Association of British Insurers Climate Change Roadmap

LONDON, England, July 7 -- The Association of British Insurers issued the following news on July 6, 2021:

pound sterling0.9trn could potentially be made available from now to 2035 to invest in meeting Net Zero targets, subject to action from Government and regulators, as the UK's insurance and long-term savings industry sets out its ambitious response to tackling climate change.

A major investment in the UK's green infrastructure could be unleashed to the value of pound sterling0.9trn - or pound sterling60bn per year - to help meet Net Zero targets by 2050, according to new independent analysis conducted by Boston Consulting Group. The findings have been unveiled as part of the UK's insurance and long-term savings industry's Climate Change Roadmap that sets out the role the sector can play in tackling the greatest threat facing our planet. Ten leading insurance and long-term savings companies have come together to write the Roadmap that between them have over pound sterling1.26trn invested assets.

Including ambitious new targets, investment innovation and a revolution in green products and services, the Association of British Insurers (ABI) has led the development of what we believe is the most demanding and far-reaching carbon reduction plan of any insurance and long-term savings sector in the world.

The ABI's Climate Change Roadmap unveiled today includes:

New short and medium-term milestones ahead of fully decarbonising activities by 2050.

* 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. By this point, firms should have reached Net Zero within their own directly controlled emissions and reported transparently on progress.

* By 2030, reached the IPCC's interim goal of a 50% reduction in Greenhouse Gas (GHG) emissions.

* By 2050, fully decarbonised their activities in line with the UNFCCC's Paris Agreement.

Proposals for unleashing one third of the total investment in the energy and infrastructure transition needed to meet the UK's carbon targets (cpound sterling60bn per year).

* As set out in the UK Climate Change Committee's 'Sixth Carbon Budget', pound sterling2.7trn of investment is needed over 2021-35 to hit the UK government's Net Zero target.

* Boston Consulting Group has found that ABI members could invest up to pound sterling0.9trn in UK transition opportunities over that time frame - equivalent to pound sterling60bn per year or a third of the money needed to meet the UK's net zero target.

* However, this will require significant regulatory and market reform in order for insurers to be able to deliver such a level of investment. Maximising this opportunity requires the UK Government and regulators to rethink how investment is incentivised and allow ABI members to allocate a greater proportion of their investment capacity to climate transition opportunities in the UK and internationally.

Support for customers who want to make more sustainable choices

Our sector employs 310,000 people around the UK, manages pound sterling1.6trn in invested assets and handles pound sterling46m in claims every day. The roadmap sets out how, over the coming years, the industry will work together to explore how we can work with other industries to:

* Make it easier for customers to make sustainable choices about their pension savings by providing clear and consistent information, identifying moments in the saver's journey where sustainable choices could be encouraged and developing a 'jargon-buster' so savers understand how climate change issues relate to their pensions.

* Help customers to make sustainable choices during the claims process. The ABI will work with members and engage pro-actively with our counterparts in other economic sectors to define what would be required to enable customers to take sustainable choices while resolving claims - focussing in particular on motor and property claims in the first instance. This could mean switching to an electric vehicle after a car is "written off" or having a broken gas boiler replaced with a sustainable alt

* Explore how firms can encourage customers to accept repaired or recycled items as part of a settlement, rather than offering brand-new items. As part of this, we'll look at how items damaged during a flood or storm can be reclaimed and given to organisation who can re-use or repair them.

* Partner with the independent healthcare sector to develop safe alternatives to single-use plastic and other unsustainable items in hospitals and healthcare.

* Encourage the development of a sustainable secondary market for electric vehicles and establish consistent practice for re-using and recycling charging equipment.

Anne-Marie Trevelyan, UK Energy and Climate Change Minister says:

"We are at a pivotal moment for our planet, and the Association for 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 pound sterling1trillion 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."

Andrew Griffith, UK Net Zero Business Champion, says:

"ABI's Roadmap is a pioneering example of how collaboration can drive forward the global climate agenda, and seize the long-term economic opportunities of the green industrial revolution.

"This ambitious net zero plan for the sector shows that working together, the financial sector, Government and regulators could unleash an estimated trillion pound investment whilst achieving our world-leading ambitions to eliminate our contribution to climate change by 2050."

Mark Carney, Prime Minister's Finance Adviser for COP26 and UN Special Envoy on Climate Action, says:

"To achieve net zero we need a whole economy transition - every company, bank, insurer and investor will have to adjust their business models, develop credible plans for the transition and implement them. As insurers commit to transition their underwriting activities to net zero through the soon-to-launch Net Zero Insurance Alliance, they will need the right tools and guidance to help them on this journey. ABI's Climate Change Roadmap highlights the need for near term milestones on the transition to net zero; the business and investment opportunity from the transition for UK insurers; and the need for supportive public policy measures. In this way, the Roadmap is a valuable contribution to this process to ensure that every professional financial decision takes climate change into account."

Kate Forbes MSP, Finance and Economy Secretary Scottish Government says:

"The Scottish Government recognises and celebrates the key role that the financial services industry plays across the Scottish economy, and is absolutely committed to working with the industry to support and expedite a green economic transformation.

"Scotland has enormous potential to be a leading centre for Green and Sustainable Financial Services. I am confident that our world-class insurance and long-term savings industry will play a key role in making the most of that opportunity.

"Achieving Net Zero will require action in partnership between individuals, public and private sectors, and I warmly welcome ABI's commitment to play their part in tackling climate change."

Ten ABI member firms have been directly involved in developing the Roadmap and are already fully committed to these targets. The firms are Phoenix, Aviva, M&G, Lloyds Banking Group, Rothesay, PIC, Zurich, Bupa Insurance Ltd, Direct Line Group and Royal London. In addition, a number of other ABI Board firms have contributed to shaping the commitments in this Roadmap and have set Net Zero milestones.

Andy Briggs, Chair, ABI Board Climate Change Committee and Group CEO, Phoenix Group says:

"The impact of climate change is one of the biggest global issues of today and it is essential that as an industry we are taking action to tackle this and driving positive change. As a sector we can provide a third of the investment required to meet the UK's ambitious climate change goals and we have an important role to play. The ABI Roadmap shows the difference we can make with pound sterling60bn per year of additional investment to benefit society, as well as helping customers make informed decisions and firms to make sustainable decisions on their investments.

"The ABI and its members are committed to tackling the climate change challenge and it is imperative that as an industry we are investing to build back greener for the long term, helping society become more resilient to the impact of climate change and supporting the ambition for the UK to reach Net Zero carbon emissions by 2050. The UK climate change strategy which is set to be published in advance of COP-26 will be critical in providing a stable long-term framework to make this green investment attractive."

Huw Evans, ABI Director General, says:

"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 emission 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.

"Trade associations like the ABI have a critical role to play in enabling leading firms to work together to tackle this unprecedented challenge. I'm proud of the tireless effort from the ABI and its members to develop this Roadmap which will help all insurance and long-term savings companies understand what they need to do to help us meet Net Zero targets.

"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."

Dr Bronwyn Claire, Senior Programme Manager, ClimateWise, says:

"As a founding member of ClimateWise, we welcome the ABI's new step to establish a Climate Change Roadmap of short and medium-term milestones ahead of fully decarbonising activities by 2050. Our current collaboration to understand net zero underwriting will give key insights on how insurers and the insurance value chain can enact their commitment to net zero and alignment with the Paris agreement."

In order to unleash the investment identified by Boston Consulting Group, the UK Government would need to consider the following options:

* As the ABI has previously outlined, changes are required to the industry's regulatory regime, Solvency II. Amending how the Matching Adjustment operates will remove barriers that current 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, as this could dramatically increase the proportion of the UK's DC pension pots invested in the illiquid assets that 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.

This is not the last word on climate change and the plan 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 COP26, and also the outputs of the recently launched Taskforce for Nature-related Financial disclosure (TFND).