According to a recent Moody’s investor’s service report, net zero objectives require considerable organisational focus and investment in measuring carbon transition risk, which in turn puts insurers in a better position to manage it.
The most credible plans are based on robust and transparent frameworks, include measurable interim targets, and cover the full range of insurers’ emissions, says Moody’s.
Though, it adds that global insurers provide varying levels of detail on how they plan to eliminate emissions, and on their interim targets.
Moody’s notes more European insurers than Asian or North American peers have joined net zero alliances, and generally, have clearly defined goals and implementation plans.
Meanwhile, most non-alliance members have less well-developed plans to manage this risk and appear to be following a more flexible approach.
The firm also observes that the industry’s plans to eliminate financed and insured emissions rely on government action, citing the requirement that companies report accurate emissions data.
Measuring emissions in insurers’ investment and insurance portfolios also requires tools and data that are not yet widely available, says Moody’s, adding that insurers risk losing business or investment portfolio diversification if they decarbonise too quickly or without a well-reasoned plan.
Moody’s also states that insurers are exposed to carbon transition risk through the investments they hold on a balance sheet, and through the premium revenue they generate from clients in carbon-intensive sectors.
It adds that investment risk is greater for life insurers because of their higher asset leverage. European insurers tend to have less investment exposure to carbon-intensive sectors than their North American and Asian peers.
