The trade body seeks sector solutions to ’the greatest threat facing our planet’ as insurance is ’uniquely placed to drive the transition’ towards net zero carbon emissions

Members of the ABI could invest up to £0.9 trillion in green infrastructure between 2021 and 2035 to provide a third of the money needed to meet the UK’s net zero target, according to independent analysis conducted by global management consulting firm Boston Consulting Group.

To achieve this, the UK government and regulators will need to rethink how investment is incentivised, as well as empower ABI members to allocate a greater proportion of their backing capacity to climate transition opportunities in the UK and internationally.

These findings have been unveiled as part of the ABI’s Climate Change Roadmap, published today (7 July 2021). This sets out the role the ABI believes the sector can play in tackling climate change.

Ten leading insurance and long-term saving companies, which between them have over £1.26 trillion in invested assets, have contributed to the Roadmap report.

Huw Evans, director general of the ABI, said: “We all know the environmental crisis is the greatest threat facing our planet and all sectors need to challenge themselves like never before.

“We accept that our sector’s emissions are amongst the most of any industry in the economy but, conversely, this means we are uniquely placed to drive the transition, including through huge investment potential in the green economy and our reach to millions of customers.”

To take advantage of the investment opportunity identified by Boston Consulting Group, the UK government will need to consider the following options:

  • Amending how the matching adjustment operates in Solvency II will remove barriers that currently limit the scope for insurance and long-term savings providers to invest in green infrastructure.
  • Collaboration is needed between the UK Infrastructure Bank and the Prudential Regulation Authority to ensure that the investment opportunities identified as crucial to meeting the UK’s net zero targets are not then disincentivised through the regulatory regime.
  • Ensuring that the criteria for the proposed Long-Term Assets Fund is as ambitious as possible because this could dramatically increase the proportion of the UK’s defined contribution (DC) pension pots invested in illiquid assets, which will be crucial to meeting the long-term challenge of decarbonising the UK economy.
  • Working with the ABI, regulators and stakeholders to structure investment opportunities to align with the responsible approach to investment required to finance insurance claims and pension payments – innovations such as aggregated innovation hubs and structured consumption funds would allow the sector to invest in transition infrastructure across its full lifespan.

Anne-Marie Trevelyan, UK energy and climate change minister, added: “We are at a pivotal moment for our planet and the Association of British Insurers is showing how protecting the environment and supporting economic growth go hand in hand.

“Today’s ambitious plan for the insurance and savings sector, including the potential to invest nearly £1 trillion to help the UK reach net zero carbon emissions by 2050, will be critical alongside actions by this government and the public to tackle climate change.”

The new short and medium-term milestones listed in the ABI’s Roadmap ahead of fully decarbonising activities by 2050 are:

  1. By 2025, firms should have worked collaboratively with recognised external frameworks to set a target to show how each individual firm plans to reach net zero by 2050. At this point, firms should have reached net zero within their own directly controlled emissions and reported transparently on progress.
  2. By 2030, firms should have reached the Intergovernmental Panel on Climate Change’s (IPCC) interim goal of a 50% reduction in greenhouse gas (GHG) emissions.
  3. By 2050, organisations should have fully decarbonised their activities in line with the United Nations Framework Convention on Climate Change (UNFCCC) Paris Agreement.

Evans continued: “Trade associations like the ABI have a critical role to play in enabling leading firms to work together to tackle this unprecedented challenge.

“Today’s Roadmap will ensure we take decisive steps so that our sector is big part of the solution, not the problem.

“Critical to our sector playing its full part are reforms to our prudential regulation regime and public policy. If we truly want the weight of insurers’ balance sheets to get behind the race to net zero, it will require meaningful change - not staying anchored to an overly-restrictive regime designed in the immediate aftermath of the financial crisis.”

The Roadmap will be reviewed each year to ensure it remains consistent with scientific evidence, that it continues to reflect the UK government’s net zero strategy and any international agreements made at the 2021 United Nations Climate Change Conference (COP26), as well as consider the outputs of the recently launched Taskforce for Nature-related Financial disclosure (TFND).