As insurers confront the call to count their underwriting-related emissions, leaders reveal a sector caught between ambition, uncertainty and growing scrutiny, as Joshua Geer reports
Calculating and disclosing insurance-associated greenhouse gas emissions (IAEs) are a central challenge for the industry's transition to net zero.
These "scope 3" emissions – linked not to insurers' operations or investments but to the activities of their policyholders – are complex to calculate and even harder to manage.
Yet regulatory expectations, stakeholder interest and internal risk management concerns are all pushing the issue up the agenda.
In an InsuranceERM webinar on 26 March, four leading voices from the market explored what IAEs really mean for insurers and revealed a sector still contemplating how much influence it has, how to handle data limitations and how far it should go in using these numbers to drive strategy.
Laying the groundwork
She explained that while Scope 1 and 2 emissions are "very straightforward to calculate", they make up only "a very, very small proportion of the total emissions of an insurer".
The focus, she said, is now on Scope 3 emissions, which are those associated with both investments and underwriting portfolios.
"It is industry-led partnership and standards that help you do this," Todorova said, referencing the role of the Partnership for Carbon Accounting Financials (PCAF).
She said the available methodologies for calculating emissions, for example on commercial lines, are "intuitive". However, she cautioned, coming up with an IAE figure "does come with challenges in terms of matching disparate data sets and plugging gaps as well in order to arrive at this overall portfolio number".
A fragmented regulatory picture
In the EU, under the European Sustainability Reporting Standards (ESRS), "those emissions have to be disclosed if they are deemed material following the double materiality principle," he explained.
"That means those emissions are required to be disclosed if a company has decided to set targets on them, and by setting a target on those emissions, they become then material from a double materiality perspective," he said.
Meanwhile the ISSB standards, for insurers following it, is proposing that IAEs are an optional disclosure.
Angelis said the result is a fragmented response across the market. "Some have decided to be very extensive in the insurance-associated emissions they report and set targets on, and others have had more minimalistic approaches, where insurance-associated emissions are really omitted from their reports."
He added the way insurers view their own influence plays a major role in influencing their disclosure approach.
"There's fundamentally three groups of insurers on the market," he said. "There's those who consider that they have some influence over insurance-associated emissions, and so they decide to both measure and disclose the associated emissions and set targets on those.
"I think we have a second group who don't think that they have an influence on those emissions but still believe they can provide value by disclosing... and then you have a third group of insurers who believe they do not have influence over insurance-associated emissions, and so they would argue that...there's no point in disclosing those emissions."
Insurers respond with pragmatism and caution
For Olivia Brindle, head of sustainability at global specialty re/insurer Canopius, the direction of travel is clear, and insurers should not wait for perfection.
"We absolutely should encourage early disclosure... that will help to establish best practice and that will help people to learn from what others are doing," she said. "There need to be some clear caveats and sort of honesty and transparency about the numbers that are being put out. So not just a number and a sort of black box around that."
Rachel Delhaise, group head of sustainability at global specialty re/insurer Convex, added emissions data provides a high-level picture of the carbon intensity of a portfolio, which is also a vital input for understanding transition risk.
However, both Brindle and Delhaise acknowledged the practical difficulties of collecting reliable emissions data.
Delhaise said that entity matching was "quite a challenging thing" and required significant internal coordination. Variations in how companies are named or reported can make it hard to track emissions consistently. Entity matching is the process of linking records that refer to the same organisation.
Gaps and workarounds in the data
Todorova broke the data challenge into three categories: data availability; data quality; and integration. She noted a large proportion of underwriting is with SMEs, who typically don't measure or disclose their greenhouse gas emissions. That creates a heavy reliance on proxies and estimates.
She explained that data quality issues often stem from inconsistencies in revenue definitions, organisational scope or reporting dates. "If not careful, you could end up using negative revenues, for example, or very small revenue numbers... they could skew your final IAE number," she said.
Angelis also addressed how proposed changes to EU sustainability reporting could further complicate data collection. Referring to the European Commission's "Omnibus" proposal to reduce regulatory burden, he explained that the scope of the Corporate Sustainability Reporting Directive (CSRD) is likely to narrow significantly.
Brindle pointed out that proxies can help create the emissions profile a portfolio but are limited when trying to understand specific client performance. "When you are really trying to understand what your clients are doing.... a proxy is not going to help you," she said, adding that without more direct engagement with clients or brokers, the quality of reporting will be low.
Delhaise highlighted insurers can begin to improve data accuracy by engaging with specialised providers. "We were introduced to a company called OceanScore who do marine-level emissions... there were examples of where the emissions that they are tracking on one vessel is 40% less than would otherwise be reported," she said. "There are examples in the aviation world as well."
Caution around targets and strategy
Given the uncertainties, when it comes to using IAEs to set strategic targets or underwriting policies, the speakers urged caution.
Brindle said that year-on-year shifts in reported emissions are often due to external changes, such as updated emissions factors or companies beginning to report their own emissions. "That leads to fundamental shifts that are not necessarily meaningful for an insurer," she said.
Angelis added the uncertainties are making insurers wary of setting targets. "They're afraid that they're going to be held accountable for setting a target they cannot meet, under different assumptions," he said.
Brindle also said it is important to consider unintended consequences. For example, she noted that a focus on IAEs could inadvertently exclude clients in developing economies, which tend to rely more on fossil fuel energy sources.
"Do you want to rule out support for certain clients in emerging countries just to reach your target? Is that really the outcome you want?" she questioned.
"These are very strategic discussions which need to involve underwriting and people need to really think if they are making commitments and targets with their IAEs, what does that mean," Brindle said.
A difficult metric, but here to stay
Despite the complexity, there was consensus that measuring IAEs are an important and necessary development for the sector. Insurers may still differ in how they approach measurement, disclosure and action, but the issue is no longer one they can avoid.
Todorova noted that transparency is key, not just for credibility but to enable insurers to focus on the next stage: understanding what the data tells them. As she put it, the goal is to "build the insight and find the drivers of emissions to support further conversations".