We are the voice of insurance and long-term savings | Contact us

Pillar Two: Unleashing Investment Capacity

The industry has a key role in providing the scaled investment capacity that will be needed to phase out carbon-intensive activities and replace them with sustainable and renewable innovations.

To set out how the UK can maximise this opportunity, the ABI has worked with Boston Consulting Group to explore the UK’s investment needs, as set out in the Climate Change Committee's Sixth Carbon Budget and to then identify the asset pools with the highest potential, the types of transition opportunities potentially of interest to ABI members and what is required to unlock these investments.

Analysis from the Boston Consulting Group reached three main conclusions:

  • c£2.7trn of investment is needed over 2021-35 to hit the UK government's Net Zero target (which assumes a 78% reduction in carbon emissions against the 1990 baseline by 2035)
  • ABI member investment capacity could support up to one-third of this investment (c£0.9trn) from the c£2trn of our sector’s new business and reinvestment flows – equivalent to c£60bn each year.
  • Unlocking the full investment capacity requires an increase in the supply of opportunities, reductions in complexity of the investment process and improvements to the financial attractiveness

However, unlocking the full investment capacity requires an increase in the supply of opportunities, reductions in complexity of the investment process and improvements to the financial attractiveness

Despite the insurance sector being well-positioned to invest for the long-term and having capacity to deliver a significant proportion of the required Net Zero investment, barriers exist to fully deployment of ABI members’ investment capacity. Action will be required to address these constraints.

Current low interest rate market environment makes investments in large-scale infrastructure projects attractive for insurers, however, these market conditions are unlikely to persist indefinitely. The Government has an opportunity to act now to ensure as much of the insurance sector’s investment potential as possible is deployed.

ABI members face three broad categories of constraint on Net Zero investment:

  1. Lack of supply of net zero transition opportunities to invest in
  2. Complexity of the investment process
  3. Financial attractiveness of investing in net zero transition opportunities

Unlocking these constraints will require action by regulators, the UK government, and international standard setting agencies. Working with ABI members, we have outlined an initial list of potential unlocks for the constraints: