Creating common standards that enable everyone to speak the same language around emissions disclosures will be a critical step on the journey towards decarbonisation, according to panellists on The Insurer’s latest virtual roundtable.

ESG

Patrick Saner, head of macro strategy at Swiss Re Institute, said one of the first steps needed was to establish an international consensus on classifying green and sustainable investments.

“Climate change is a big financial risk and rating agencies can take this into account when assessing corporate balance sheets in their rating methodology,” Saner said.

“As a result, they can play a key role in shaping the best practices and what constitutes a good climate rating versus what doesn’t, and avoid greenwashing of capital flows,” he said.

Saner added that “everyone had a role to play” in what is a joint learning process.

“We need more international consensus on what we mean and what we don’t mean so that we have a common basis that can form the basis for us all to move forward,” he said.

Fitch Ratings’ Jeff Mohrenweiser, the rating agency representative on the panel, agreed that there was a need for a proper reporting framework to determine what companies meant by certain disclosures, but cautioned that his firm would not be looking to dictate the pace at which companies pursue their climate-related initiatives. 

Isabelle Santenac, EY’s global insurance leader, said it will be important to measure precisely what companies are doing.

“It is important the data they collect internally to measure this progress is of good quality because I think the reputation risk is very high if their actions contradict their commitments,” she said.

Jessica Turner, managing director, catastrophe advisory, international at Guy Carpenter, added: “We need a system for evaluating the carbon intensity of different activities or different companies so that we can make those considerations more during our underwriting.”  

Turner said the development of clear standards, ideally based on public information, was key for 2022 as it will “encourage disclosure” and enable insurers to better understand the level of emissions in their portfolio, and how they can actively manage that.

For future scenarios, she said regulators in different jurisdictions were asking for data around different warming scenarios, time horizons and physical variables – a time-consuming exercise that could be reduced by better standardisation.

Jeremy Irving, partner and head of financial services at Browne Jacobson, said addressing the taxonomy challenge was vital to ensure disclosure requirements are consistent across different jurisdictions.

“It is really important that everybody is able to speak the same language – the EU and Chinese move to have a common ground taxonomy is to be applauded. 

“The sooner in legal terms that you can actually identify words with meaning, then the more effective, easily understood and appropriately implemented regulations around that can be.”

Click the link below to watch our exclusive virtual debate in full…