Zurich has outlined bold plans to be a net-zero emissions company by 2050 which include fully decarbonising its $200bn asset portfolio and the development of science-based targets for underwriting.

Zurich ESG

In its group sustainability report published this morning, the SIX-listed insurer reaffirmed its commitment to align its operations with the 1.5°C pledge outlined by the Paris Agreement for the business sector.

Among Zurich’s initiatives are plans to establish an internal carbon fund that will allow it to set a realistic internal price on its operational emissions and finance further reductions.

The carbon fund will be used to support Zurich’s CO2 neutrality commitment and to drive down emissions from operations, as well as other emissions sources related to the business.

On the underwriting side, the insurer is lending its expertise to the CRO Forum to develop ways to measure the carbon footprint within its underwriting portfolios.

Zurich said it has already made progress on implementing its policy for businesses that depend on carbon-intense fossil fuels.

Under the policy, the insurer will terminate its relationship with companies that generate more than 30 percent of revenue from mining or generate more than 30 percent of their electricity from thermal coal, oil sands and oil shale, extract more than 20 million tons of thermal coal or continue to invest in coal mining and infrastructure.

For those that exceed the thresholds, Zurich said it would engage in a dialogue on transition plans, and if companies “fail to show meaningful improvement” it will cease to underwrite or invest in them. 

As of 2020, it had identified exposure to 268 customers and investees in this category, according to the report. Of this 268, Zurich has decided to terminate its business relationship with 36 percent of them, while talks are ongoing with a further 42 percent.

Another 22 percent were considered to be adopting greener practices, the report added.

“We expect a significant shift in how businesses operate over the coming years as they move to lower carbon business models,” said group CUO Sierra Signorelli. “At Zurich, we believe the best way to tackle this challenge is by working with our customers.”

The insurer also pledged to adopt 100 percent renewable electricity to power Zurich’s operations by the end of 2022 and continue maintaining carbon neutrality for its operations.

Zurich CEO Mario Greco said: “Last year, we proved the solidity of our balance sheet, the agility of our people and the timeliness of our digital strategy: all of which helped us to quickly adapt to new ways of serving our customers and protecting our employees.

“For many years now, we have been embedding sustainability in all parts of the group. We remain a profitable, well-capitalised and highly diversified business, and this gives us the freedom to plan for the long term.”

Zurich’s commitments come at a time when the insurance sector is facing increased scrutiny from investors and regulators over its response to climate change-related risk, with the regulatory focus rapidly expanding beyond viewing environmental, social and governance (ESG) issues through the lens of insurers’ investment standards to scrutinise what it means for their main business of underwriting.

This is creating new demands and tensions for carriers as they have to measure what the ESG implications are for their risk profiles, clients and liabilities.

UK insurer Aviva last week cast itself as an industry ESG leader with a bold series of targets, which include developing a methodology for net zero underwriting that it claims will represent an “important and significant move for the global insurance industry”. 

Lloyd’s of London has also taken steps to tackle climate change and ESG-related risks, having issued its first ESG report in December detailing its ambitions to fully integrate sustainability into all of the market’s business activities.

The Association of British Insurers this week launched a new committee to help coordinate and drive focus on climate change and sustainability ahead of vital climate talks in Glasgow later this year.