Authors: Yingzhen Chuang Marie Ekström
The insurance industry, historically focused on decarbonizing investment portfolios, has now turned attention to greenhouse gas (GHG) emissions linked to insurers’ corporate customers. Increased scrutiny from regulators, stakeholders and advocacy groups underscores the need for insurers to proactively respond to emissions enabled through their underwriting activities.
Decarbonizing underwriting differs significantly from reducing the emissions associated with investments. While the owner of an investment security can influence a company’s activities, the same isn't true of the provider of an insurance policy. The target of decarbonization in underwriting is the emissions of the insurance industry’s customers, which poses unique challenges.
The process of decarbonizing underwriting has three key elements:
- Assessment
- The choice to engage
- Incentivization
The most effective route is for insurers to engage with their clients on GFG reduction, which will require fresh thinking and product innovation. Underwriters urgently need to begin tackling this challenge, because further delays create the risk of market dislocation and a disorderly transition to net-zero emissions.
