Briefing: Insurers looking for clarity in a regulatory climate of change

By Jon Guy

Businesses of all sizes are still struggling to come to terms with the fast-moving requirements around climate change strategy disclosures and the steps that need to be taken to reduce their carbon footprints.

Risk management trade body the Association of Insurance and Risk Managers in Industry and Commerce (Airmic) polled its entire membership and found that one in four believe their organisations are only prepared for climate-related regulations to a minimal extent, or not at all.

Aside from the organisations which do not currently fall under the scope of regulated climate reporting, risk managers said the reliability of climate data from their supply chains and conflicting regulations and policies in different jurisdictions continue to provide challenges.

Leigh-Anne Slade, head of media, communications and interest groups at Airmic, said: “There is a sense among risk professionals that the onslaught of climate regulations today could have the opposite effect of leading to less disclosure and more ‘green hushing’ – where an organisation makes a deliberate decision to keep quiet about its climate strategies.

“The voice of the customer is becoming more consequential in the insurance industry’s climate transition.

“There needs to be more discussion of the challenges and opportunities they see their organisations facing in the midst of their transition journeys.”

Corporate understanding

Last week (August 2024), broker Gallagher revealed that 63% of all sustainability targets set by large businesses in the UK will be achieved by the purchase of carbon credits, with companies planning to spend £20m on average to do so.

Carbon credits – also known as carbon offsets – are permits that allow the owner to emit a certain amount of carbon dioxide or other greenhouse gases. This limit is reduced periodically.

Gallagher continued that 27% of large UK businesses do not have a backup plan in case their carbon credits fail. Just over half have also made the decision to take out carbon credit insurance.

However, the bigger issue remains that companies recognise they are not fully aware of what they are required to deliver when it comes to climate linked reporting. They admit to being perplexed and are looking to their brokers and insurers for guidance and support.

Some market commentators fears that companies will be faced with new liabilities in light of new reporting requirements, which businesses could quite simply be unaware of as regulatory systems continue to evolve and corporate processes fail to keep pace.

That is not to say that the insurance sector is not aware of their clients’ concerns.

For example, Airmic is working with professional services firm KPMG and the Lloyd’s Market Association (LMA) to examine how the insurance sector can better support organisations with the transition to net zero carbon dioxide emissions.

However, it is also evident at present that while organisations’ intentions to mitigate the impact of climate change are clear, the pathway to understanding how to achieve this and how brokers can create the resources needed to support clients continue to be opaque.