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Insurers leading the way to Net-Zero: Together more

by Steve Leicester, Chief Finance Officer, and Shaun Tarbuck, Chief Executive, ICMIF

27 January 2021

The 14th Prince’s Accounting for Sustainability Project (A4S) Annual Summit is normally held at St James Palace in London (UK) and attended by HRH Prince Charles. However, in 2020, because of the COVID-19 restrictions, the event was held online which gave ICMIF and some of its members the opportunity to take part in the Summit and highlight the great work being done by mutual insurers in the field of sustainability in a webinar.

The aim of the A4S Annual Summits is to be unique global meetings for business leaders to catalyse action to create resilient, sustainable businesses and economies globally.

As a regular attendee of these annual conferences, ICMIF was asked to present a webinar entitled Insurers leading the way to Net-Zero.

ICMIF CEO Shaun Tarbuck chaired the webinar and was joined by a very prominent panel in this field; Ylva Wessén, CEO, Folksam (Sweden); Karen Higgins CFO, The Co-operators (Canada); and Virginia Antonini, Head of Sustainability, Reale Mutua Group (Italy).

ICMIF and its members have been leading the charge in the sustainability sector for over 25 years and the panel agreed to talk about each of their own business’s sustainable journey. The increasing momentum in sustainability is helped undoubtedly by the growing political desire to ‘build back better’ in the aftermath of the Covid-19 pandemic and in the run up to UN Climate Change Conference COP 26, which is due to take place later in 2021 in Glasgow (UK).

The panel spoke about the significance of the United Nations 17 Sustainable Development Goals (SDGs) and how important embedding the SDGs into their overall business strategy and everyday decision-making is for each of the three organisations.

Virginia Antonini spoke enthusiastically about the Reale Mutua Group and how the business was formed in Turin 192 years ago out of a code of ethics translated from the principles of mutuality that involve integrity, people centricity, responsibility, cohesion and innovation.

The panel agreed that what is important now is that reporting on the SDGs is given equal prominence with the financial results of the business and becomes mainstream. We also need to be able to benchmark how we measure against each SDG in the same way as we benchmark financial measures.

Shaun Tarbuck confirmed that ICMIF is working with its Supporting Member Swiss Re and with the United Nations Environment Programme Finance Initiative Principles of Sustainable Insurance (UNEP FI PSI) on a new initiative, developed primarily by Swiss Re, called the Insurance Sustainable Development Goals (iSDG) Calculator that will hopefully keep businesses ‘honest’ and help measure businesses’ SDG performance against the benchmark iSDGs.

Genuine concern was expressed by the panel that if action is not taken to stop climate change and reduce global carbon emissions, insurance would simply not be an affordable commodity moving forward.

Sustainable investing incorporating environmental, social and governance (ESG) criteria into investment decision is essential not only as a means of ‘doing the right thing’ and ‘leaving no-one behind’ but is also part of the ethos and purpose of the mutual and cooperative sector.

In response to this, Ylva Wessén spoke about the pressure that Folksam is exerting as an investor to try and encourage companies to reduce their carbon emissions instead of the simpler method of disinvesting in those companies that refuse to decarbonise. The failure to act could mean these companies become ‘stranded assets’ putting investor portfolios at huge risk in the future. As a founding member in 2019 of the Net-Zero Asset Owner Alliance, Folksam is committed to reducing the carbon emissions of its investment portfolio to net-zero by 2050 in alignment with the Paris Agreement.

Both Ylva and Karen confirmed that investors should not expect to have to compromise on returns from their savings and investments investing in these decarbonised businesses. On the contrary, Karen confirmed that The Co-operators’ Impact Investing returns, of which almost 21% of all invested assets are classified under, showed returns consistent or better than the overall investment portfolio. Karen was keen to assure webinar participants that Impact Investing is not ‘charitable investing’.

Ylva shared Folksam’s latest unique strategy to drive demand for green bonds from the investor perspective. Ylva explained that Folksam’s approach had included getting a bank to issue a green bond so that the proceeds could be invested in building flood land defences in the southern part of Sweden to protect the local community. Ylva argued that this is a ‘win-win-win’ situation with their members’ pension funds earning investment returns on the green bond; the community is protected from floods and ensuring insurance is available and the insurance company, in this case Folksam, pays out lower insurance compensation claims. This is a totally unique way of looking at investments and very inspirational as it brings resilience and prevention to the centre of decision making.

Folksam is also actively engaged in a change within the industry towards a ‘circular settlement flow’ where damaged objects such as cars, phones, computers and bicycles are repaired and members receive an equally remanufactured item in return. In this way, Folksam has saved 3,200 tonnes of CO2 emissions by incorporating this circular claim settlement scheme and almost the same again in terms of waste because of the items being reused.

Virginia Antonini affirmed her strong belief that mutuals and cooperatives are not driven by short-term profit maximisation and that the Reale Group is also actively engaged in the development of life insurance products that generate social environmental impacts as well as sustainable investment strategies.

In 2014, Shaun Tarbuck spoke at the UN General Assembly and committed the insurance industry to investing USD 400 billion in climate smart investments by 2020. In the A4S Summit webinar, Shaun was able to confirm that, as of the end of 2019, ICMIF members alone had invested USD 286 billion in climate smart investments and he told participants in the webinar that it is hoped ICMIF members alone will surpass the USD 400 billion target when our Sustainable Investment Survey is completed again in 2021.

The panel then discussed Sustainable Reporting emphasising the message that ‘what gets measured, gets done’.

The Financial Stability Board (FSB) created the international initiative the Task Force on Climate-Related Financial Disclosures (TCFD) so that the financial sector can account for climate-related financial issues and disclose them accordingly. In the UK, this will become mandatory for many large companies and financial institutions by 2025.

The Co-operators is a world-leading expert in this area, having produced an Integrated Report since 2016 and having reduced its carbon footprint by 80% since 2010 and the cooperative is committed to being carbon neutral by the end of 2020.

Karen confirmed it is essential that there is a thorough understanding of the threats of climate change and the risks and opportunities posed. The TCFD helps raise investor and consumer awareness on this pressing issue.

Virginia reported that the Reale Mutua Sustainability Report, to be issued shortly, will be based on identifying what were the material issues to the company and relevant stakeholders and how these are closely linked to the SDGs such as those relating to climate change; responsible consumption; sustainable investments; and product, people and diversity.

The final topic of conversation discussed by the panel was on the insurance liability side, looking at the move from protection (indemnity) to prevention (resiliency), as the insurance business model adapts to change with every increasing risk within the industry and that will increasingly be driven by risks associated with climate change.

Karen explained that as risk rises for the insurance companies so will the cost of insurance creating an affordability gap. Karen confirmed the need for communities to understand the risks they face because at a 2-degree climate scenario change, many people in many places and especially in vulnerable, marginalised populations will become uninsurable.

As examples of this, Karen talked about decisions to allow building or rebuilding in flood land or allowing buildings to be built with materials that will be destroyed because of climate change, all ultimately impact the cost of insurance and creating a gap in affordability.

Karen concluded that as a society we need to get all stakeholders in the insurance cycle – governments, insurers, regulators and lenders – to really build a system of resilient decision making. It is an essential journey that all stakeholders must take towards a resilient society and a resilient planet.

In summing up the discussion Shaun Tarbuck concluded that we all have a role to play, working together working in partnership. We are all too small to individually take on the challenges facing the world today but, if we can embrace working together, we CAN change the planet for the better.

This is the way forward. Together more.

Click here to watch the video of the webinar in full on YouTube

For member-only strategic content on the cooperative/mutual insurance sector, ICMIF members have exclusive access to a range of online resources through the ICMIF Knowledge Hub 

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