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The insurance sector has just started a long journey to get its customers to provide accurate data on their carbon emissions. Photo: Shutterstock

Climate change: why insurers need a global reporting standard for their clients’ carbon emissions data to reach net zero

  • ‘We cannot let data challenges stop us from taking action, otherwise the data is unlikely to ever improve,’ AXA’s group chief risk officer says
  • The Net Zero Insurance Alliance is promoting standards for insurance-related carbon disclosures

The insurance industry needs a global standard for carbon-footprint disclosure, and insurers should treat the costs of calculating the emissions of their business exposure as “investments”, according to a leading player in the market.

The sector has just started a long journey to get its customers to provide accurate data on their carbon emissions, so that insurers can calculate their own exposure and take measures to reach their net-zero emission goals.

“The ongoing efforts at the global level are more than welcome to build a framework that will ensure access to reliable, robust, and comparable data,” Renaud Guidee, group chief risk officer at French insurer AXA told the Post. “Coherence and proper articulation between the different pieces of legislation and standards being developed is a major priority for us.”

AXA is one of eight founding members of the Net Zero Insurance Alliance. Established in 2021, it now has 30 members headquartered in Europe, Asia, Africa, Oceania and the Americas.

Renaud Guidee, AXA group chief risk officer. Photo: Handout

Each member has committed to set and disclose by July of this year its own interim targets, aligned with the group’s joint pledge to achieve net zero greenhouse-gas emissions by 2050.

Together with the Partnership for Carbon Accounting Financials, which is backed by financial institutions, the alliance last October published a set of accounting and reporting standards for insurance-related emissions.

Implementing the standards will not be straightforward, because the data required to calculate clients’ emissions “might not be readily available and must be sought out by the insurer”, the organisations said.

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Both customer engagement and regulations will be key, which will improve data availability and quantity over time, according to Guidee.

“We cannot let these data challenges stop us from taking action, otherwise the data is unlikely to ever improve,” he said.

It is unclear how the costs of setting up the systems to do the data gathering, reporting and verification will be borne.

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“AXA’s view is that these costs are an investment,” Guidee said. “We are making an investment so that we may better serve our transitioning clients and provide sustainable solutions for the future.”

The new standards include methods for calculating emissions arising from business and personal vehicles that are insured, in addition to emissions stemming from insurers’ investments in companies.

To calculate insurance-related emissions, the standards apply a ratio of the insurance premium to each customer’s revenue. To work out the share of each investee’s emissions attributable to an insurer, the ratio of the investment to the investee’s market value is applied.

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AXA was the first major financial institution globally to announce its exit from coal-related investments in 2015, Guidee said. It also pioneered on the underwriting side, replicating that commitment on insurance coverage in 2017.

In 2021, it announced a halt to investing in and underwriting greenfield oil and gas-exploration projects, except for companies “with the most far-reaching and credible transition plans”.

On underwriting, AXA has introduced some initiatives for its property and casualty business, starting with automobile insurance. In France, for example, AXA offers customers the option to use recycled parts instead of new ones for repairs, reducing the supply chain’s carbon footprint.

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The company also claims it sacrifices some profits by absorbing more repair costs for customers with electric vehicles, compared to those who own traditional cars with internal-combustion engines.

“Often electric vehicles come with a lot of torque, and people who are not used to them have crashes that are costly to repair, especially when the batteries are damaged,” Guidee said.

No Chinese insurer has joined the alliance so far, but Guidee said active dialogue is under way.

“My understanding is that some insurers may want to see how [the alliance’s effort] plays out for a few months or quarters, before joining,” he said.

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