German insurers start reporting carbon footprint of their investment portfolios
Insurance companies operating in Germany have been the first in Europe to publish the carbon footprint for part of the entire industry’s investments.
“Our footprint for publicly traded equities and corporate bonds of 71 metric tons of CO2 per EUR 1 million invested is the baseline against which we are prepared to be measured in coming years”, said GDV CEO Jörg Asmussen last Thursday on TransVer Day, the insurance industry's sustainability day. By 2025 this measure is going to be noticeably lower, Asmussen added.
Insurers have calculated the carbon footprint for publicly traded equities and corporate bonds worth EUR 310 billion, which amounts to roughly one fifth (19.9 percent) of primary insurer's total investments. According to this calculation, the companies insurers are invested in, produced 21.9 million metric tons of CO2 attributable to the insurance companies.
The GDV measured the footprint based on the methodology companies will be legally required to use in future. In years to come, German insurers are planning to calculate the carbon footprint for other asset classes, too.
Sustainability processes are firmly embedded in companies by now
Insurers with a combined market share of 86 percent of premium income (182 companies) have a sustainability strategy in place, while almost as many (85 percent) have defined net zero targets for their investments. 80 percent have sustainability rules for their own business operations, for example regarding energy supply or selecting service providers. In risk underwriting, 58 percent of insurers consider the sustainability impact. “Companies are already implementing the changes we only started to initiate last year”, said Asmussen.
In early 2021 insurers published their first roadmap for companies to become climate neutral. The industry’s sustainability positioning primarily aims to achieve four goals: net zero carbon emissions for the sector’s EUR 1.8 trillion worth of investments by 2050; eventually no more underwriting of commercial or industrial risks where clients or business partners don't actively contribute to a sustainable economy; more sustainable insurance products; and net-zero business processes in insurance operations by 2025.
TransVer Award 2022 goes to Klimadelegation e.V.
TransVer stands for Transformation and Versicherung (insurance); so it is only fitting for the GDV to present its latest sustainability report on TransVer Day. The event hosted at the ewerk in the heart of Berlin is where the insurance industry gets in touch with its stakeholders from politics, business and the NGO sector. This year's TransVer Sustainability Award, the highlight of the event, went to Klimadelegation e.V., an association of engaged, mostly young climate activists who fight for more ambitious climate policies in countries around the globe and make themselves heard at high-profile events, most recently at the COP27 climate conference in Egypt this past November. “Our sustainability report, our sustainability day and our sustainability award show that we are progressing nicely, but also that we still have a long way to go”, Asmussen said.
Key sustainability metrics at a glance:
- The share of investments managed based on ESG criteria has increased to 88 percent (2021: 82 percent).
- Insurance companies accounting for 85 percent of total investments made by the industry have aligned their investment decisions with the net zero goal.
- Insurers accounting for 90 percent of investments are signatories to the UN Principles of Responsible Investment. Companies representing 51 percent of investments are members of the Net-Zero Asset Owner Alliance (NZAOA), which is also under the auspices of the United Nations, and have clearly defined CO2 reduction targets and reduction paths.
- In 2021, investments in more than 1600 renewable energy projects yielded a reduction of emissions by 8.6 million metric tons of CO2, up from 4.6 million tons in 2020.
- Green bond investments amounted to 1.1 percent of total investments in 2021 (after 0.7 percent in 2020). However, the allocation to this asset class could be ramped up faster in investment portfolios if only more green bonds were available.
- In risk underwriting sustainability is getting more and more important, too. Companies representing 88 percent of the P&C insurance market have a sustainability strategy in place, and insurers accounting for 80 percent of that market use sustainability as a criterion in their claims and benefits process.
- Insurers are starting to develop decarbonisation strategies for their risk underwriting; companies with a combined market share of 31 percent are doing this as members of the Net-Zero Insurance Alliance.
- The market share of insurers who consider ESG criteria in their underwriting was flat yoy at 30 %.
- On the product level, claims adjustment is the most important element to drive the sustainability transformation. 80 percent of the market are using sustainability criteria. Two out of three insurers use “repair instead of replace” as a basic loss adjustment principle, and 59 percent make sure to maximise energy efficiency in their loss adjustment.
- In 2021, emissions caused by insurers’ own business operations were 2 percent higher year-over-year because the Covid-related lockdowns in 2020 had caused insurers to produce or buy less energy causing unusually low scope 1 and 2 emissions. For all of Germany, energy-related emissions in 2021 were 4.5 percent higher than the year before. In absolute terms emissions amounted to 0.17 million metric tons of CO2 equivalent, which is 0.9 tons per FTE.
The insurance industry's sustainability positioning is reviewed and adjusted regularly based on the sustainability report and benefits from a continuous improvement of data and methodologies.