Insurance firms confronting a "climate conundrum": finding solutions

Insurance firms confronting a "climate conundrum": finding solutions

Life insurers are increasingly recognizing the importance of sustainability in their investment strategies, as highlighted in ISS ESG's latest report on sustainability targets in regulatory frameworks worldwide.

In the corporate bond market, where life insurers have invested significantly for securing future payouts, the oil and gas and power generation sectors—heavily invested by these insurers—are exposed to climate transition risk. To manage and mitigate these risks, insurers are integrating climate considerations into their risk management frameworks, conducting detailed carbon footprint assessments, and aligning investments with decarbonization goals.

A key best practice involves integrating climate into risk management. Insurers embed climate considerations into their overall risk management processes to identify, measure, and mitigate climate-related risks within their investment portfolios. Conducting detailed assessments of carbon emissions associated with investments is another crucial step, helping insurers understand their exposure and areas for reduction.

Insurers are also investing in low-carbon solutions, such as renewable energy, green infrastructure, electric vehicle technologies, and other sustainable projects, to decarbonize their portfolios actively. Proactive engagement with companies in their portfolios on sustainability practices and climate risk management is another best practice, as it drives improvement.

Linking remuneration to climate targets is another strategy employed by insurers to ensure accountability and compliance with emerging climate disclosure regulations. By tying pay incentives for portfolio managers and executives to the achievement of climate-related investment goals, insurers strengthen their commitment to sustainability.

Compliance with regulatory frameworks is also essential. Following climate disclosure rules, transition plan requirements, and new reporting standards helps improve transparency and comparability of climate risk. Scenario analysis and forward-looking risk assessment are also used to quantify potential impacts under different climate transition pathways and physical risk scenarios, informing capital allocation and risk mitigation strategies.

Insurers like Argenta Syndicate Management Limited and ASML, a subsidiary of Argenta Holdings Limited, are embracing these practices to manage their sustainability risks effectively. Argenta has chosen Moody's ESG insurance underwriting solution to support its sustainability goals, while ASML has adopted the same solution to uphold its sustainability commitments.

Financing solutions like green bonds and joint ventures provide insurers with opportunities to redirect capital towards sustainable projects and companies. For instance, Coterra Energy Inc., with half the emissions intensity of EOG Resources Inc., operates in basins with less emissions-intensive operations.

The partnership between ESG Book and Ortec Finance aims to deliver next-generation ESG data and insights to investors, making accurate ESG data a crucial regulatory requirement. As regulatory scrutiny increases worldwide, with Canada's Federal Office of the Superintendent of Financial Institution's (OSFI) Guideline B-15 on Climate Risk Management being an example, having accurate ESG data will become even more important.

In the face of the global move towards net-zero goals, it is clear that life insurers are taking significant steps to address climate risks and support the transition to a low-carbon economy. With practices like integrating climate into risk management, carbon footprint assessment, investing in low-carbon solutions, engagement and stewardship, linking remuneration to climate targets, compliance with regulatory frameworks, scenario analysis, and forward-looking risk assessment, life insurers are well-positioned to navigate the challenges and opportunities of the future.

[1] Source: ISS ESG report on sustainability targets in regulatory frameworks [2] Source: ISS ESG report on life insurers' carbon risk management practices [3] Source: ISS ESG report on the role of life insurers in the energy transition [4] Source: ISS ESG report on scenario analysis and forward-looking risk assessment in the insurance sector [5] Source: ISS ESG report on climate disclosure regulations and their impact on life insurers

1. Insurers are integrating climate considerations into their overall risk management processes to identify, measure, and mitigate climate-related risks.
2. Conducting detailed assessments of carbon emissions associated with investments is crucial for insurers to understand their exposure and areas for reduction.
3. Proactive engagement with companies in their portfolios on sustainability practices and climate risk management drives improvement.
4. Linking remuneration to climate targets ensures accountability and compliance with emerging climate disclosure regulations.
5. Compliance with regulatory frameworks, such as climate disclosure rules and new reporting standards, helps improve transparency and comparability of climate risk.
6. Scenario analysis and forward-looking risk assessment are used to quantify potential impacts under different climate transition pathways and physical risk scenarios.
7. Argenta Syndicate Management Limited has chosen Moody's ESG insurance underwriting solution to support its sustainability goals.
8. ASML, a subsidiary of Argenta Holdings Limited, has adopted the same solution to uphold its sustainability commitments.
9. Financing solutions like green bonds and joint ventures offer insurers opportunities to redirect capital towards sustainable projects and companies.
10. The partnership between ESG Book and Ortec Finance aims to deliver next-generation ESG data and insights to investors.
11. Having accurate ESG data will become increasingly important as regulatory scrutiny increases worldwide.
12. Canada's Federal Office of the Superintendent of Financial Institution's (OSFI) Guideline B-15 on Climate Risk Management is an example of increasing regulatory scrutiny.
13. Life insurers are investing in low-carbon solutions, such as renewable energy, green infrastructure, electric vehicle technologies, and other sustainable projects, to decarbonize their portfolios actively.
14. In the corporate bond market, insurers are exposed to climate transition risk in the oil and gas and power generation sectors.
15. To manage and mitigate these risks, insurers are integrating climate considerations into their risk management frameworks and aligning investments with decarbonization goals.
16. In the face of the global move towards net-zero goals, life insurers are taking significant steps to address climate risks and support the transition to a low-carbon economy.
17. Insurtech plays a crucial role in facilitating these practices by providing the necessary technology and data for risk management and investment strategies.
18. In the workplace-wellness sector, life insurers are offering therapies and treatments for chronic diseases, respiratory conditions, and eye-health, among others.
19. The industry is also addressing mental-health, skin-care, and hearing concerns, recognizing the holistic nature of health-and-wellness, fitness-and-exercise, and personal growth, and their connection to career-development, education-and-self-development, and even casino-and-gambling and sports, including football, sports-betting, American football, and weather conditions.

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