Can the insurance industry achieve net zero by 2050?

by Resolve Editor, Deb Eccleston

It’s estimated about $3 trillion worth of investment in the Australian economy is needed over the next three decades to try and meet the Australian Government’s net zero emissions target.

Rather than be daunted by this figure, Director of Climate and Social Policy, Insurance Council of Australia Alix Pearce said the challenge presented a wealth of opportunities for the insurance sector in terms of investment and underwriting.

Australia’s greenhouse gas emissions targets, as outlined in the Climate Change Act 2022 (Cth), are to reduce Australia’s net greenhouse gas emissions to 43% below 2005 levels by 2030 and to reduce them to zero by 2050.

Climate Change Roadmap

The Insurance Council of Australia (ICA) has been working with the industry to develop a plan for the transition to net zero, which includes target setting and voluntary disclosures.

“The insurance industry a couple of years ago was really keen to produce a landmark piece of work that could provide some guard rails for how insurers can start thinking about setting targets to reduce emissions across both our operations and also the hard stuff like underwriting and investments and claim supply chain,” Alix said.

“The road map steps out some really clear opportunities for collaboration, without of course falling foul of competition, and other really important legal guide rails that are in place.

“It also provides a road map for how individual insurers can kind of advance their efforts.”

Over 12 months, the ICA worked with its 50 member companies to develop the Climate Change Roadmap and discovered that while 73% of insurers had net zero transition plans in place, they faced three big challenges:

• The cost and scale of capital expenditure.
• The shifting regulatory landscape.
• Difficulty measuring and monitoring impact.

“Those are the recurring challenges that we’ve homed in on to try and support the industry to address,” Alix said.

Work in progress

The ICA is piloting an approach to scope through emissions in client supply chains, however the approach must be careful, Alix said.

“We’re doing that really carefully because of course there’s competition and other things to be very conscious of, so at a very high level we can look at some consistent principles and approaches,” she said.

“But how that’s been enacted and developed and implemented by each individual business is up to them.”

 The ICA is also engaging with global bodies to try and achieve alignment across global markets.

Alix said insurers in the US were playing an innovative role in de-risking new technologies to help “tackle the climate challenge” which we could expect to see in the Australian market more over the coming decade.

“There are some great case studies across investment, supply chain and underwriting for how individual insurers are setting and achieving targets to drive down emissions to net zero,” Alix said.

“On the underwriting side, you can look closely at the role insurers are playing underwriting clean tech, but also what role insurance can play in de-risking and scaling new technologies for the investment side.

“Another area is looking at incentivising customers to make cleaner choices.”

The ICA supports the industry on its transition to net zero through regular reporting and disclosure, supporting members to develop roadmaps, advocating for a climate-positive regulatory environment and regularly updating its Climate Change Roadmap.