Throughout history, insurance companies have been key in promoting social change and making human progress, innovation and prosperity. Insurers have promoted many innovations, from safety belts to vaccines and burning materials. Today, they face a new and huge challenge: climate change. For natural disasters related to climate change, 2024 is another record year for insurance companies. Therefore, insurance companies are looking for greener ranches. If done right, helping them transform to reduce greenhouse gas emissions will be an active role for insurers. They can promote a future transition to carbon neutral by exerting influence in a variety of industries they fund.
Insurance companies have the opportunity to protect their frontlines and bottomlines while providing customers with net zero travel support. In underwriting, by actively responding to changes, exposure and regulatory fines can be minimized, while customers who effectively make green transitions are expected to bring higher sales in the long-to-long term. In investment, cases are even better understood: 93% of investors Suppose that climate issues are most likely to affect investment performance in the next two to five years. Companies that are not converted or start transitioning too late are at risk of losing their investment-grade credit ratings, and the aristocrats – what we call “Green Star” is expected to benefit from green technology from green technology in the world scenario that Paris is consistent with.
A new tool for decarbonization of profitable portfolios
Insurers need to be able to translate emission reduction measures from their investors and clients into financial impacts of appropriate risk calculations in order to decarbonize at their end.
As we are committed to promoting net zero business practices at Accenture, we introduce green (Green Financial Institutional Tool), also known as a profitable portfolio decarbonization tool. Comparing sample client portfolio dynamics to the high carbon-intensive sector until 2050, it shows that “Green Star” may outperform “climate lag” by 30-40 percentage points. The real value of the tool lies in getting familiar with the insurance manager from investment, risk and pricing to set assumptions of different worldviews, from the “hot world” scenario to reaching consistency in Paris.
Please allow me to study the tools in more detail. GreenFint tools are both in line with measured and reported use cases of emissions (e.g., CSRD’s ESR E1 quantitative KPI), as well as business value cases regarding decarbonization. The tool applies climate scenarios (e.g. 1.5°C, 2.4°C) to a portfolio company’s technology portfolio, depending on its net zero commitment and transition plan. The difference in technology portfolio, commitment and planning is translated into different profitability curves through the required capital investment and operating costs.
“Green Stars” win in the long run
For illustration, by 2040, the “Green Star” customer rate of insurers with SBTI-verified net zero targets has been verified in 2040 compared to customers classified as “laggard.” With its proactive transition to net zero, Green Star customers have initially high capital costs that can fund the installation capacity of renewables to reach their milestones, while the electricity price is relatively high, outlining the business opportunities for insurers as customers need to finance and ensure renewables financing and ensure established renewables. By contrast, a “lagging company” company does not have capital investments and will not exceed the usual replacement and maintenance costs of its power plants. On the other hand, renewable energy has much lower operating costs than the power generated by nuclear and natural gas. Therefore, the timely investment in renewable energy “Green Star” will benefit from lower operating costs, while “lagging” will gain higher operating costs from traditional energy.
Let’s work with 40 large corporate clients from four high-strength departments for a model insurance portfolio, namely power generation, steel, real estate and automotive, focusing on Europe. According to GreenFint modeling, at 1.5°C, the capital demand for net zero transitions of these companies is approximately 2023-2050. Although in the medium term to 2030, the “lagged” EBT edge is about 6 percentage points higher than the “Green Star” EBT margin. In the long run, “Green Star” is better than 30-40 percentage points in 2023-2050 (see the figure below).
This forward-looking approach – leveraging the scientific sector’s carbon budget with traditional forecasts based on historical value – enables insurers to integrate long-term scenarios (until 2050) into their current considerations. This is the most important step to breaking the “horizon tragedy”. GreenFint enables identifying insurers investors and clients with trusted net zero commitments, as business case assessments can reveal who may not be able to afford their net zero commitments. Today, building trustworthy relationships with these companies is the key to decarbonization of insurance companies or investors. The insights gained through GreenFint may help prioritize customer interactions and have rooted conversations to better understand the customer’s transition plan.
In addition to the net zero business case analysis, GreenFint covers the scope of Scope 3 Category 15 in absolute terms and physical strength as well as target settings and “What-if” features, enabling insurers to simulate the impact of their portfolio on their carbon footprint by adjusting their portfolio.
Now is the time to act
In the face of many challenges, insurance has always shown flexibility, and the current push for decarbonization is no different. By embracing a clean transition, insurers can not only protect their profitability, but also play a key role in promoting a sustainable future. Integrating scientifically based sustainability goals into underwriting and investment practices will enable insurers to make significant changes across industries. As regulatory pressures and public expectations continue to rise, insurers must act decisively to avoid the risks of inaction and greening. The tools and strategies outlined provide insurers with clear avenues to achieve profitable portfolio decarbonization, thus ensuring long-term growth and trusting a rapidly evolving landscape. Now the time to act is that the opportunity for the person who leads the charge is huge. For further discussion on how to implement these strategies in your business, please Get in touch.
