UNEP Principles for Sustainable Insurance’s guide on environmental, social and governance (ESG) risks for the insurance industry: An overview with a special focus on marine insurance PSI-IUMI global webinar 6 October 2020 Butch Bacani Programme Leader UN Environment Programme’s Principles for Sustainable Insurance Initiative (PSI)
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UNEP Principles for Sustainable Insurance’s guide on environmental,
social and governance (ESG) risks for the insurance industry:
An overview with a special focus on marine insurance
PSI-IUMI global webinar
6 October 2020
Butch Bacani
Programme Leader
UN Environment Programme’s Principles for Sustainable Insurance Initiative (PSI)
The triple role of the insurance industry
in sustainable development
2
Insurer role
(financial risk management)
Risk manager
role
(physical risk management)
Sustainable development challenges & opportunities
Investor role
(asset management)
Over USD 30 trillion
global assets
under management
Over USD 5 trillion
world premium volume
The Principles for Sustainable Insurance:
A global roadmap to drive systemic change
Public
Governments, regulators &
other key stakeholders
Clients & business partners
Clients, suppliers, agents, brokers,
insurers, reinsurers
Core businessCompany strategy
Risk management
Insurance underwriting
Product development
Claims management
Sales & marketing
Investment management
3
Principle 1:
We will embed in our
decision-making
environmental, social and
governance issues relevant
to our insurance business.
Principle 3:
We will work together
with governments,
regulators and other key
stakeholders to promote
widespread action across
society on environmental,
social and governance
issues.
Principle 2:
We will work together with
our clients and business
partners to raise
awareness of
environmental, social and
governance issues, manage
risk and develop solutions.
Principle 4:
We will demonstrate
accountability and
transparency in regularly
disclosing publicly our
progress in implementing
the Principles.
PSI membership by country of domicile
PSI signatory company (e. g. insurers, reinsurers, brokers,
catastrophe risk modelling firms, specialist service providers)
environmental & social impact assessment (ESIA) process covering consultation, resettlement, compensation aspects
3, 16 1, 2 1, 2, 3 6
Poor worker safety record (e.g. worse than sector average record on
accidents)
Effective occupational health & safety policy that defines safety
responsibilities and prevention measures to minimise fatalities, injuries and health impacts
3, 12,
161, 3 1, 2, 3 2, 3, 5
Violation of worker rights (e.g. discrimination, collective bargaining)Code of conduct that outlines company's commitment to respect
workers' rights
8, 10,
121, 4 1, 2, 3 2, 3, 5
Misconduct of security personnel (e.g. physical harm to people, human
rights abuses)Whistle-blower channel to report such violations 3, 16 1 1, 2, 3 6
Controversial weapons Controversial weapons exposure (e.g. UN conventions) Anti-Personnel Mine Ban Convention, Convention on Cluster Munitions 11 1 1, 3, 4 2, 3
Governance
Bribery & corruption Illegal and unethical paymentsCode of conduct and anti-bribery training programme for all employees.
Whistle-blower channel to report cases of bribery & corruption16, 17 10 4 3, 4
Poor corporate governanceAnti-competitive practices, violations of antitrust laws, unethical
conduct, unethical tax approachCode of conduct that outlines compliance with antitrust laws
10,
16, 1710 4 2, 5
Poor product safety & quality Unethical conduct or negative health impact on customers 3, 16 1, 7 1, 2, 3 2, 5
11
ESG heat map and economic sectors
Session 1
Heat map of ESG risks across lines of
marine insurance business: A closer look
ESG risks
Marine Hull & Machinery (H&M)
Insurance
Protection & Indemnity (P&I)
Insurance
Marine Cargo Insurance
12
ESG heat map and economic sectors
Session 1
Theme Risk criteria Risk mitigation examples & good practice
Climate change
Air pollution, greenhouse gas emissions, and transition risks
Disclosure of climate-related emissions in operations and/or products (e.g. CO2, CH2, N20, HFCs, PCFs, SF6)Breakdown of fuel/material/carbon intensity mix relevant to the client or transaction (e.g. power generating mix or by economic sector intensity)Environmental & social impact assessment (ESIA) covering negative health impacts, mitigation and decommissioning where relevantDecarbonisation transition plan/targets, customers fitting new emission mitigation technology, TCFD disclosures
Exposure to unconventional mining practices (e.g. mountain top removal, riverine tailings dumping, deep sea mining)
Involvement in initiatives: Extractive Industries Transparency Initiative, International Council on Mining & Metals, Kimberley Process (diamonds)
Deforestation or controversial site clearance (e.g. palm oil on peatlands or fragile slopes, illegal fire clearance/logging, biodiversity loss, dam construction)
Certification for palm oil, paper, etc. Dam construction standards: IHA Hydropower Sustainability Assessment Protocol, UNEP Dams & Development, Equator Principles
Soil pollutionESIA covering possible negative health impacts, mitigation measures and decommissioning plans where relevant
Water pollution/overconsumptionWater management practices (e.g. tackling quality, scarcity, overconsumption). Effective ESIA process covering water pollution. External audits/certification
Protected sites/species
Impacts on World Heritage Sites or other protected areas
ESIA that covers impacts on endangered species and sites including mitigation. Specialist lists: Ramsar, UNESCO World Heritage Sites, High Conservation Value sites. PSI-WWF-UNESCO guide to protect World Heritage Sites
Impacts on species on IUCN Red List of Threatened Species
ESIA that covers impacts on endangered species and sites including necessary mitigation measures
Unsustainable practices
Exposure to unconventional energy practices (e.g. Arctic oil, hydraulic fracturing, tar sands, deep sea drilling)
Various energy initiatives: IPIECA, IFC EH&S Guidelines, Energy & Biodiversity Initiative for Oil & Gas, Arctic Council, Oil Sands Leadership Initiative
Illegal fishing vessels, controversial fishing practices or aquaculture techniques
PSI-Oceana guide on illegal, unreported & unregulated (IUU) fishing, IUU fishing lists, Aquaculture/Marine Stewardship Council certification
Plastic pollution PSI guide on the risks of plastic pollution, marine plastic litter and microplasticsto the insurance industry
Animal welfare/testing
Live transport over 8 hours or poor conditions or illegal/exotic animals (dead or alive)
Live transport over 8 hours must hold certificate including training on ventilation/temperature. Good conditions on food, water, spacing, lighting, etc.
Controversial living conditions or use of chemicals/medicines (e.g. overuse of antibiotics)
Relevant certification for farming or ethical animals treatment during clinical treatments
Lack of anaesthetic or distress reducing techniques
Compliance with Guiding Principles on Replacement, Reduction & Refinement
Use of wild subjects or Great Apes in testing As above N/A N/A N/A
Hull P&I Cargo
13
ESG heat map and economic sectors
Session 1
Theme Risk criteria Risk mitigation examples & good practice Hull P&I Cargo
Human rights
Child labour
Policy/statement on protecting and promoting human rights,
prohibits child labour, shared with suppliers, regular audits and
public findings (e.g. ILO Conventions, Universal Declaration of
Human Rights)
Human traffickingHuman rights policy that includes a statement on protecting
and promoting human rights and prohibits human trafficking
Forced labour
Human rights policy that includes a statement on protecting
and promoting human rights and prohibits forced labour
A 1.5°C vs. a 2°C world: Half a degree of warming is a world of a difference (based on IPCC special report on 1.5°C)
PSI project to pilot the recommendations of the Financial Stability Board’s (FSB)
Task Force on Climate-related Financial Disclosures (TCFD) in insurance portfolios
22 leading insurers representing > 10% of world premium & USD 6 trillion assets
PSI-TCFD pilot project Will develop new generation of approaches and tools to assess climate-related physical, transition and litigation risks in insurance portfolios (focus on climate scenario analysis)
Progress update: 9 September 2020 / Final report: End of 2020
19
TCFD implementation: Better management of climate-related risks
through enhanced, forward-looking climate risk analysis
PSI-TCFD pilot project to
assess climate-related
physical, transition and
litigation risks in the context of
insurance portfolios (focus on
scenario analysis)
Source: 2◦ Investing Initiative
20Source: 2◦ Investing Initiative
Raising the insurance industry’s climate ambition
From enhancing climate risk analysis to
aligning insurance and investment
portfolios with the 1.5°C target of the
Paris Agreement
21
22
What about insurance portfolios? How can we align them with the Paris Agreement?
1.5°C target of Paris
Agreement
Investment portfolio
Insurance portfolio
Insurance
company
23
24
Biodiversity & ecosystem risks
Post-2020 Global Biodiversity
Framework to be adopted at 2021
UN Biodiversity Conference (COP15)
(May 2021)
Task Force for Nature-related Financial
Disclosures (TNFD): Reporting
frameworks to be developed by 2021,
tested in 2022
Nature loss a planetary emergency
Humanity has wiped out 83% of wild mammals and half
of plants
75% of Earth’s land surface significantly altered by
human actions (e.g. loss of 85% of wetland areas)
66% of the ocean area experiencing multiple impacts
from people (e.g. fisheries, pollution, chemical changes
from acidification)
Biodiversity loss that can result from climate change
Microplastics added into products or generated during their
lifecycle are found along the food chain; potential to
negatively affect human health and food safety
Plastics are made from fossil fuels and account for 20% of
total oil consumption. Their manufacture, recycling and
incineration is energy intensive = high carbon emissions
32
How the risks associated with plastic pollution affect the insurance
industry and 10 recommendations to manage those risks
33
Unwrapping the risks of plastic pollution, marine plastic litter
and microplastics to the insurance industry (Nov 2019)
34
Prosperity for all on a healthy planet
35
PSI collaborative initiative to develop
“Insurance Sustainable Development Goals”
What are the links between insurance products & solutions
and the UN Sustainable Development Goals (SDGs)?
36
SDGs
Lack of systematic mapping of insurance products & solutions
vs SDGs, clear narrative, methods to
measure impact
Lack of understanding of types of insurance products & solutions needed (existing &
new) to support SDGs, and how they can be developed & brought
to scale
No global goals or targets for the
insurance industry linking its insurance
portfolios to the SDGs
• Provide agriculture insurance to X% more of the 230 million uninsured smallholder farmers globally by 2030Agriculture
• Provide protection insurance and health risk management to X number more impaired lives by 2030Health
• Increase area of natural ecosystem insurance coverage by X (surface area / number of ecosystems / types of biogeographic zones / % of protected areas) by 2030
Natural ecosystems
• Reduce greenhouse gas emissions by X% in motor portfolio by 2030Motor
• Reduce greenhouse gas emissions by X% of energy producers and consumers covered by 2030Property (Energy)
Early ideas of “Insurance SDGs”
38
Map existing
insurance products & solutions vs. SDGs (identify
gaps, potential tradeoffs)
Select Subset of priority SDGs &
articulate how they
connect to other SDGs
Develop Insurance
SDGs: Ambitious,
quantitative, insurance goals at
global level per priority
SDG
For each Insurance
SDG, develop industry roadmap with key factors,
strategies & actions
For each Insurance SDG, set
insurance portfolio targets at insurance company
level
Develop methods & toolkits for industry &
stake-holders to measure
progress in achieving
SDGs
Mapping Prioritising
Insurance
SDGs
(global)
Industry
roadmapsCompany
targets
Methods
& toolkits
Proposed process to develop “Insurance SDGs”
39
How about developing
“Marine Insurance SDGs”?
The triple role of the insurance industry
in sustainable development in practice (examples)
40
Insurer role
(financial risk management)
Risk manager
role
(physical risk management)
Sustainable development challenges & opportunities
Investor role
(asset management)
PSI guide to
better
prevent and
reduce ESG/
sustainability
risks in
insurance
business
PSI TCFD insurance
pilot to better
understand and
manage climate
risks
PSI “Insurance
SDGs” initiative
to develop and
increase
penetration of
insurance
products &
solutions that
support the SDGs
UN-convened Net Zero
Asset Owner Alliance to
align investment
portfolios with Paris
Agreement
41
UNEP’s Sustainable Insurance Forum for Supervisors (SIF)
SIF Global network of insurance supervisors
and regulators working together to strengthen responses to sustainability challenges facing
the insurance industry
Convened by UNEP, which serves as SIF
Secretariat
SIF members from over 30 jurisdictions around
the world
SIF works closely with the International
Association of Insurance Supervisors (IAIS)
Jul 2017 SIF becomes first group of financial regulators to support FSB-TCFD recommendations
Aug 2017 SIF publishes global stock-take of how insurance regulators are managing sustainability challenges
Jul 2018: SIF and IAIS collaborate to produce landmark “Issues Paper on Climate Change Risks to the Insurance Sector” spanning the industry’s insurance and investment activities
2019 SIF conducts global climate risk survey of insurance industry
2020 Issues Paper on TCFD implementation + Applications Paper on climate change & the insurance sector
Will conduct research on climate risk factors in insurance industry stress testing & scenario analysis
42
Developing sustainable insurance roadmaps spanning the