As we look ahead to 2025, the question is no longer whether insurers can walk the climate and sustainability talk – it’s whether they can keep up with an increasingly demanding regulatory environment.
The collapse of the Net-Zero Insurance Alliance (NZIA) in 2023 cast doubt on collective industry action, but developments in 2024 suggest that collaboration (without target setting) is possible and insurers have continued to step up their individual commitments.
In the wake of the NZIA, the UN established the Forum for Insuring the Transition to Net Zero (FIT). This realigned the sector around the (slightly) less controversial idea of helping the world reach the Paris Agreement goals and finding opportunity in the transition. FIT also addressed the accusation of insurers colluding by bringing together a broader platform involving activists, academics and regulators.
Among the major underwriters, Generali emerged as a trailblazer by becoming the first global insurer to restrict oil, gas and liquefied natural gas underwriting across the entire value chain.
But leadership on climate and sustainability has arguably shifted towards the lawmakers, with insurers facing big challenges in responding to a growing patchwork of overlapping rules.
In Europe, the Corporate Sustainability Reporting Directive is coming into effect, requiring large public-interest entities already subject to the Non-Financial Reporting Directive to report on sustainability performance starting in 2025. This includes climate transition plans that align with a 1.5°C pathway and covers greenhouse gas emissions across the value chain.
While conventional disclosures reflect past performance, transition plans compel firms to look ahead and outline how they will align with climate goals. This forward-looking mandate raises the stakes considerably: insurers will not only have to set ambitious targets but also be judged on whether they deliver on these promises.
At the global level, sustainability reporting frameworks are solidifying through the International Financial Reporting Standards S1 and S2. Compliance will be a formidable challenge, especially when tackling value chain (scope 3) emissions.
The difficulty of measuring scope 3 emissions – where the majority of insurers’ carbon footprints lie – remains a pressing concern. Compounding this challenge is the growing regulatory focus on nature and biodiversity risk, which are making their way into mainstream frameworks like Solvency II.
In the US, the politics are less favourable towards action on climate change and the level of ambition is consequently lower than in Europe. But the need to close natural catastrophe protection gaps is, to some extent, forcing states of all political colours to consider climate risk.
There is also the rising threat of climate-related litigation. Legal experts anticipate a surge in cases driven by attribution science and increasingly organised litigation funders, creating a strong environment for class action. Insurers could soon find themselves defending against claims that their portfolios have significantly contributed to climate change.