they continue to set net zero commitments and have transition plans in place,” Chia told the press.

Leaving fossil fuels behind

Bosshard says that, across the board, insurers still have a long way to go in moving away from fossil fuels. 

“After 2017 there was a shift away from coal, but oil and gas is a bigger part of the global economy than coal, and it’s a bigger revenue stream for the insurance industry,” he says. “Most insurance companies just don’t want to let go of that revenue. 

“We have seen several insurers which don’t have big exposures in the oil and gas sector taking strong steps, starting with Suncorp and IAG in Australia and Aviva [in the United Kingdom]. It is easier to do if it’s not a big part of your business but, even so, kudos to them. 

“Among the companies which still play a strong role in the sector, Allianz and a few others have stopped insuring upstream oil and new oil and gas extraction projects, and that’s important and commendable. However, all of them are still insuring mid- and downstream gas projects, locking in decades of continued production.”

A role for regulation

Bosshard believes that insurers are unwilling to give up fossil fuel-related premiums, only to see their competitors snap up the business. He sees regulation as the way forward, so that insurance companies move away from fossil fuels in a united and co-ordinated way. 

“There is, for example, a framework for the insurance industry being prepared by the Science Based Targets initiative,” he says.

“If we see a decent, credible framework emerging from that, regulators should make it mandatory for insurers to adhere to it, in the same way they have made it mandatory for insurers to make climate disclosures.”  

Mandatory climate reporting came into effect last year for around 200 New Zealand financial institutions. Australia looks set to follow from as early as July 2024 for some companies. Ultimately, climate disclosures will be part of a company’s annual report, along with its financial reporting.

One insurer that is subject to the New Zealand regulations is AIA New Zealand, winner of Excellence in ESG Change in the 2023 ANZIIF New Zealand Insurance Industry Awards.

Jackie Waddams, general counsel and company secretary, says: “As a mandatory Climate Reporting Entity, AIA New Zealand is in the process of preparing its first climate statement, including governance, risk management, strategy and metrics, and targets for mitigating and adapting to climate change impacts. 

“Understanding our greenhouse gas emission sources, measuring our emissions and creating an action plan to reduce these to net zero is an important focus for our business by way of our Toitū carbonreduce certification.” 

Toitū measures greenhouse gas emissions and certifies the findings in accordance with ISO 14064-1 and ISO 14067 (two international standards on quantifying and reporting on emissions).

“We’re very supportive of climate reporting because it means we will have a lot more data across our supply chain, across underwriting and also our investments,” says Whittle. “We need to take that data approach to drive change.”

Beyond revenue

While the NZIA may not have realised its potential to bring the insurance industry together to achieve net zero, the dangers of climate change aren’t going away. As always, insurers have front-row seats to observe the consequences, including losses from extreme weather events and at-risk communities.

Apart from being the right thing to do — and an investment in the long-term survival of insurance as a sector — taking action on climate change may also be essential to secure both future customers and talented young professionals.

Bosshard says his biggest reason for hope is younger generations of insurance professionals. “They are typically very concerned about climate change and they want to work for companies which take the climate crisis seriously. One of the ways we exert pressure on insurance companies is by educating risk management students, insurance students and young people in the tech sector about which insurance companies are taking action.”

Whittle also believes that it’s the people in the organisation who will drive change. “In 2023, we developed sustainability KPIs for every single employee,” she says. “In order for us to achieve what we want to achieve as quickly as we want to achieve it, everyone needs to be working on sustainability in their role, rather than one small team.”  

Three things insurers can do to make a real difference

Globally, we have to halve CO2 emissions by 2030 to limit global warming to 1.5°C, but the world is currently not on track to achieve this target. According to Insure Our Future’s Peter Bosshard, insurers have the potential to make a significant difference. He outlines three key things they can do.

1. Insurers are the designated risk managers of society. Without insurance, new projects usually can’t proceed. Underwriters should align with the 1.5°C pathway, which means not underwriting fossil fuel expansion and phasing out existing fossil fuel operations at an ambitious pace. 
2. Insurance companies are the second-biggest institutional investor after pension funds, so they play a very important role as stewards of the corporate world. As shareholders, they should push for rapid decarbonisation.
3. Because of their access to climate science and modelling, insurers can be influential public voices. They can take an active role as corporate citizens, warn about the climate risks that they’re seeing and push for the necessary political action we need to take in order to keep the climate crisis manageable.

Who’s insuring fossil fuels?

According to a November 2023 report from the Insure Our Future campaign, the following 10 insurance companies were the top fossil fuel insurers in 2022 (listed in highest-to-lowest order by premiums from their fossil fuel underwriting):

1. AEGIS (Bermuda)
2. PICC (China)
3. Sogaz (Russia)
4. Chubb (Switzerland / US)
5. Allianz (Germany)
6. AXA (France)
7. Fairfax Financial (Canada)
8. Zurich (Switzerland)
9. W.R. Berkley (US)
10. AIG (US)

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