Climate change: how insurers can make a difference

The industry has a seminal role to play in driving positive environmental change. Indeed, 80% of those questioned believed the industry had either an ‘important’ or ‘very important’ part to play in helping to reduce greenhouse gas emissions to net zero by 2050.

This view is echoed by the Association of British Insurers (ABI). It is similarly bullish about the sector’s appetite and ability to make positive change at both a national and international level.

Huw Evans, director general at the trade association, said: “Insurers are at the forefront of dealing with the impact climate change has on communities and infrastructure all over the world. They want, and need, to be part of the solution.”

He added: “The biggest thing the industry can do is to use its sizeable investment portfolios to move funding away from things that are polluting the planet and into greener initiatives.”

To put the size of these portfolios into context, the ABI says the UK’s insurers hold over £1.8tn in invested assets. Over 1.2% of all assets under management in the UK are invested in environmental, social and governance (ESG) assets such as renewable energy.

As insurers increase the proportion of funds invested in ESG assets, they will further grow the positive impact they are making through the billions of pounds they have already committed to such investments.

The research found that those working within insurance agree that where and how insurers invest their portfolios will be their most effective tool in driving the reduction of greenhouse gas emissions.

The second most effective strategy highlighted in the research was withdrawing capacity from carbon-heavy sectors, which is something a number of insurers have already done.

But until this  approach gains a critical mass, there will always be a market for the biggest polluters to secure the cover they need. Even where insurance is not available in traditional terms, captive and self-insurance options will remain on the table.

Governments may have the power to legislate against certain commercial activities, but they also have a responsibility to maintain social cohesion and help carbon-reliant workforces and communities to transition to new models.

As the insurance industry structures its own efforts and establishes how best to work with regulators, legislators and other commercial sectors, the research suggests it could also develop the education and publicity surrounding its ongoing work.

The more carriers can develop and promote their green agendas the faster they will build momentum behind the drive to net zero emissions.

They will also find, as the research shows, that making climate change a priority will play out well with corporate clients and consumers in the coming years.