This year's environmental, social and governance (ESG) initiative of the year goes to PCS, a Verisk business and a provider of insurance loss data, for the way it is engaging and helping clients deal with the carbon consequences of catastrophe events.

PCS explains that for a US catastrophe with industry-wide insured losses of at least $10bn, the missed opportunity to prevent carbon emissions can top 60,000 tonnes.

To deal with this challenge, PCS has developed calculations for converting catastrophe loss into triggers for purchasing carbon offsets – the buying of which helps finance emissions reduction projects.

PCS says its tool will better help reinsurers and retrocession writers understand the carbon implications associated with post-catastrophe remediation. The factors can be used to develop embedded carbon offset purchase options in industry loss warranties, cat bonds, and other reinsurance risk transfer instruments.

Reinsurers and retrocession writers can therefore use PCS's factors to enter into derivatives agreements that result in the purchase of high-quality carbon offsets upon reaching a predefined industry-wide insured loss threshold, as reported by PCS.

Catastrophe-linked carbon offset options are actively being worked on, but PCS says it has delivered quantification results to its clients and have used that process to engage in conversations about the carbon consequences of catastrophe events.

Tom Johansmeyer, head of PCS, a Verisk business, tells InsuranceERM: "A reinsurer will come to us and say we want to offset carbon in our risk transfer transactions. We then tell them how much carbon they have to offset, based on certain trigger amounts and certain types of catastrophe. We run those calculations, and then the reinsurer can build them into an industry loss warranty."

He adds: "Nobody has looked at carbon emissions relative to post-cat remediation. We are getting a lot of reinsurance and ILS interest in the solution."