Insurance GHG reporting standard ‘opens door for greenwashing’, say activists

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Insurers and reinsurers now have an accounting standard for measuring and reporting greenhouse gas emissions relating to their underwriting portfolios, but climate campaigners are not impressed with it.

The Platform for Carbon Accounting Financials and the Net-Zero Insurance Alliance (a UN-convened group of 29 re/insurers committed to transition their underwriting portfolios to net-zero by 2050) today published the first version of the long-awaited greenhouse gas accounting and reporting standard for insurance-associated emissions.

The PCAF standard is expected to form the basis for members of the NZIA to set the terms to reduce their emissions in line with their commitments.

Why is it significant?

PCAF helps financial institutions assess and disclose the GHG emissions from their loans and investments through GHG accounting. However, until now, there has not been a globally accepted standard for measuring and reporting emissions associated with re/insurance underwriting portfolios. 

PCAF’s report provides detailed methodological guidance for the measurement and disclosure of GHG emissions associated with two segments: commercial lines and personal motor lines. 

It introduces the concept of the attribution factor, defined as the share of the total annual GHG emissions from insured assets, activities, and companies that can be associated with underwriting portfolios. 

It is calculated based on data that is readily available, such as premiums and the costs/revenues of a company or a specific insured asset. 

Writing on LinkedIn, Matthew Francis, insurance director at KPMG UK, explained: “The attribution factor methodologies enable insurance firms to measure and monitor GHG exposure in their portfolios and therefore support them in achieving their net zero ambitions.”

For commercial portfolios, the ratio of premiums and revenues of a company is used to determine attribution. 

For personal motor business, Francis explained an insurer will need to take account of the emissions generated per kilometre driven for the make, model and fuel type of a vehicle and the yearly distance travelled by the vehicle's owner or estimate. 

Is mandating emissions reporting necessary?

Insure Our Future, the umbrella association of several climate campaign organisations, criticised the PCAF protocol, saying it “only makes insurers responsible for a small proportion of their customers’ emissions”, as it proposes that emissions be attributed to insurers in proportion with the  insurance premiums’ share of total revenue of a company. 

“If a company has an annual revenue of $100m and its insurance premiums amount to $1m, insurers would take responsibility for just 1% of the company’s emissions, even if the company couldn’t operate without its cover,” explained the campaign group. 

The organisation also noted a “fatal flaw” in the standard, as it does not mandate the disclosure of scope 3 emissions of insurers’ customers. 

Scope 3 emissions are indirect emissions from a reporting company’s value chain.

PCAF said re/insurers need to take into account customers’ absolute scope 1 and scope 2 emissions across all sectors, and “should” also take into account absolute scope 3 emissions, adding: “If re/insurers do not report customers’ scope 3 emissions, PCAF recommends that they explain why.”

Insure Our Future argued this means insurers will be able to “decorate themselves with the PCAF seal of approval even if they only measure the operational emissions of the fossil fuel producers they insure and not the much larger emissions of the fossil fuels themselves”.

The campaign group has always been critical of insurers’ support for the oil and gas sector on both the liabilities and asset sides of the balance sheet.

Peter Bosshard, global coordinator of Insure Our Future, said: "The PCAF protocol opens the door for greenwashing and will allow insurers to continue business as usual in underwriting the expansion of the oil and gas industry.”

He added that voluntary initiatives and guidelines are insufficient and urged regulators to step in and mandate emissions reporting and net zero targets. 

‘Significant limitations’ around scope 3 emissions

PCAF explained its rationale in the report, saying that re/insurers are not in a position to directly influence their customers’ emissions.

It also acknowledged “significant limitations” around scope 3 emissions, as data will be collected by a mixture of sources that vary per firm, adding: “The basis of collating, processing and publishing these figures will also vary by re/insurer, and methodologies must be developed in a way that best suits the internal capabilities of each re/insurer.”

In addition, re/insurers have different compositions of customers and lines of businesses, PCAF said, so by recommending the inclusion of customers’ scope 3 emissions at this time, “PCAF may inadvertently intensify the issue of double-counting emissions”.

Should the disclosure of scope 3 emissions be mandatory?

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