To tackle the climate crisis, companies and financial institutions must use all possible tools for change. But not all levers are as shiny as carbon and water capture from thin air or raising billions in funds.
Some, such as a company’s choice of insurance company, reveal impactful solutions hidden as administrative costs.
Creating market momentum to reward insurance companies that commit to halting fossil fuel development is an overlooked – and less burdensome – way to accelerate the transition to a clean economy.
A company’s choice of insurer has implications for its climate impact, as the extraction and use of fossil fuels is the main source of global CO2 emissions. The International Energy Agency has stressed that the development of new fossil fuels must end to bend the climate curve, and that development cannot happen without financing – which cannot happen without insurance.
More attention to financial footprints
Financed issuance, which falls under the Scope 3 umbrella, makes up the vast majority of financial institutions’ issuance. For example, BlackRock could close all its offices tomorrow and cancel all employee travel, and from an atmospheric perspective the impact would be virtually zero.
As such, the financial sector has been pushing this issue category for some time – 80 percent of banks in Sustainable Fitch’s database, for example, report all their Scope 3 emissions.
But for sustainability leaders at non-financial companies, financial carbon footprints—including corporate cash reserves, 401(k) investments and insurance premiums—are new territory.
“For the practitioners who have been focused on Scope 3… we haven’t been socialized to consider this,” Ashley Orgain, chief impact officer of Seventh Generation, a company further along its sustainability journey than many, told Heather Clancy of GreenBiz.
However, many practitioners already understand the “intangible benefits of being part of something where the same money you already have to spend on insurance becomes a brand asset, with mission alignment with climate action,” Brad Stevenson, CEO of Premiums for the planettold me.
Premiums for the Planet, launching in 2022, is working on this collect the collective expensesinsurance buyer influence and voice to expand climate action in insurance.
Start a conversation about insurance
Insurers are first and foremost society’s risk managers and must therefore take responsibility to actively prevent the climate crisis and stimulate the transition to a low-carbon economy.
Commercial insurers – whether general liability, property and casualty, vehicle or life insurance – are the second largest category of institutional investors worldwide. More than half of the Net-Zero Asset Owner Alliance convened by the United Nations, for example, are insurance companies.
But insurers looking to clean up their portfolios have faced a Republican-led backlash against climate initiatives in the United States.
The UN-led Net Zero Insurance Alliance, a group of insurers and reinsurers aiming to transition their insurance portfolios to net-zero emissions by 2050, saw seven of its members – including five of the eight founding signatories – are leaving after attorneys general from 23 states alleged that the Alliance’s goals and requirements could violate antitrust laws.
Nevertheless, choosing an insurance company will become increasingly important for companies looking to reduce their financed emissions impact. Changing ‘business as usual’ requires harnessing the most ‘ordinary’ parts of business to accelerate climate progress.
“It costs nothing, requires no additional energy, disruption or sacrifice,” Stevenson said. “We approach insurance sustainability opportunities through sustained, targeted, strategic and collective action. It is the only way to challenge the status quo.”