UN launches Forum for Insurance Transition to Net Zero

The UN Environment Programme (UNEP) has unveiled a new forum to support the acceleration and scaling up of voluntary climate action by the insurance industry and other key stakeholders.

The Forum for Insurance Transition to Net Zero (FIT) considers the experience gained with the Net-Zero Insurance Alliance (NZIA), which has been discontinued, effective today.

UNEP says the FIT is kickstarting its work with a “critical mass and diverse group” of 46 organisations from across the globe. It expects that more organisations will join in the coming months as it becomes fully operational.

In an interview with Insurance Day, UNEP’s head of insurance stresses that, unlike the NZIA, the new forum is “not just UN-convened but is also UN-led”.

“Anyone from the global insurance industry is welcome to come on board the FIT,” Butch Bacani says. “Whatever was produced by the NZIA was simply a starting point on the novel concept of net-zero insurance. There were methods and guidance produced on metrics and target setting, but they were a starting point rather than an end point. In the NZIA, the UN was convening and the chair was an insurance market participant, but now the UN is convening via UNEP and we are also chairing. I’m serving as the chair of the FIT.”

“A lot of the activities by insurers over the years on climate action has largely been on climate change adaptation and resilience… we believe insurance also has a role to play in the net-zero transition and, accordingly, we believe engagement with the real economy is something we could look into as well”
_{Butch Bacani
UN Environment Programme}

A lot of effort went into ensuring there is geographical and organisational diversity among the FIT’s participants and consultative group members, continues Bacani, who also leads the UN Principles for Sustainable Insurance Initiative, the largest collaboration between the UN and the insurance industry.

The FIT has two separate consultative groups that are independent of each other: the Consultative Group of Insurance Regulators & Supervisors (CGIRS) and the Consultative Group on Science, Research & Civil Society (CGSRC).

“The structure of the new forum has a greater diversity of stakeholders involved,” Bacani stresses. “Number one, the fact the UN is leading and chairing, and not simply convening, is already different. Number two, within the tent, so to speak, we also have the insurance regulatory and supervisory community, which will be consulted on activities. Then you also have the scientific, research and civil society communities, which will also be consulted on activities. Having these key stakeholders within the FIT is important, and this was not the case in the previous initiative. This is an entirely new initiative with an entirely new structure and it’s more diverse by default.”

The frequency of meetings by the two groups will be “periodic”, he says, adding: “It’s not yet set in stone, but we envision it could be quarterly.” There will be “general assemblies”, where all the constituents of the FIT come together. “That’s what I mean by periodic, potentially quarterly, meetings and there will be, in between those, bilateral meetings,” he says.

Another feature of the FIT is it “departs from the previous practice” of re/insurance market participants creating their own net-zero frameworks, which, Bacani says, “could be viewed as self-regulation”, towards an approach of both soft and hard regulation.

He says: “Soft regulation means the FIT engaging with net-zero standard setters and hard regulation means the FIT engaging with insurance regulatory and supervisory authorities on the net-zero insurance agenda. We believe this updated and more comprehensive theory of change will accelerate and scale up net-zero insurance thinking and practices.”

Four initial tasks

Bacani outlines the four initial work priorities for the FIT: advancing frameworks for net-zero insurance metrics and voluntary targets, and developing new net-zero insurance concepts; developing a net-zero transition plan framework for insurance market participants; engaging with the real economy on the development of net-zero transition plans by corporates across different sectors; and tackling challenges and opportunities to develop insurance solutions and taxonomies that would support the net-zero transition.

“The first means working together more closely with external net-zero standard setters on frameworks for net-zero insurance metrics and targets, and also to examine net-zero insurance concepts that have not been taken up properly,” Bacani says. “For example, what’s the role of claims management in terms of reducing emissions? That’s unique to the insurance business. Also, what’s the role of life and health underwriting portfolios in the net-zero transition? People, more often than not, associate net-zero insurance with property & casualty business but we believe there’s also a role to play for life and health underwriting portfolios. And what would be the role of brokers in the net-zero transition?”

The second focus is “even wider than the first” and is about developing a transition plan framework for insurance market participants, which is a more holistic topic that encompasses net-zero governance, strategy and metrics and targets, among other key elements, at the organisational level. “Our engagement with key stakeholders – not only insurance market participants, but also insurance regulators and supervisors and civil society – has made it apparent that this is a priority for them as well,” Bacani says.

The third task is “engaging with the real economy” in the development of net-zero transition plans by corporates across different sectors. “Again, this is something quite novel because a lot of the activities by insurers over the years on climate action has largely been on climate change adaptation and resilience, which is absolutely important and something we need to pursue even more, but the reality is that climate change adaptation and mitigation are two sides of the same coin,” Bacani says.

“We believe insurance also has a role to play in the net-zero transition and, accordingly, we believe engagement with the real economy is something we could look into as well that can add value in terms of net-zero insurance thinking and practices,” he adds.

The fourth and final priority is tackling the challenges and identifying the opportunities of insurance solutions and taxonomies that would support the net-zero transition. These could include the challenges to developing insurance solutions for green technologies, from renewable energy and nature-based solutions, “all the way to” carbon capture and storage, long-duration energy storage and green hydrogen. “These are all part of the solution-set and we believe insurance has a role to play there,” Bacani says. “The overall aim of these priorities is to foster the availability of insurance and finance for transition and net-zero activities, which we believe will have a positive impact on the real economy and in tackling climate change,” he adds.

Wide reach

In June last year the UN secretary-general, António Guterres, urged the financial community, including re/insurers, to ignore misinformation from supporters of the fossil fuel industry and remain committed to their net-zero alliances. His remarks followed a series of departures from the NZIA, including by some of its founding members: Munich Re, Swiss Re and Zurich Insurance Group. The following month, UNEP announced the NZIA would no longer require its members to set and publish targets for reducing their insured emissions.

Part of the Glasgow Financial Alliance for Net Zero, which requires its members to commit to cutting their greenhouse gas emissions, the NZIA was dogged by antitrust concerns, leading some members to prefer working independently. These concerns emerged in the wake of opposition to the NZIA and other environmental, social and governance initiatives from some US lawmakers. Bacani stresses the NZIA was “compliant with antitrust laws” and the FIT is an “even safer space for complementary efforts on climate action”.

Founding FIT participants comprise 19 insurers and reinsurers from around the world and include African Risk Capacity, Aviva, Beazley, Crédit Agricole Assurances, Generali and Fidelis Partnership.

The founding members of the CGIRS comprise 16 insurance regulatory and supervisory authorities from all regions, including the Bank of England’s Prudential Regulation Authority, European Insurance & Occupational Pensions Authority, Monetary Authority of Singapore, Australian Prudential Regulation Authority, National Insurance Commission of Ghana, California Department of Insurance and Brazilian Superintendence of Private Insurance.

The founding members of the CGSRC comprise 11 academic institutions and civil society organisations from different regions.

Meanwhile, the FIT’s legal team comprises experts on antitrust and competition laws, sustainability, insurance and finance, among other core areas of expertise, from three global law firms: Freshfields Bruckhaus Deringer, which is serving as the FIT’s legal counsel, as well as individual special legal advisors from Cleary Gottlieb Steen & Hamilton and Norton Rose Fulbright.

Bacani concludes: “The fact we have a global community of stakeholders across different geographic regions and across different types of organisations, from market participants to regulators and civil society, is a really good sign of support to kick off this new initiative.”