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Insurance is the sleeping giant of climate risk, and awakening to its potential to unlock the energy transition

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Climate and Resilience Hub|Climate Risk and Resilience

By Graham Knight | October 05, 2021

Climate Transition Pathways will help businesses committed to transition to a low-carbon economy in return for continued access to insurance capacity and capital.

Risk transfer built the world as we know it today - our bridges, roads, oil fields, power stations fuelled by coal or natural gas and supporting infrastructure were built because they were insured. In order to build a cleaner future, insurers and reinsurers must continue to innovate as the world transitions to a net zero and resilient future, taking on the role as stewards of the climate transition.

As many insurers begin to exclude or restrict capacity for coal, oils sands and arctic drilling, attention is turning to other hard to abate sectors. It is clear insurance needs to play a pivotal role to facilitate and accelerate the energy transition and we are now seeing initiatives emerge that focus on this challenge. In July, eight European firms established the Net-Zero Insurance Alliance, which includes measurable and science-based climate targets that will be monitored and updated every five years.

Willis Towers Watson is building on this engagement approach as we develop implementable solutions that help clients manage the climate transition and helps insurers engage with high carbon-emitting organisations who are committed to a low carbon future, incentivising and accelerating the energy transition.

Earlier this year, Willis Towers Watson launched Climate Transition Pathways (CTP), a global accreditation framework that accredits climate transition plans that are aligned to the Paris agreement. Energy companies and others in carbon-intensive sectors will be able to apply for CTP accreditation to demonstrate that they are serious about not just setting low carbon targets, but also have a robust climate transition plan. CTP will unlock the continued access to insurance capacity and capital as they transition.

We have recently announced the first insurer to support the CTP sector solution for electric utilities and oil and gas, Liberty Specialty Markets, and we will be announcing more supporting insurers soon. As CTP develops it will expand to support multiple high carbon-emitting sectors.

The framework for the CTP recognises evolving climate science and policy, aligning to the Paris Agreement goals, the Science Based Targets Initiative, the EU Sustainable finance taxonomy, and TCFD reporting.

It uses well-established methodology, Assessing low-Carbon Transition (ACT), which is designed to assess a company’s climate transition plan and links the assessment output to five core principles that underpin the accreditation framework and determine whether the plan is Paris aligned.

Sustainability consultants Volans and the Climate Bonds Initiative sit on the accreditation committee and are the independent assessors. As CTP progresses the goal will be for Willis Towers Watson to step back and transfer the committee into a not-for-profit as it becomes self-sufficient.

We have made this step as we see the natural demand in the market. Insurance has helped secure social and economic transformations in the past, and the sleeping giant is fast awakening to the alarm call of the climate decade ahead.

This article was originally published by the FT Climate Capital Council, September 2021. Republished with permission.

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Global Head of Natural Resources Risk & Broking,
Willis Towers Watson

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