Insurers’ climate disclosure helps lure investors

IFR 2494 - 29 Jul 2023 - 04 Aug 2023
2 min read
Michelle Chan

Insurance companies are increasingly measuring and disclosing climate risks that have significant impacts on their businesses, according to non-profit organisation Ceres.

In a new report that analyses 469 insurance companies in the US, Ceres found that insurers have made substantial progress in climate risk disclosure, even though many deficiencies can still be found.

“Four years ago, there was not a single US insurer that had completed the TCFD reports. Now there are almost 500 of them,” said Steven Rothstein, the managing director of the Ceres Accelerator for Sustainable Capital Markets, referring to the framework by the Task Force on Climate-related Financial Disclosures – a widely adopted global standard.

Rothstein said the report reflects that investors are demanding more consistent and reliable information in face of increasingly imminent climate risks, including wildfires, floods, and tornadoes. Some insurers have exited certain regions that are plagued by extreme climate events.

Having a net-zero pathway also makes insurance companies more attractive to investors, as many asset managers have made net-zero pledges. “They can be net-zero only if their portfolio companies are heading the same way,” Rothstein said.

Of all the 15 insurance companies that Ceres selected for in-depth study, 13 of them had existing process for assessing and identifying climate risks. However, only one company disclosed how the board and executives considered these risks during decision-making, the report found.

Only five companies disclosed their climate change scenario analysis, while two of them voluntarily adopted carbon pricing across their businesses.

Almost all companies provided metrics for their Scope 1, 2, and 3 emissions, but no company included clear discussions on the materiality of Scope 3 emissions.

Political backlash

Insurance companies have become a recent target of the Republican-led anti-ESG campaign. The United Nations-backed Net-Zero Insurance Alliance lost half of its members in two months after a group of Republican attorney-generals accused the climate coalition of breaching antitrust laws.

As a result, in early July the climate alliance ditched all requirements for members to set or publish any greenhouse gas reduction targets.

Despite the exodus from the Net-Zero Insurance Alliance, insurance companies are still committed to ESG investing, said Rothstein.

“Many insurance companies are still members of the Net-Zero Asset Owner Alliance,” he said, referring to another UN-backed climate group. “They are just not being as public and talking about it as much.”