German insurers report progress on ESG goals

German insurance companies have become the first in Europe to publish the carbon footprint for part of the entire industry’s investments, according to German insurance association the GDV. “Our footprint for publicly traded equities and corporate bonds of 71 metric tons of CO2 per €1m invested is the baseline against which we are prepared to be measured in coming years,” said GDV CEO Jörg Asmussen on the recent TransVer Day, the insurance industry's sustainability day. By 2025, this measure is going to be noticeably lower, Asmussen added. German insurers have calculated the carbon footprint for publicly traded equities and corporate bonds worth €310bn, which amounts to roughly one fifth (19.9%) of primary insurers' total investments. Based on this calculation, the companies that German insurers invest in produced 21.9 million metric tons of CO2 attributable to the insurance companies. The GDV said it measured the footprint based on the methodology companies will be legally required to use in future. In years to come, German insurers are planning to calculate the carbon footprint for other asset classes, too. Sustainability processes are firmly embedded in companies by now, said the GDV. Insurers with a combined market share of 86% of premium income (182 companies) have a sustainability strategy in place, while almost as many (85%) have defined net-zero targets for their investments. Some 80% have sustainability rules for their own business operations, for example regarding energy supply or selecting service providers. In risk underwriting, 58% of insurers consider the sustainability impact. “Companies are already implementing the changes we only started to initiate last year,” said Asmussen. In early 2021, insurers published their first roadmap for companies to become climate neutral. The industry’s sustainability positioning primarily aims to achieve four goals: net-zero carbon emissions for the sector’s €1.8trn worth of investments by 2050; eventually no more underwriting of commercial or industrial risks where clients or business partners don't actively contribute to a sustainable economy; more sustainable insurance products; and net-zero business processes in insurance operations by 2025. The GDV said the share of investments managed based on ESG criteria has increased to 88% this year against 82% last year. Insurance companies accounting for 85% of total investments made by the industry have aligned their investment decisions with the net-zero goal. Insurers accounting for 90% of investments are signatories to the UN Principles of Responsible Investment. Companies representing 51% of investments are members of the Net-Zero Asset Owner Alliance, which is also under the auspices of the United Nations, and have clearly defined CO2 reduction targets and reduction paths In risk underwriting, sustainability is becoming more and more important too, said the GDV. Companies representing 88% of the P&C insurance market have a sustainability strategy in place, and insurers accounting for 80% of that market use sustainability as a criterion in their claims and benefits process. The association said German insurers are also starting to develop decarbonisation strategies for their risk underwriting. Companies with a combined market share of 31% are doing this as members of the Net-Zero Insurance Alliance. The market share of insurers that consider ESG criteria in their underwriting was flat year on year at 30%. On the product level, claims adjustment is the most important element to drive the sustainability transformation, said the GDV. Some 80% of the market is using sustainability criteria. Two out of three insurers use 'repair instead of replace' as a basic loss-adjustment principle, and 59% said they maximise energy efficiency in their loss adjustment. In 2021, emissions caused by insurers’ own business operations were 2% higher year over year because the Covid-related lockdowns in 2020 had caused insurers to produce or buy less energy, causing unusually low scope one and two emissions. For all of Germany, energy-related emissions in 2021 were 4.5% higher than the year before. In absolute terms, emissions amounted to 0.17 million metric tons of CO2 equivalent, which is 0.9 tons per FTE, reported the GDV.

German insurers report progress on ESG goals

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