ESG

In this chapter of our Annual Insurance Review 2022, we look at the main developments in 2021 and expected issues in 2022 for ESG.

Key developments in 2021

Lloyd's focuses on a more sustainable future

Lloyd's published its first Environmental, Social and Governance (ESG) Report at the end of last year.  While this is a fairly new focus area for Lloyd's, the report emphasised: a) Lloyd's long record of contributing to communities and helping them to recover from disaster; and b) insurance's role in protecting society and supporting global economic growth. 

Lloyd's stressed its commitment to playing its part in the global transition to net zero.  This will include the risks it shares, the investments it makes and the way in which it supports societal progress more broadly. 

Some headlines from the ESG Report include:

• Setting targets for responsible underwriting and investment to help accelerate society’s transition from fossil fuel dependency, towards renewable energy sources.
• Lloyd’s to phase out insurance cover for, and investments in, thermal coal-fired power plants, thermal coal mines, oil sands, or new Arctic energy exploration activities.
• from 1 January 2022, Lloyd’s managing agents will be asked to no longer provide new insurance coverages or investments in the activities referred to above.
• managing agents will be asked to phase out the existing coverages referred to above by 1 January 2030 to enable the market to support their customers who are making the transition away from these energy sources towards sustainable energy usiness models; and
• committing to the phasing out of the market’s and the Corporation’s existing investments in thermal coal-fired power plants, thermal coal mines, oil sands, or new Arctic energy exploration activities by the end of 2025.

What to look out for in 2022

Nature-positive Insurance

In September and October 2021, the UN hosted a series of webinars on nature-positive insurance, chaired by Butch Bacani (the programme leader at the UN for the Principles of Sustainable Insurance Initiative).  The focus was on how insurance can assist in the preservation of sensitive ecosystems and the protection of global biodiversity.  There were speakers from both the public and private worlds, including insurers and reinsurers.   

Loss of biodiversity should be viewed alongside climate change.  According to the Taskforce on Nature-related Financial Disclosures, more than half the world's economic output is moderately or highly dependent on nature.  Furthermore, as global temperatures rise, it is estimated that up to 1,000,000 species may become extinct and land use will change as, for example, savannah turns to desert. 

The webinars highlighted developments with coral reefs and mangroves, both of which are essential buffers between the sea and the land.  It has been estimated that mangroves alone may protect 80 million people worldwide and may save many billions of dollars in storm damage.  Innovative insurance products are now available for the restoration of both after storm damage.  In 2019, Swiss Re underwrote an insurance policy for a coral reef at Quintana Roos, Mexico.  In 2020, the Nature Conservancy, with technical expertise from AXA-XL, created a product for the insurance of mangroves.

In years to come it will be fascinating to see how insurance innovates to protect other sensitive ecosystems such as rivers, saltmarshes, forests and peat bogs."

Written by Peter Mansfield & Lauren Murphy.

Download our full Annual Insurance Review 2022 for more insights.