Zurich evolves net zero plan to better support global economy’s transition journey

EXCLUSIVE: Zurich Insurance Group has updated its 2019 net zero transition commitments, broadening the scope of its overarching strategy to in an attempt to accelerate the global economy’s journey to achieve net zero carbon dioxide emissions.

The insurer has today (19 September 2024) published its new Climate Transition Plan, providing an update on its original 2019 strategy, which first outlined Zurich’s intention to achieve net zero carbon dioxide emissions across its internal operations and business arms by 2050.

The firm’s 2019 goals were subsequently revamped in 2021 to include investment-related targets and reduce its net zero timeline for its operations to 2030, however the plan published today marks its first action focused road map that includes insurance linked targets and metrics.

The revised document additionally takes a much broader look at the transition to net zero, with Zurich setting a defined strategy to support the global economy in speeding up its transition journey.

This includes, for example, pulling on its risk management and resilience business – Zurich Resilience Solutions (ZRS) – to contribute to the creation of a public policy framework supporting the transition to net zero and exploring what public-private partnerships in this field could look like and achieve.

In terms of influencing public policy, Zurich is advocating for the creation of national transition plans to formalise countries’ personalised routes to net zero, the provision of more climate-related data – which it feels is currently limited – collaboration to decarbonise key polluting industry sectors and encouraging the evolution of the insurance market to adopt more preventative measures around physical climate risks.

Therefore, considerable growth of ZRS, which launched in 2021, is an important facet of the insurance group’s strategy.

Commenting on the new plan, Zurich group chief executive offer Mario Greco said: “Today, the economy-wide transition is not progressing fast enough to meet the ambition of the Paris Agreement to limit the rise in temperatures to 1.5°C above pre-industrial levels.

“To change course, we need radical collaboration across and between the public and private sectors.

“Public policy must provide the right frameworks and incentives, but there is also a need for new technology, new solutions and considerable investments. As a global insurer, Zurich will be part of a collaborative solution.”

Zurich will update its Climate Transition Plan on an annual basis. It will also include progress updates on the plan’s metrics and commitments within its usual annual reporting documentation.

Role of insurers

Zurich’s strategy update is centred on four pillars.

These include enabling an economy-wide transition to net zero by supporting and facilitating customers’ transition plans, helping to make society more resilient through risk management and mitigation, advocating for an effective public policy framework to underpin transition journeys and lastly, continuing to decarbonise the insurer’s own operations and supply chains.

The company believes that insurers have a pivotal, three-fold role in supporting the economy’s transition to net zero.

It said: “Insurers are fundamental to answering this challenge. As risk managers, helping customers to understand, prevent and reduce climate-related risks.

“As risk carriers, protecting households, companies and communities by absorbing the financial shocks from increasingly extreme weather.

“And finally, as institutional investors, financing the transition of companies and scaling capital towards climate solutions.”

Pressure on capacity

As part of its work to better support insurance customers, Zurich plans to review “current and new insurance products” – this includes exploring insurance policies that cover “the development, manufacture, construction and operation” of the world’s clean energy infrastructure.

This includes, for example, its July 2024 collaboration with broker Aon to provide a clean energy insurance facility that covers blue and green hydrogen projects which have a capital expenditure of up to $250m (£191m). The facility also insures carbon capture, utilisation and storage technologies.

Blue hydrogen utilises carbon capture and storage technologies to restrict the carbon intensity of hydrogen production from natural gas, while green hydrogen is produced through the electrolysis of water using renewable energy.

However, the insurer additionally noted that “keeping pace with the scale of insurance needed for the transition presents its own challenges and will place new pressures on the industry’s underwriting capacity”.

It continued: “Analysis suggests a significant net expansion of insurance capacity will be needed, particularly through to 2030.”

Within the published plan, Zurich has also promised to engage with “65 significant and heavy emitting insurance customers on their transition-related objectives, opportunities and challenges” over the next 12 months.

This is likely to include commercial customers that operate in the transport, real estate, energy and utilities sectors, for example.

By 2030, Zurich expects to have engaged with around 450 of its largest insurance customers that “contribute most heavily to our portfolio emissions”, working with them to make tangible progress to achieve net zero emissions.

For Linda Freiner, chief sustainability officer at Zurich Insurance, this direct engagement on transition journeys with customers is one of the most meaningful elements of Zurich’s approach because it is “where we can create the greatest impact”.

She believes this engagement will help inform the creation of new insurance products as the insurer will have a better grasp of customers’ challenges, needs and timelines.

New products are likely to build on the insurer’s existing lines of business – such as construction and motor, she noted.

Internal targets

Alongside working with customers on their transition journeys, Zurich has also reevaluated its own transition route.

Compared to a 2022 baseline, the organisation is aiming to reduce its carbon dioxide emissions by 60% by 2025, by 70% in 2029 and finally reach net zero by 2030. Following this 2030 milestone, Zurich intends to use carbon credits, which organisations can purchase to offset unavoidable emissions.

Its specific insurance-related commitments include reducing the intensity of its insurance associated emissions across its large corporate customer portfolio by 20% by 2030 – again compared to a 2022 baseline figure.

Furthermore, the business “no longer [underwrites] new single site policies for upstream oil and gas exploration and development projects, including production”.

And, if oil and gas producers do not have “credible transition plans aligned to achieving net zero by 2050, with interim targets and clear measurable commitments” in place by 2030, then Zurich plans to “exit customers where transition risks are not sufficiently managed”.

Zurich is also looking at its supply chain.

It said: “Our target is to have 75% of our managed procurement spend of approximately $2bn (£1.53bn) annually with suppliers that, by 2025, have set science-based targets to reduce emissions, and, by 2030, set targets to reach net zero.”

To incentivise staff around Zurich’s net zero journey, the insurer has additionally included performance criteria around the success of the new road map into its employee long and short-term incentive plans.

Freiner added: “It’s extremely important for us to build a culture around sustainability, to be able to be credible when we go out in the marketplace.

“Most of the investments we are looking to make are around upskilling people and building new capabilities of understanding – about the transition and the types of insurance products and services that need to be put in place.”