NZIA departures: Balancing Climate Commitments and Growth Aspirations

By: Simon Pelletier, Antonie Jagga, Janette O'Neill, James Boyers

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Insurers have always faced tough strategic choices when it comes to balancing shareholder needs and community expectations. Now, however, decisions around stakeholders, sustainability and growth aspirations are more complex than ever before - as is the setting of targets to balance all three.

Nowhere is this more evident than in recent changes to the UN-convened Net-Zero Insurance Alliance (NZIA). The group, comprising some of the world’s leading (re)insurers, committed to transitioning their underwriting portfolios to net-zero greenhouse gas emissions by 2050 when formed in 2021. And yet even here, at the highest level, insurers still encounter tensions balancing profitability, climate and competition concerns. Now, a range of major insurers have left the alliance, including founding members Allianz, Axa, Swiss Re, Munich Re and Zurich Insurance Group. QBE has also announced its departure, after joining the alliance in 2022.

The pressure to achieve commercial value and deliver on market commitments is particularly acute for publicly listed insurers, who have commitments to answerable shareholders. At the same time, insurers require a social license to operate, and increasingly, this license includes environmental, social and governance (ESG) concerns. It’s likely that those insurers that have chosen to leave the alliance weighed the potential costs (social and regulatory) with the opportunity for growth and prioritised growth. While profit and purpose (such as decarbonisation goals) are not mutually exclusive, it doesn’t always feel that way.

Which raises the question: How do insurers strive for sustainability while still achieving commercial value by underwriting a broad cross-section of risks?

Answering questions to bring clarity

The first step is to determine your objectives. Consider: What are our objectives from a shareholder, consumer, and overall market perspective? What’s our business operating model?

At the same time, even insurers who haven’t committed to industry associations, such as the NZIA, may need to assess and report on their Scope 1, 2 and 3 emissions, and implicitly, identify their own emissions pathways, to comply with government regulation. Many will need to ask how to achieve decarbonisation of their underwriting portfolios.

At PwC, we support insurers to think tangibly about their emissions targets and establish clear strategies to achieve them.

The future of net zero?

Recent departures from NZIA place the immediate future of the alliance in doubt. While alliances such as NZIA galvanise the industry and formalise cooperation, helping to ensure that insurers make good on realising their net-zero commitments, the departures underline the challenge of achieving regulatory and political alignment across multiple territories.

Encouragingly, many of the (re)insurers who have left the NZIA have re-affirmed their net zero and decarbonisation commitments when announcing their departures and despite recent challenges, 93% of global insurers tell us their organisation is very likely or likely to consider working with industry groups in their ESG pursuits.

In the context of these departures, insurers will need to choose their own path as they contribute to a bold new vision for the industry. Whatever that path looks like, insurers need to centre their strategy around their purpose, and transform their business model to meet evolving stakeholder needs.