29 November 2022Article

Aviva calls insurers to action on climate change

Next year, we will be rightly celebrating the 50th anniversary of The Geneva Association. And in that context, I think a good place to begin is remembering why it was first set up, back in 1973. The founding fathers of the association (and there were no founding mothers, sadly) wanted to place insurers at the centre of global thinking on economics, society and risk. At the time, insurance was seen as a secondary industry, of lesser importance than, for example, manufacturing or banking.

The Geneva Association’s first president, the former chief executive officer of Generali (Trieste), Padoa Schioppa, along with the CEOs of a handful of other firms, wanted to create an association that would allow insurers to offer an informed, impactful voice on the most pressing economic and societal concerns facing the world. Nearly 50 years on and that vision is a reality. Insurers’ expertise and our capital give us the ear of politicians and regulators, of opinion formers globally. We have a seat at the table next to presidents, prime ministers and chancellors around the world.

And you only have to look at the range of topics on this conference’s agenda to see the depth of expertise we can offer on climate—one of the biggest challenges facing our global economy in the coming years. But I want to convince you today that, as an industry, we can and must do more, much more. We must live up to the vision that led to the establishment of this association, and we must make better use of the influence that we have earned over the last 50 years.

“The insurance industry’s role on climate cannot be limited simply to analysis, risk management and investment.”

Observations and actions

I have the following three observations.

First, it’s not enough for insurers to simply analyse the risks that climate change poses to their businesses, and act to mitigate it. We must actively commit to using our collective influence to make a crucial contribution towards transitioning the world to net zero.

Second, the way in which we make these commitments to transition, our transition plans, must be consistent and comparable.

And third, we need to use our collective influence with policymakers and regulators far more effectively to push for the necessary transition.

On the first issue, I hope I’m preaching to the converted here, but the point is so important that it needs to be made. The insurance industry’s role on climate cannot be limited simply to analysis, risk management and investment. These aspects are important, of course, and essential baselines for further action, but a world in which insurers all analyse and attempt to manage their individual climate risks is not the same as a world in which the overall risk of climate change is well understood and managed. And, ultimately, we’re all at the mercy of what happens to the climate as a whole. That’s why I’m such a strong supporter of all organisations, including insurers, shifting their focus to the active contribution that they’re making to transition the world to net zero, and therefore helping to secure a safer, more stable future for everybody.

For Aviva, that means our 2040 Net Zero Plan, launched in March 2021, where we set out how we aim to play our part in accelerating the net-zero transition through all our core activities: investment, underwriting, risk management, and engagement. And Aviva is not alone; I know many others have made similar commitments.

Last month, in an important step, The Geneva Association became a supporting institution of the UN-convened Net-Zero Asset Owner Alliance, an alliance of institutional investors committed to transitioning their investment portfolios to net-zero carbon emissions by 2050. I would urge asset owners, including insurers, to join this as individual companies and, similarly, the corresponding Net-Zero Insurance Alliance initiative on the liability underwriting side.

In relation to net-zero transition plans, I often hear the following two arguments: the current plans and targets are inconsistent, there is no clear model and no guidance, and also, that it is not for insurers or other private firms to make transition plans, that only governments can take the necessary action. I have some sympathy for these arguments, but I think there’s more reason to lean into the challenge, rather than shy away from it. And these arguments bring me to my second and third key points.

On consistency and comparability of corporate transition plans, I accept there is a problem. Until now, we’ve seen a bit of a free-for-all in terms of net-zero claims, and it has been pretty much impossible to compare firms’ plans, even within the same sector, but help is at hand.

On November 1, the Glasgow Financial Alliance for Net Zero (GFANZ) published a comprehensive set of best practice guidelines for financial firms who wish to set comparable, credible, science-aligned net-zero transition plans. Aviva helped to lead this work, along with HSBC, and we got input from dozens of other financial institutions around the world, as well as regulators, civil society and other key stakeholders. We expect this GFANZ work to help set the global regulatory standard for what is to come.

The UK government’s Transition Plan Taskforce (TPT), which I co-chair alongside the UK’s finance minister, has published a series of recommendations closely aligned with GFANZ for a regulatory standard on mandatory transition plans that our regulator will begin to implement next year.

“Corporate transition plans can only ever be as good as the plans for the economy as a whole.”

The intent of this work is not to burden firms, but to offer them assistance in making sure that transition plans are useful and consistent and, ultimately, that they help to steer the economy towards net zero. But clearly insurers, or indeed any other corporate, can’t do all of this by ourselves. Corporate transition plans can only ever be as good as the plans for the economy as a whole and most countries, including the UK, don’t have much detail on this.

Aviva has launched a climate ready index, which compares major countries’ readiness for climate change across a range of key indicators. The index shows that all countries have much to do to accelerate their transition to net zero, and to increase their resilience to the climate impacts we know are coming.

So we think that, in turn, governments should be developing their own transition plans. These should include the detail around how policies will deliver net-zero targets, remove barriers to growth of clean energy, and give market players the right signals to encourage the right thing in the right place. And, in turn, the key multilateral players in our global system—the World Bank, the International Monetary Fund, and standard-setters—should also have transition plans guiding their activities.

This system, with public and private players working together to plan and accelerate the global economy’s transition, gives us the best chance of managing the very real and very dangerous risks facing us all. And this is exactly the role that The Geneva Association was created to fulfil: insurers at the heart of society and the economy, helping policymakers to manage risk and bringing our expertise to bear on complex problems.

There are three things that you can do right now to help.

First, push your firm to make a net-zero commitment with a transition plan. Set out clearly what contribution your firm is going to make to the transition and use the GFANZ and TPT guidance documents to have a go.

Second, join a net-zero alliance—the Net-Zero Asset Owners Alliance or the Net-Zero Insurance Alliance, or both. In turn, this will make you a member of GFANZ. We need to show the world that insurers are committed to making net zero happen, and the work of these alliances is guiding the thinking of policymakers.

Third, make sure you are talking to your government affairs colleagues and that they are using your firm’s voice to champion net zero and push for ambitious government action.

So that’s it: make a plan, join up with other net-zero firms, and push peers and governments to do more.

I hope that when we meet again next year for The Geneva Association’s half-century celebrations, every organisation at that meeting will have their own transition plan and will be on track towards a safer, more stable, global economy. You all have the power to help make it happen.