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Pillar One: Meeting Net Zero By 2050

Background 

Pillar One of the ABI’s Roadmap focusses on the actions ABI 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 ABI 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, the ABI recommends that its 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 ABI 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. 

In addition, our Roadmap sets out a series of milestones that we expect ABI 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: What has been achieved in 2021/22 

Since publishing our Roadmap in July 2021, the ABI has focussed on encouraging as many of our members as possible to take action to set Net Zero targets.  

We have seen significantly progress since then – customers who are looking for a new Insurance or Long-term Savings provider are now able to choose from a large number who have been accredited by the UN-backed Race To Zero campaign.  

Since we first published the ABI Roadmap, we have seen more members become accredited as part of ‘Race To Zero’ – this means that, as a proportion of the overall marketshare represented by ABI members, 89% of the Long-term Savings market and 54% of the General Insurance Market are part of the ‘Race To Zero’2 

This sends a strong signal to the rest of the insurance market – we want to see the rest of the ABI’s members follow their lead and become part of the ‘Race To Zero’.  

We want all of our members to join the ‘Race To Zero’ campaign – and to make this happen, the ABI has taken a range of actions to help our members:  

  • On 9th March, the ABI was confirmed as an official ‘Accelerator’ of the UN-backed ‘Race to Zero’ campaign. As an Accelerator, the ABI will support its members to sign up to the ‘Race to Zero’ by joining the campaign’s relevant partner initiative and helping to raise awareness of the campaign. 
  • As a member of the UN PSI (Principles for Sustainable Insurance), the ABI is contributing to the development of the Net Zero Insurance Alliance, including providing feedback on the recent public consultation on insurance-related emissions.   
  • 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. In particular, we have helped design and test a scenario analysis narrative tool that will help firms across the financial services sector understand the risks posed by different projections for global temperature increases.  
  • 569 individual ABI member representatives have attended our Climate Summits and Climate Clinics (delivered in partnership with KPMG), raising awareness and building collaboration across our membership. These meetings are free to attend, open to all members and allow practitioners to compare their experiences with other firms in the sector and hear from external experts on a range of topics linked to climate change. We have held sessions on how to develop Net Zero targets, the role of UK Green Taxonomy and our most recent Climate Clinic (held on 31st May) involved an in-depth seminar with WWF, outlining their expectations for Net Zero, Green Finance and supporting nature. 
  • The ABI had an active presence at COP26, hosting events in partnership with the Scottish Government, Cambridge Institute for Sustainability Leadership and the City of London Corporation. We always make sure that our events allow for external scrutiny of our approach, rather than industry speaking to industry. 
  • We are also making sure we focus on protecting nature and biodiversity in our work. We have joined the TFND Forum to ensure our members are able to incorporate nature into their financial disclosures and we are participating in ClimateWise’s Insurance and Nature Working Group, which will publishing a series of recommendations later this year. 
  • In addition to work with our own sector, we have also helped co-ordinate action within the wider financial services sector by working closely with our counterpart trade bodies UK Finance and the Investment Association, and participating in a range of Green Finance working groups run by the CBI, City of London Corporation and TheCityUK. We were also an Advisory Board member for the recent City of London Net Zero Delivery Summit, held at the halfway point between COP26 and COP27.   

The ABI is 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 our current score is 82% - this is a 21% increase since 2019 and an 11% year-on-year increase. 

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. 

Actions for 2022/23: Where more progress is needed 

Setting Net Zero targets and joining the Race To Zero

We asked those firms who would be willing to consider Race to Zero membership what factors would influence their decision.

Factors highlighted by members included:

  • Clarity and consistency of methodologies for setting targets and alignment with regulatory requirements across different international jurisdictions
  • Aligning forthcoming guidance on Transition Plans with the disclosures required by 'Race To Zero' campaign organisations
  • More attention on climate risk through incorporation of additional factors related to the liability side of firms' balance sheets into criteria 
  • Simplicity of application process and potential cost/resourcing implications links to ongoing reporting requirements 
  • Availability of a carbon offsetting market that is sufficiently mature and credible to utilise as part of target-setting process
  • Public and stakeholder trust in the credibility of the 'Race To Zero' campaign and the position industry peers take on membership

There is scope to increase the number of ABI members who are part of the Race To Zero campaign. The ABI’s status as a Race To Zero ‘Accelerator’ means we will continue to campaign for more of our members to join.  

Our member survey shows that firms are willing to consider membership of Race To Zero. Of those firms who responded, 94% reported that they are currently considering whether to join.   

A number of these firms are already actively gathering data and setting internal Net Zero targets and expect to be in a position to apply for ‘Race To Zero’ membership when these exercises are completed. 

As a ‘Race To Zero accelerator’, the ABI will be engaging with the campaign to ensure the factors that will influence decision-making by our members are addressed. We remain confident that by working with our members and the campaign we can continue to see more ABI members join in the coming 12 months.  

As a ‘Race To Zero accelerator’, we are able to engage in the regular reviews of the membership criteria. One area where we would like to see further development is to allow firms whose Insurance and Long-term Savings offerings are one part of a much larger, diverse group to join the relevant sector-specific parts of the campaign more easily. We believe this should be achievable, given that all ABI members must be authorised insurers under the prudential regulation regime.  

Developing Transition Plans  

The ABI supports the Government’s objective of making the publication of climate transition plans mandatory.

We were a joint signatory to the letter sent to the Chancellor and Business Secretary in October 2021, and we were therefore very pleased that the Chancellor announced this policy during his speech at COP26. 

We will be responding to the Transition Plan Taskforce consultation – Transition Plans will be a vital tool in assessing the underlying credibility of climate disclosures and therefore will make it much easier for ABI members to engage with the businesses they invest in and underwrite.

With 88% of the firms who responded to our member survey already actively developing their plans, our sector is already making good progress in advance of these requirements becoming mandatory from 2023 onwards.  

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

 


[2] Marketshare data based on ABI data on the for each firm’s new business in 2020 (the most recent year for which this data has been provided), and is a percentage of the total new business across the ABI’s membership – data excludes firms who are not members of the ABI. The following ABI members are accredited members of the Race To Zero - Allianz / Aviva / AXA / BlackRock / Bupa / Direct Line Group / Fidelity / M&G / PIC / Pheonix / QBE / Rothesay / Royal London / Scor / Scottish Widows (part of Lloyds Banking Group) / Swiss Re / Zurich / Vanguard (LTS member)