"Extending to the Insurance Business our Carbon Neutrality Commitments"

What is the story behind the creation of the Net-Zero Insurance Alliance and what does carbon neutrality mean?
In 2015, the Paris Agreement provided a global framework to fight global warming. The signatory countries committed to limiting global temperature increases to +1.5°C by 2100; according to the Intergovernmental Panel on Climate Change (IPCC), such objective requires carbon dioxide emissions to fall to net zero by 2050. This means that the difference between the quantity of carbon issued and the quantity of carbon captured in the atmosphere must be equal to zero; which is the definition of carbon neutrality. AXA was among the first insurers to commit to carbon neutrality. In 2019, we joined the UNEP-FI sponsored Net-Zero Asset Owner Alliance (NZAOA) to align our investment portfolio with this trajectory. Now, we want to extend this initiative to the insurance business.

What is the mission of the NZIA and what role will AXA play?
AXA has made a lot of progress on the investment side.  For instance, we doubled our green investment objective, launched a new type of bonds – transition bonds –, and issued our first green bonds. Beyond such achievements, we need to accelerate on all fronts, as we are going through a decade that will prove defining in the fight against climate change. Investments are a welcome first step but they now have to be complemented through the insurance coverage we provide.
That is why, in December 2020, AXA called for the creation of the Net-Zero Insurance Alliance (NZIA). Like the NZAOA, the NZIA extends carbon neutrality commitments to the insurance business. This AXA-chaired international coalition brings together 7 other major insurers and reinsurers.  Our objective is to establish standards and tools so as to enable NZIA members to individually align insurance portfolios with the Paris Agreement trajectory. The NZIA also joined the Glasgow Financial Alliance for Net-Zero, which gathers the main initiatives aimed at accelerating the transition of the financial sector and global economy towards a net zero emission objective.

How will the NZIA enable insurers to reach the Paris Agreement objective?
Firstly, the NZIA will provide tools and a methodology for measuring the carbon footprint of insurance portfolios. These snapshots will help insurers better support customers in their transition. Once we have done that, we will aim to encourage environment-friendly behavior. For example, when underwriting risks, individual NZIA members can consider program structures that encourage green activities, such as using renewable energy or clean vehicles. Members can also bring the claims management process in line with the principles of the circular economy by encouraging the use of recycled spare parts or green materials in the reconstruction of buildings. There is an alignment of interests because this approach aids our clients’ net zero transition ambitions. We already have several pilot projects at AXA, notably in France, in Switzerland and in Spain. The NZIA will allow us to promote best practices and to achieve a consistent approach to net zero. Also, we at AXA will be able to better support our corporate customers especially in the energy sector by considering their specific business practices.  We will work with them to foster and support transition through the use of innovation and green technologies, much like what has been done with the coal industry. 

What are the main challenges ahead?
We need to adapt our approach to carbon neutrality to the insurance business. Methods and metrics to gauge climate change impact are less developed in the insurance space than for investment, and the same can be said of the degree of maturity of the business model in regard of these challenges. We also recognize the challenges in quantifying climate impact in insurance portfolios given the numerous and varied types of cover, which is why the initial focus is within P&C. There is tremendous upside for progress ahead of us. However, fundamentally, for insurance just like for investment, it has to be a collective effort: it is critical that the underlying economy accelerates its transition, and this is what the NZIA aims at supporting.

What is the roadmap to COP 26?
We have received many inbound expressions of interest and will keep following up on these. Our aim is for the NZIA, based on the commitments we just released, to welcome additional members from throughout the world. We also plan to publish the first white paper on the methodology developed by the NZIA and aim at sharing the first tangible achievements of the alliance during COP 26.