Sustainability is a multi-pronged responsibility. Businesses need to ensure their internal environmental, social and governance (ESG) principles are in line with best practices and good ethics, while also finding ways to contribute to the betterment of wider society and the environment. The insurance industry is uniquely placed to make a powerful contribution to sustainability, as both an investor in sustainable initiatives and a provider of protection of climate threats for our customers.
Insurers as investors in sustainability
Investment in sustainability has the power to make a big impact. The European Commission reports that in order to meet it’s 2030 climate and energy targets, Europe needs to close an annual investment gap of €260bn. Insurance has the ability to make big strides towards this goal. Insurance Europe reports that the insurance industry is Europe’s largest institutional investor and an important provider of stable, long-term funding for governments and businesses. A 2019 Insurance Europe report also noted that European insurers planned to allocate approximately €150bn to sustainable investments by 2020. This investment is a direct result of the insurance business model, in which policyholders pay premiums upfront, which are invested until claims and benefits become due.
Take the example of an insurer in The Netherlands who is a partner in a €300m fund dedicated to schools, theatres and other public-use buildings more sustainable. In Sweden, insurers’ investments in green bonds issued by the City of Stockholm in 2018 have successfully funded projects that include energy-efficient housing, electricity supply points for electric cars, schools and a modern wastewater sewage treatment plant. Insurers are also contributing to sustainable communities, with Austrian insurers’ investments leading to the creation of more than 100,000 units of affordable rental housing.
Sustainability through insurance products and risk management
Insurers also play an important role in preparing customers for the impacts of climate change. According to Accenture’s recent Insurance Consumer Study, there is a rising demand for sustainable insurance products. For example, millennial and younger consumers (18 – 34) have expressed greater interest in digital offerings that help them make safer, healthier, and more sustainable choices, with digital experiences that encourage sustainable travel and shopping practices.
Take the example of the Healthy Cities by Sanitas Initiative. The project was born with the objective of making tangible the relationship between health, the environment and mobility in European cities. It rallied companies, employees, public institutions, NGOs, sector associations, and foundations around two common goals: the fight against a sedentary lifestyle and transforming the cities in Europe into healthier and more sustainable environments. By measuring steps taken by customers and setting targets, Sanitas responded by donating to greening public infrastructure every time a target was met. The fifth edition of the ‘Healthy Cities by Sanitas’ initiative was recently concluded, with more than 2.3 billion steps accumulated by the employees of the 40 companies that have participated. All of them have collaborated to fulfill the commitment made by the company: to make a donation for an urban regeneration project in Madrid that helps protect the health of its inhabitants. This was a 75 km forest belt that will border the city.
Risk management, identification and recovery forms the bedrock of the insurance business model. Here, European insurers can make a positive impact in sustainability by offering customers with sustainability incentives (such as in the example above) and updating our risk assessment and underwriting policies to improve how long-term changes in climate are taken into account, thereby developing tailor-made products for consumers with different environmental risk profiles. On a wider level, insurers are well-positioned to help European policymakers with tools such as risk zoning and mapping and contributing to a better understanding of climate threats through forward-looking risk models. Some national insurance associations have also partnered with public authorities to share and analyze data around climate-related losses.
To sum it up, insurance has a core role to play in furthering sustainability in Europe, and the rest of the world. These interventions can take a number of forms. However, in order to have a full view of sustainability, we need to explore what sustainability means and how this definition has expanded.