The Big Question: What role can the insurance industry play in the journey to net-zero? With John Scott, head of Sustainability Risk for Zurich Insurance Group.

Rarely does a day go by when the fight against climate change and the world’s efforts to meet the targets within the Paris Agreement are not in the media’s headlines. As a key risk partner, the global insurance industry has a significant stake in the outcome of those efforts given the rising severity and frequency of major natural events as global warming redraws the climate, its perils and the socio-economic risks faced by the world.

As such, the insurance sector is viewed by many as being required to take the lead in the drive towards a net zero economy, given the impact it has on its clients and their economic performance.

It has also come in for some criticism from climate campaigners over the continued coverage of oil and gas risks, while the industry is taking an increasingly hard-line stance over coal production and its use in energy production across the world. The situation is not so clear cut, with the world set to be reliant on oil and gas for energy and product production over the next 25 years as it moves towards its 2050 target. However, it is evident that insurance has a role to play, and John Scott, head of Sustainability Risk for Zurich Insurance Group, believes that the industry has to put itself at the very centre of the world’s efforts to transition to a sustainable future.

Ian Summers, Global Business Leader, AdvantageGo

“It is clear if we are to have any chance to reach net zero by 2050, we will need to prioritise mitigation,” Scott explains. “In the real economy, when it comes to the carbon heavy sectors, there have been really big changes in the processes to deliver what they do.”

“There are efforts being made in the oil and gas sector, and strategies are changing certainly with the European majors. We have to balance the current oil and gas output with the moves toward renewable sources for power such as sustainable electricity, and there has been a lot of work and investment in low carbon hydrogen and biofuels.”

However, Scott adds that as the transition continues the world will still require high temperature fuels as it continues on its transitional journey.

He says that product design also remains an area of concern given that all energy, however efficient, has a carbon emission. The materials needed to create the facilities for the production of cleaner energy involve use of materials, which produce what is described as black carbon.

“We need to look at how we can mitigate some of those emissions, be it by planting more trees or using carbon capture and storage technology,” Scott explains. “It is expensive, but it is possible to do.”

“All of this needs to happen, and it needs to happen at pace. At present it is not happening fast enough.”

He adds: “To use an analogy, the taps on the bath are still fully on and the bath is half an inch from overflowing. We need to turn the taps off.”

“We are already seeing evidence of climate impacts on the Arctic and Antarctic ice shelfs, and the threat to global sea levels that poses. By the end of the century, sea levels may be 1-1.5 metres higher than at present. Storm surge threats will only increase with rising sea levels and the dangers they will pose to coastal communities.”

Scott says so much pressure has been put on the delivery of results, but there will need to be some adaptation.

“If we turn down the emissions it will not simply turn down the warming. We will have to do both. We need to make a difference on emissions levels, but it will need to come with adaptation for the impacts that we are already seeing and will do in future.”

Scott is clear insurers have a role to play to support those efforts.

“Processes such as carbon capture come with new risks, and as an industry, we need to work with businesses to mitigate those risks,” he explains. “We will need to be working with all stakeholders – for instance, in the entire production process of hydrogen power at scale. We have the knowledge about the risks and we can quickly help to address the issues.”

“While the transition will continue, we will need to look to the insurance industry to ensure that it can be done at scale, with business looking to the industry to provide the coverage required.”

“I think it will be more about repurposing existing products to those in sectors which are addressing these risks for the first time. The demand from the industry will not only be around risk transfer but also risk management.”

Apart from its core role in supporting the risks of transition, Scott adds there are other areas where insurance has to play a full part: “We need to increase our interaction with policymakers. As global insurers, we get to talk to governments, they rely on us to deliver protection and partner on tackling major events such as floods and with wider social protection systems.”

“Oil and gas production will need renewed and ongoing regulation, as will hydrogen production at scale. We can be influential in talking with governments, to highlight the risks and how best we can mitigate and manage those risk and the world transitions to new sustainable energy sources.”

He adds that there is a third string to the industry’s bow when it comes to driving climate transition:

“While we have a role to play in the management of risk and in advising future policy for regulators and governments, there is also another side to the industry which provides more direct influence and impact,” says Scott. “We are some of the world’s biggest institutional investors. This allows us to use that influence to put pressure on the businesses in which we invest to put in place successful and achievable strategies for their transition to a net zero future.”