ESG Exchange Q&A: Minyoung Shin, The Sunrise Project

What responsibilities does the insurance sector have in reducing its contribution to climate change?

We know that the insurance sector provides insurance for the various risks we face and, at the same time, they are investors that can influence the flow of capital. This means insurers have access to the climate data-risk modelling, and access to people that understand the systemic risks of climate change on our financial systems. Insurance companies are in a unique position because they know more than any other industry what is at stake if businesses and governments don’t act now to limit global warming to 1.5°C.

Insurers have dual responsibilities when it comes to addressing climate change. The first one is as society’s risk manager and the second one is as a provider of capital. We know that the main driver of climate change is burning fossil fuels and, as society’s risk managers they have the power to choose not to provide insurance policies to new and expanding coal, oil and gas projects.

As investors, insurance companies need to transition their investment portfolio to Net Zero. This requires companies to set short and medium-term targets to reach Net Zero emissions by 2030. They can do this by simply not purchasing any corporate bonds issued for fossil fuel expansion and by divesting from fossil fuel companies

As investors, insurance companies need to transition their investment portfolio to Net Zero. This requires companies to set short and medium-term targets to reach Net Zero emissions by 2030. They can do this by simply not purchasing any corporate bonds issued for fossil fuel expansion and by divesting from fossil fuel companies.

Would you say the environmental, social and governance policies insurance companies are setting are in line with what is expected under the Paris Agreement?

In terms of their Net Zero commitments, for example the Net Zero Asset Owners Alliance, which is one of the first Net Zero initiatives with about 70 institutional investors and, collectively, £10.4trn in assets, these are broadly aligned with the Paris Agreement. This is especially true with target-setting protocol, which sets a guideline on how their members should be setting targets.

Insurance companies have been using the International Energy Agency’s Net Zero 2050 model, as well as the One Earth Climate model, which are pretty much in line with the science. [The alliance’s] protocol mentions that their members should not be financing new coal or oil and gas infrastructure assets if that’s not in line with a 1.5 °C pathway.

However, it is a guideline, so it’s really up to the members to start implementing. We’ll have to wait and see if they are truly in line with that position, but there are definitely guidelines that insurers can follow. That’s for the investment side; for the insurance side it is not as clear. There is the Net Zero Insurance Alliance, and currently there is 20 members, who are still working on their protocol. They have a partnership with Partnership for Carbon Accounting Financials to measure their insured emissions. Insurers are still waiting to find a way to measure their insured emissions to set their interim targets, but there’s something they can do immediately now and that’s just to follow the climate science and stop underwriting new coal and oil and gas production.

Are there any insurance companies that are doing better than others?

We track the property and casualty insurance companies, and there are major European insurers leading the way compared to their peers. Currently, the laggards are the US and Asia, but Asia made some progress, especially on the underwriting side, in 2021. The industry is definitely moving – there’s progress – but the biggest problem is that it is moving very slowly. It took many years for us to get to the point where we have about 37 leading insurers with some restriction policy that is related to the coal industry. As 2030 is coming very soon, I don’t think – at this point – that there is enough progress for us to get to a point where we can have Net Zero emissions by 2030.

How do you encourage companies to align themselves with the Paris Agreement?

We have various partners in the Insure Our Future network, and they work with insurance companies in different ways. Some of our partners have put a lot of outside pressure into aligning with the Paris Agreement, but they are also talking with insurance companies and making the case for it. Recently, there was an investor that tried to file resolutions with US insurance companies relating to its fossil fuel underwriting, so investors are also very concerned about this topic. In 2021, Legal & General Investment Management introduced specific outlines on insurance companies referring to coal underwriting.

Post’s ESG Exchange

This article is part of Post’s ESG Exchange from 7 to 18 March featuring free to access  webinars, blogs and interviews focusing on ESG.

Today ESG is a powerful tool in the insurance industry, presenting both risks and opportunities for businesses. Register now to watch any of the ESG focused webinars, and have the opportunity to explore and read future content online.

• What do SMART environmental goals look like for the insurance industry?
• Implementing ESG practices across the insurance supply chain.
• What are some of the challenges in creating a more diverse workforce?
• Which area of business should you focus on first in implementing the ESG Agenda
• Will ESG reputation end up being one of the top attractions for insurers in terms of investments?

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