Insurers grapple with transition to a greener world
Last week, a coalition of thirteen of the UK’s major insurers vowed to cut their supply chain emissions as part of the Sustainable Markets Initiative’s (SMI’s) sustainable supply chain pledge.
In signing the SMI pledge, the 13 insurers and brokers – including Axa, Phoenix, Lloyd’s, and Direct Line – vowed to work with their suppliers to set “meaningful” near-term sustainability targets that align with the Paris Agreement’s ambition to create a carbon neutral world by 2050.
Launched at Davos in 2020, the SMI itself was set up by Prince Charles with a view initiating action in the private sector by bringing together a coalition of major companies committed to accelerating “the transition to a sustainable future”.
In achieving its goals, the SMI pledge commits insurers to measuring and reporting on the carbon emissions that arise from them purchasing goods and services from other firms.
The pledge is set to see signees work to systematise reporting of the volumes of greenhouse gases that are emitted by their suppliers, including the IT companies they use to handle their data to the garages and building material companies they use to fulfil claims, and then work to reduce those emissions.
The SMI pledge is clear in acknowledging the insurance sector’s role as an “enabler” of heavily polluting industries. However, the commitments in themselves only cover the specific emissions that arise from their supply chains.
A spokesperson for the Association of British Insurers (ABI) said the SMI pledge forms part of a “wider strategy” to reduce the insurance sector’s carbon footprint, as he suggested insurers’ supply chain emissions are often “overlooked”.
Claire Elsdon, director of capital markets at climate disclosure non-profit CDP, said: “Supply chains are one of the highest sources of emissions for most companies, but this often goes unreported, or ignored.”
A spokesperson for car insurer Direct Line noted that supply chain emissions – including from its network of 22 garages – account for approximately 35 per cent of its overall group emissions, as it noted insurers’ carbon footprints vary significantly “depending on their business models”.
The comments come as the insurance sector has come under mounting scrutiny from environmentalists over its role in facilitating the global fossil fuel industry, by insuring and investing in oil, gas and coal projects across the globe.
This increased scrutiny has seen major insurers increasingly come to be targeted by environmental campaigners seeking to highlight the part major insurers have played in fuelling climate change.
Insurance marketplace Lloyd’s of London, in particular, has taken much of the brunt of climate protesters ire.
Activists from various groups including Extinction Rebellion in April shut down the centuries-old marketplace over its support for fossil fuel projects, to the extent the firm in May was forced to host its annual general meeting (AGM) virtually, to avoid it being disrupted by climate protesters.
In August last year, Lloyd’s chairman Bruce Carnegie-Brown told the Financial Times that the marketplace’s “brand” is now being damaged by its reputation as a climate laggard, that has seen it labelled as the coal sector’s “insurer of last resort”.
Carnegie-Brown blamed a “minority” of market participants that have continued to underwrite heavily polluting firms.
Environmental groups remained ambivalent towards the SMI pledge, as they welcomed the insurers’ commitments to cutting supply chain emissions, whilst continuing their calls for the sector to end its support for fossil fuels.
Speaking to City A.M., an Extinction Rebellion spokesperson said that “while moves to avoid climate breakdown are welcome, they are meaningless unless they immediately cut off support for all new fossil fuel expansion”.
Hannah Saggau, insurance campaigner at Public Citizen, warned the pledge risks coming to be viewed as “greenwashing” if insurers continue to support the development of coal, oil, and gas projects.
“While it’s positive that insurance companies seek to reduce emissions in their supply chains, this should not distract from the urgent steps insurers must take on fossil fuels,” Saggau said.
However, an ABI spokesperson said that insurers are likely to have greater influence over their own supply chains than they have over the wider, global energy transition, when it comes to tackling emissions.
He argued that efforts to cut emissions in the insurance sectors’ supply chains could in turn prompt wider shifts in the economy, as he argued more far-reaching government action is needed to advance the overarching energy transition.
Jonathan Cavill, a financial services regulatory lawyer at Pinsent Masons, said that while firms in all sectors wait for action from the government, private sector initiatives, such as the SMI’s pledge, have a part to play in advancing the push to net zero.
“Regulated firms are of course waiting for more rules and guidance from the FCA on how they should operate in the ESG space,” Cavill said. “But due to the urgency of climate change, waiting for formal legal and regulatory requirements slows down progress which needs to happen faster.”