The framework, which is expected to be put out to the market in the coming months, will be piloted by managing agents in 2022, before being refined and scaled across the marketplace in 2023.
The framework will be used to measure and report on the market’s progress towards a net-zero underwriting position by 2050 which will be crucial as regulators move towards more disclosure around net-zero targets.
But the task of creating this framework is fraught with challenges and the Corporation will be under considerable pressure to get this as right as possible.
“The risk is that if you make it too complex, it therefore won’t be easily understandable and the other side of the equation is that simplicity also has a risk of inaccuracy,” Carnegie-Brown told The Insurer TV during an interview ahead of the COP26 conference.
“I think getting the right balance between those two things is quite important. [We need to] find units of measure, for example, if I invest in insuring a wind farm and I don’t invest in insuring a thermal coal operation what is the net benefit both to my operations but also to the global economy in terms of decarbonizing a company’s footprint,” Carnegie-Brown explained.
“So we’re going to try to put out a framework which is a reasonably brave thing to do and will then want to test that framework to see whether we can get the right levels of adoption, particularly amongst Lloyd’s managing agents, but hopefully have it taken up by the broader industry and have other people contribute to how we might improve the quality of that framework,” he said.
Carnegie-Brown’s comments on the need for more disclosure, alongside the Corporation’s actions towards creating a measurement framework, are timely given the greenwashing accusations made by activist group Insure our Future.
The group alleges Lloyd’s has “abandoned its ESG policy” over its failure to mandate the exclusion of new coal, tar sands and arctic energy projects in its recently issued guidance to the market.
Speaking about Lloyd’s agenda at the UN Climate Conference which is currently taking place in Glasgow, Carnegie-Brown reinforced the important role insurance will ultimately play in the transition of the global economy to become net zero by 2050.
“COP26 becomes an opportunity both to showcase our role in that, but also to understand the perspectives and focus of both governments and corporates; each is trying to do similar things, so it’s a lot about alignment, a lot about sharing and a lot about awareness,” he said.
“To me, that’s the starting point of bookending, where we start from where we’re trying to get to and I think COP26 becomes the beginning of an opportunity to start filling in the piece in the middle that gets us from where we are today to 2050,” said Carnegie-Brown.
This is also providing a plethora of opportunities for the industry. While there will be a period of adaptation, Carnegie-Brown says that over time “we will be doing less around insuring fossil fuels because they’ll play a smaller and smaller part in the global economy.
“Instead, there will be a huge number of new technologies and new renewable sources of energy, all of which need to be developed and will ultimately need insuring and protecting, so we see that as a big growth opportunity for the insurance industry.”