The Net-Zero Insurance Alliance (“NZIA”), convened by the United Nations Environment Programme’s Principles for Sustainable Insurance Initiative, launched its first Target-Setting Protocol (the “Protocol”) at the World Economic Forum’s Annual Meeting in Davos on 17 January 2023.
The NZIA is a voluntary group of 29 leading insurers and reinsurers who currently represent around 15% of world premium volume globally. The central commitment of NZIA’s members is to transition all operational and attributable green-house gas emissions from their underwriting portfolios to net-zero emission by 2050 in order to contribute to the implementation of the Paris Agreement’s goal to limit global warming to 1.5°C above pre-industrial levels by 2050. The NZIA Protocol provides a framework and recommended approach for members to begin target setting and reporting, detailing how the NZIA intends to now implement this commitment.
The Protocol distinguishes between provisions which are ‘requirements’ (i.e., mandatory processes which must be followed on a comply-or-explain basis); ‘recommendations’ (i.e., optional but strongly recommended); and which are ‘optional’. Key mandatory requirements for members include obligations to:
- submit targets at the parent-level or group-level at a minimum.
- choose a base year to set targets against, which must be no earlier than 2019.
- adopt a target year no later than 2030 for their near-term targets, and publish interim targets every five years in 2035, 2040 and 2045.
- use official channels for independent disclosure and reporting (e.g., annual reports, TCFD reports or their website).
The Protocol also outlines five “target types” split into three “target categories”:
- Category 1 (“Emissions reduction target category”) consisting of: (i) overarching emissions reduction targets; and (ii) sectoral decarbonisation targets.
- Category 2 (“Engagement target category”) consisting of: (iii) portfolio coverage targets; and (iv) focused engagement targets.
- Category 3 (“Other targets”) consisting of: (v) re/insuring the transition targets.
NZIA members must set and disclose against at least one of these five target types by 31 July 2023 and at least one target type in each of the three categories by 31 July 2024. Members are free to individually set the science-based target boundaries for their re/insurance portfolios (and may set different portfolio target boundaries for different targets), though the Protocol recommends that NZIA members check the validity of their target projections annually and consider recalculating them if necessary. The Protocol also recommends recalculating targets to reflect any significant changes which have occurred, such as updates to the latest climate science, structural changes to the member (e.g., merger, acquisition, or divestment) or changes in any calculation methodologies.
The NZIA have stated that they intend to further develop and expand the Protocol, with version 2.0 to be published by 31 December 2024 at the latest. Alongside these updates, the NZIA are proposing to publish an annual report from 2024 onwards which will provide an aggregate and by target-by-target type view of members’ progress towards their independently set targets and cumulative global progress achieved during the previous 12 months.
For members of the NZIA, the immediate focus will now be on developing targets for 2030 in line with the Protocol, a process which will require NZIA members to determine which target types to set against which part(s) of their portfolio(s) in order to transition to net-zero, whilst simultaneously maintaining their commercial objectives.