Pillar One: Meeting Net Zero By 2050

Background

Pillar One of our Climate Change Roadmap focuses on the actions our members need to take to align their portfolios to Net Zero – focussing on the ‘financed emissions’ that are linked to investment and underwriting activity.

This pillar outlines how the sector will meet its commitment to reaching Net Zero by 2050 - in line with the Long-Term Global Goal (LTGG) agreed in Article 2.1 of the Paris Agreement and reaffirmed at COP26 and to halving our emissions by 2030, in line with the conclusions of the IPCC's Mitigation report, published in April 2022.

This pillar emphasises the importance of transparency and external scrutiny. This is how climate change experts can scrutinise whether the commitments our members are making are credible and how our stakeholders can ensure the actions we are taking align with Net Zero strategies in the wider economy.

To achieve this, we recommend our members join an organisation that has been accredited by the UN-backed Race To Zero campaign.

‘Race To Zero’ is a global campaign to rally leadership and support from businesses, cities, regions, universities and investors for a healthy, resilient, zero carbon recovery that prevents future threats, creates decent jobs and unlocks inclusive, sustainable growth.

Initiatives our members can join include one of the Glasgow Financial Alliance for Net Zero (GFANZ) groups, or related initiatives like the SBTi (Science Based Targets initiative)’s Business Ambition for 1.5 campaign or the IIGCC (Institutional Investors Group on Climate Change)’s Paris Aligned Investment Initiative.

Membership of ClimateWise also allows insurance companies to benchmark themselves against their peers, including through the annual Independent Review of the ClimateWise Principles. The ABI was a founding member and we publish our own ClimateWise.

In addition, our Roadmap sets out a series of milestones that we expect our members to achieve by 2025 – these are particularly important as they are within the tenure of the industry’s current leadership.

The group of industry CEOs who developed our Roadmap have consistently emphasised the need for milestones they can personally be held to account for, to ensure that their businesses are able to meet the longer-term 2030 and 2050 targets.

Progress Update

Net Zero Targets

The Climate Change Roadmap sets an expectation that firms will have in place a Net Zero target fully covering Scopes 1,2 and 3 emissions by 2025.

We recently surveyed our members to understand their progress against these targets.

Of the firms that responded, we already see that 54% of firms surveyed have already fully met this milestone. Others are making good progress – overall 82% have agreed a Net Zero target (with 73% fully covering scopes 1,2 and 3) and 61% also have an interim 2030 target.

We will be continuing to support those firms who have not yet finalised their targets to do so

We are encouraged that a number of members who have not yet finalised their targets have indicated that they have active processes underway to do this and ensure those targets are approved. .

In recent months, there have been a number of departures from the UN’s Net Zero Insurance Alliance (including a number of our members). Many of those leaving the NZIA have issued statements stressing that they intend to continue with the individual Net Zero plans they have set out. Those firms who have left remain members of other alliances, such as the Net Zero Asset Owners Alliance and the SBTi’s Business Ambition for 1.5 campaign.

The expectations of our Climate Change Roadmap – including the emphasis on using credible external experts to assess the quality of Net Zero targets and Transition Plans – remain unchanged.

However, we recognise that firms must make their own decisions on which alliances and organisations best suit their business.

Transition Plans

We strongly support the work of the UK Government’s Transition Plans Taskforce (TPT). We are proud of the leading role the insurance and long-term savings sector has played in the development of Transition Plans.

Publication of Transition Plans across the economy is a key step in delivering a Net Zero economy and in meeting the UK Government’s ambition of making the UK the first Net Zero aligned financial centre.

We are very pleased that representatives of the insurance sector have played a central role in leading the TPT and contributing to its work. Across our membership, firms are actively developing their own transition plans and have engaged in detail with the TPT’s work.

We welcome the constructive approach that the TPT has taken to engaging with industry to support its work, in particular the establishment of a sandbox exercise.

In February, we hosted a roundtable for the insurance sector held as part of the TPT’s consultation exercise. We also submitted a detailed written response to the consultation.

Producing credible, high-quality transition plans will require engagement across the entire company and with external stakeholders.

It is important that Transition Plans are seen as an ongoing exercise and that businesses are able to refine their plans when there is additional clarity on public policy or in response to the plans of other businesses in their supply chain or in the markets that they are operate.

We asked our members to summarise the main external barriers that will need to be addressed to deliver their transition plans.

They highlighted the following barriers:

Lack of clarity on plans to decarbonise key real-economy sectors, especially transport and energy and lack of focus on energy efficiency in housing stock
Skills shortages (especially in transport and building sectors)
Inconsistency on disclosure for GHG emissions data and other climate metrics across the global economy
Limited range of investment opportunities in green technology and related infrastructure projects and delays to obtaining planning permission
Lack of public investment in resilience infrastructure, especially flood defences
Restrictions on pension asset investments due to regulatory restrictions
Limited scope for fixed-interest investors to engage with their investees to drive change
Availability of land for large-scale tree planting and other ‘nature-based’ solutions
Inconsistent carbon pricing mechanisms reducing scope to align Net Zero strategies with climate risk mitigation
Methodology for GHG emissions linked to underwriting not due to be finalised until 2023

In the last 12 months, we have hosted Climate Clinics and member roundtables on:

A Climate Clinic on ‘Measuring greenhouse gas emissions and the data challenges ahead’ (in partnership with KPMG)
Insurance Associated Emissions (with PCAF – the Partnership for Carbon Accounting Financials)
Climate Risk Modelling and Analytics (in partnership with ClimateX)
A Networking Climate Clinic focussed on the key challenges facing sustainability practitioners (in partnership with KPMG)

Roundtable discussion on ‘learning from the 2021/22 Climate Biennial Exploratory Scenario’ (with UK Centre for Greening Finance and Investment – CGFI)

We also hosted roundtables as part of the following consultative exercises

Roundtables on Sustainability Disclosure Requirements (SDR) and investment labelling and on Sustainable Finance with the FCA
A roundtable on Transition Plans, with the Climate Financial Risk Forum (CFRF) and TPT Secretariat
A roundtable on the Taskforce For Nature-Related Financial Disclosure (TNFD)’s Risk & Opportunity Management and Disclosure Framework

As well as hosting roundtables, we work with our members to agree industry positions on key issues. In 2022/23, we provided detailed written responses to the following consultations:

The UK Government’s consultation on its update to the Green Finance Strategy (submitted in June 2022)
The Transition Plans Taskforce’s consultations on its Sector Neutral Framework for Private Sector Transition Plans (submitted in July 2022) and on its Disclosure Framework and Implementation Guidance (submitted in February 2023).
The FCA’s consultation on Sustainability Disclosure Requirements (SDR) and Investment Labelling (submitted in January 2023)
The FCA’s discussion paper on Finance for Positive Sustainable Change (submitted in

Rt Hon Chris Skidmore MP’s independent ‘Net Zero Review’ (submitted in October 2022)

We also engage with a wide range of stakeholders to ensure the voice of Insurance and Long-Term Savings is included as key decisions are made on climate change.

This includes participating in the following membership bodies and organisations:

We are an ‘Accelerator’ for the UN-backed ‘Race To Zero’ campaign and remain committed to promoting this campaign to our members
We have an active presence on the Climate Financial Risk Forum (chaired jointly by the PRA and FCA), as observers on the main forum and participants on the working groups. We contributed to several of the Session 3 outputs, including the CFRF report on ‘Mobilising Investment into Climate Solutions’, the online Climate Scenario Analysis Narrative tool and the Disclosure, Data and Metrics webinars.

We have joined the TFND Forum to ensure our members are able to incorporate nature into their financial disclosures

ClimateWise Principles

We are committed to transparency about the actions we are taking on Climate Change.  

Each year, we make a detailed submission to ClimateWise, assessing how we are performing against the ClimateWise Principles. Our submission is published on the ABI website, with our most recent submission available here.  

We are proud that in 2022 our weighted score is 84% - this is a 23% increase since 2019 and a 2% year-on-year increase on 2021. 

However, we are not complacent – to ensure that we have an accurate picture of how our members are adapting to climate change, we recently commissioned a survey of our members. This showed both encouraging signs of progress and areas where more work is needed. 