The financial services industry is an accelerator in the transition to net-zero targets, for example, with the focus on the investment portfolios of institutional investors and bank lending. Progress includes the 95 percent European bank lending having a net-zero ambition aligned with the Paris Agreement. Some 70 percent of European traded equity is managed by asset managers with a net-zero ambition.
Only recently has the focus begun to shift to the underwriting portfolios of general insurers and the impact of commercial underwriting (liabilities). This can also play a crucial role in the transition to net zero, according to Amy Barnes, Head of Climate and Sustainability Strategy, Marsh, Anthony Bice, Partner, Co-Head of the Global Insurance Practice, Oliver Wyman, and Alex Wittenberg, Partner, Financial Services, Oliver Wyman.
First, insurers can impact carbon-intensive economic activity through the pricing and availability of financial capacity for insurance products. Through limiting coverage for certain assets or sectors of the economy, insurers have the ability to shift entire value chains. This applies across a spectrum of carbon intensity — to both green and brown industries.
Second, the underwriting portfolio can react much faster to a changing agenda than the investment portfolio, due to the annual duration of most insurance contracts, which differs significantly from the average tenure of a corporate bond (10 years at origination).