Tackling climate change gives the insurance sector a ‘chance to show leadership’ and ‘be a driving force in this vital and important issue’ says expert panel

The insurance industry has the ability to flex its financial muscles and lead the global business response to climate change, but to do so it needs to get its own operations in order.

While the industry is shouldering the increasing costs of climate change due to the rising number of severe weather events, the sector has been told it can use its assets and investments to further the fight against global warming.

Leading figures from across the UK insurance market debated the threat from climate change and the steps the industry could take to make a difference during a panel session at the Association of British Insurance’s (ABI) annual conference, which was held virtually.

Phoenix Group chief executive Andy Briggs, who has recently been appointed the chair of the ABI’s new group on climate change, said the industry could not shirk its role in the fight.

“I have always believed we have a fundamental role to play in society and sustainability is core to that role.

“If a client takes outs a pension with us in their teens or twenties, they will likely be with us as a client for 40 to 50 years. We need to ensure our sustainability to be there to meet our responsibilities to our clients.”

He added that rising public awareness of the threat posed by climate change will force the industry to enhance its sustainability, both in its investment strategies and operations, or the sector could run the risk of failure.

Briggs warned that organisations which do not deliver on sustainability and move towards net zero emissions will struggle to attract talented staff, struggle to attract customers and struggle to attract the necessary investment.

“What we need to do is set science-based targets to set a route towards net zero,” he added.

Briggs said the life and pensions market, alongside non-life asset managers, will need to look at the products they offer and the investments they make in order to tackle climate change threats.

He explained his group is already offering the opportunity for clients to invest in dedicated environmental, social and governance (ESG) funds - a move he believes will gather popularity as demand grows.

Leadership culture

Clients will continue to be the main driver of change as the public becomes more demanding of their insurers to be clear on sustainability and the way in which they manage their assets, including any investments in potentially climate damaging firms.

Direct Line Group chief executive Penny James said she was optimistic that the world will meet the challenge of climate change; she pointed to the level of collaboration that was already underway between national governments and the business community.

She added that organisations had to start with their own culture if they were to succeed here.

If the company’s senior management did not provide a clear lead and ensure the entire company understood that climate change was an issue that needed to be taken seriously, then staff would view the issue as someone else’s problem.

“Data is vital,” added James. “You need to know where to start from and the direction of travel. You need to constantly revise the actions you are taking and be transparent with your targets and progress.”

She added the industry will need to be creative to find new solutions as the challenges become more apparent and collaborations with national governments develop.

Supply chain focus

However, the fight to deliver net zero emissions from the industry’s operations has the added complexity of the supply chain.

While insurers have taken steps to use renewable energy sources, rid their offices of single use plastics and end the use of landfill for their waste, James explained that the industry still needs to engage with its supply chain if it is to reach its targets.

“[Around] 90% of our carbon usage is in our supply chain,” she added. “It is a huge challenge for all of us. The biggest task is to understand what is happening in the supply chain, particularly with those firms that support our claims operations, as many organisations within the chain will be active across the industry.”

As the world’s governments prepare for the United Nations Climate Change Conference (COP26) in Glasgow this November, James said it presented the opportunity for the UK to step up.

“I would like to see the UK lead the way on the issue of global climate change,” she added. “We have had a battering in the past few years as a country, but we can be a driving force in this vital and important issue.”

Briggs said that his hope was that COP26 would provide the opportunity for the industry to demonstrate why it should be at the centre of the world’s response.

He said with £2tn in assets and its role in supporting businesses across the world, the time was right to step up.

“We really have the chance to show leadership. It presents the chance to prove what we can do and enhance our reputation in the eyes of our clients and governments,” explained Briggs. “We have a real role to play and we can demonstrate genuine leadership.”