The Partnership for Carbon Accounting Financials (PCAF), in collaboration with the UN-convened Net-Zero Insurance Alliance (NZIA), has announced the launch of a working group comprising leading insurance and reinsurance companies to develop the first global standard to measure and disclose insured greenhouse gas (GHG) emissions.
The move is to enable them to set net-zero targets for their respective underwriting portfolios.
The partners believe that such a global measurement standardisation would give re/insurers deeper insight into the risk profile of their respective underwriting portfolios, stimulate innovative approaches to decarbonisation, and create comparability for stakeholders.
It is also expected to “help re/insurers understand the climate impact of their underwriting decisions, laying the foundation to decarbonise their insurance and reinsurance portfolios through target setting, scenario analysis, strategy development, and individually taking concrete actions that have real-world impact through emissions reduction in the real economy.”
The promoters argued that as risk managers, re/insurers and investors, the insurance industry plays a key role in supporting the transition to a resilient net-zero emissions economy. Climate change-related physical and transition risks are relevant to both the insurance and investment portfolios of re/insurers, according to a statement issued on Monday in Geneva, Switzerland.
With the launch of the NZIA at the G20 Climate Summit in Venice last month, the commitment of NZIA members to transition their respective insurance and reinsurance underwriting portfolios to net-zero emissions and set science-based targets every five years.
This, they said, makes the ground-breaking work of the PCAF Insured Emissions Working Group fundamental and urgent.
The PCAF Insured Emissions Working Group recognises the insurance industry’s urgent need to measure and disclose insured emissions and will begin working immediately to meet the demand for such a methodology.
However, while PCAF has developed a global standard to measure and disclose financed emissions in the context of investment and lending portfolios, there is currently no equivalent global standard for insured emissions.
Therefore, a PCAF/NZIA collaboration, is well-suited to develop the proposed global standard to measure insured emissions.
A global measurement standardisation would give re/insurers deeper insight into the risk profile of their respective underwriting portfolios, stimulate innovative approaches to decarbonisation, and create comparability for stakeholders.
As a partnership of over 140 financial institutions, PCAF will ensure that any standards developed will account for industry-wide interests and concerns, lending itself to be adopted by virtually any interested stakeholder, large or small, irrespective of membership in the NZIA.
They said that banks and investors worldwide have readily adopted the PCAF Standard as the leading methodology to measure financed emissions from loan and investment portfolios.
Also, many insurers are said to have already joined PCAF to measure and disclose the emissions of their investments, but have not yet been able to do the same for their core insurance and reinsurance business.
The partners insist that a PCAF Insured Emissions Standard would fill a major gap in accounting for the total attributable emissions from the financial sector.
“It would be an essential supplement to the current PCAF Standard that would help bring the entire financial sector and the real economy one step closer to a net-zero future.”
They added that developing the standard will occur in accordance with competition laws and other applicable laws and regulations, and may include consultation with appropriate competition and other authorities on how these standards and methodologies can be implemented.