The Principles for Sustainable Insurance (PSI) serve as a global framework for the insurance industry to address environmental, social and governance (ESG) risks and opportunities. The global collaborative initiative strengthens the industry’s contribution as risk managers, insurers and investors to building resilient, inclusive and sustainable communities and economies on a healthy planet. Launched at the 2012 UN Conference on Sustainable Development (Rio+20), with endorsement from the UN Secretary-General and insurance industry CEOs, the Principles have led to the largest collaboration between the UN and the insurance industry.
“The Principles for Sustainable Insurance provide a global roadmap to develop and expand the innovative risk management and insurance solutions that we need to promote renewable energy, clean water, food security, sustainable cities and disaster-resilient communities.” Said ex-Secretary General Ban Ki-moon at the launch of the PSI in 2012
Building a community of best practice
As risk managers, risk carriers and investors, the insurance industry plays an important role in fostering sustainable economic and social development. We believe that better management of ESG issues will strengthen the insurance industry’s contribution to building a resilient, inclusive and sustainable society. However, many ESG issues are too big and complex and need widespread action across society, innovation and long-term solutions.
From just 30 organisations as founding signatory companies and supporting institutions when the PSI was launched in 2012, the PSI has steadily grown to 200 members worldwide. The membership is currently made up of 111 PSI signatory companies—representing about 30% of world premium volume—and 89 PSI supporting institutions including insurance associations and initiatives, insurance regulatory and supervisory bodies, civil society organisations, academia and other key stakeholders. By implementing the Principles and working together, PSI members are shaping and amplifying sustainable insurance thinking and practice worldwide.
“The UN Sustainable Development Goals, Paris Climate Agreement, and upcoming Post-2020 Global Biodiversity Framework are shining examples of global policy frameworks to tackle the most pressing global sustainability challenges in order to achieve prosperity for all on a healthy planet. Through their commitment to implement the Principles for Sustainable Insurance, insurers and other market participants from around the world are demonstrating leadership, raising their ambition, and collaborating to tackle global sustainability challenges now—not tomorrow or the day after. Timing is key, and time is non-renewable.” said Butch Bacani, who leads the PSI at the UN Environment Programme
Driving ambition to achieve net-zero economies and the Sustainable Development Goals
The PSI continues to raise the insurance industry’s sustainability ambition with pioneering commitments and initiatives.
Last July, the PSI launched the Net-Zero Insurance Alliance (NZIA) at the G20 Climate Summit in Venice. Members of the NZIA commit to transition their respective insurance and reinsurance underwriting portfolios to net-zero GHG emissions by 2050 at the latest, in line with the 1.5°C target of the Paris Agreement. In just a few months, the NZIA membership has quickly doubled from 8 founding members at the launch last July to 16 members right after COP26. The NZIA builds on the climate leadership by many PSI and NZIA members as investors via the Net-Zero Asset Owner Alliance (NZAOA). The NZIA has been accredited by the UN Race to Zero campaign and is therefore recognised by the UN High-Level Climate Action Champion for COP26 as the gold standard for net-zero insurance. It is also the net-zero insurance pillar of the Glasgow Financial Alliance for Net Zero (GFANZ).
The NZIA, in collaboration with the Partnership for Carbon Accounting Financials (PCAF), is now developing the first global standard to measure and disclose “insured emissions”. This global standard will be launched in 2022, and will be followed by the publication of an NZIA target-setting protocol by January 2023. A global, standardised methodology to measure and disclose the GHG emissions associated with insurance and reinsurance underwriting portfolios will give insurers deeper insight into the risk profile of their respective underwriting portfolios, stimulate innovative approaches to decarbonisation, and create comparability for stakeholders. It will also help insurers understand the climate impact of their underwriting decisions, laying the foundation to decarbonise their insurance and reinsurance portfolios through target-setting, scenario analysis, strategy development, and individually taking concrete actions that have real-world impact through emissions reduction in the real economy.
Adaptation and resilience
At COP26, the Vulnerable Twenty Group of Finance Ministers (V20)—comprising 55 climate-vulnerable economies with a combined population of 1.4 billion people—announced the launch and operationalisation of the V20 Sustainable Insurance Facility (SIF). The project office for the V20-SIF will be hosted and managed by the PSI.
The V20-SIF is the world’s first vulnerable country-led insurance facility of its kind. As a project pipeline development facility, it aims to deliver financial protection to micro, small and medium-sized enterprises (MSMEs) to build their climate resilience and support the transition to net-zero economies. As the backbone of V20 economies, MSMEs contribute 20% to 70% of GDP, make up more than 80% of all businesses, and contribute to countries’ export revenues. With MSMEs constantly threatened by increasing climate risks, insurance can enhance risk management, absorb financial shocks, and de-risk the implementation of cost-saving renewable energy and energy efficiency infrastructure.
Life & health insurance
Another major area of work for the PSI is to shape the global sustainability agenda for the life & health insurance industry. Compared to non-life insurance business, there has generally been less understanding of the key sustainability issues for this branch of the insurance business. This is why in 2022, the PSI will launch a global strategy to address key risk management and insurance challenges and opportunities for the life & health insurance industry. Even more important in a post-COVID world increasingly being impacted by climate change, nature loss, pollution and growing social inequality.
Insurance and the SDGs
Harnessing insurance products and solutions to achieve the SDGs is a key PSI priority. In this regard, through its Insurance SDGs initiative, the PSI will help define sustainable insurance business and measure how insurance portfolios are contributing to the SDGs.
Developing ground-breaking sustainability guidance for the insurance industry
Since its launch in 2012, the PSI has worked with its members to address key ESG challenges and opportunities – see the full list of PSI publications over the years.
First-ever ESG guide for the insurance business
Recent ground-breaking guidance issued by the PSI includes last year’s launch of the first global guide to manage ESG risks in non-life insurance business. It outlines how insurers can better manage ESG risks, focusing on risk assessment and insurance underwriting. It spans key areas which include developing a company’s ESG approach and risk appetite, integrating ESG issues into an organisation, establishing roles and responsibilities for ESG issues, escalating ESG risks to decision-makers, detecting and analysing ESG risks, and decision-making and reporting on ESG risks.
TCFD and insurance portfolios
Launched last January, the PSI report, Insuring the climate transition: Enhancing the insurance industry’s assessment of climate change futures, captures the key findings of the largest collaborative effort by insurers—22 PSI signatories representing over 10% of world premium and USD 6 trillion in assets under management—to pilot some of the most challenging recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The overall aim of the PSI pilot project is to contribute to the development of consistent and transparent analytical approaches that can be used to identify, assess and disclose climate change-related risks and opportunities in insurance underwriting portfolios in a forward-looking, scenario-based manner. A PSI TCFD Phase 2 work programme will be announced soon.
Nature and pollution risks
Over the years, the PSI has developed pioneering guidance for the global insurance industry on nature and pollution risks. These include:
- The guide developed by the PSI, WWF and UNESCO to protect World Heritage Sites (protected areas, nature reserves, biodiversity hotspots)
- The guide developed by the PSI and Oceana to tackle illegal, unregulated and unreported (IUU) fishing
- The guide developed by the PSI to tackle the risks of plastic pollution, marine plastic litter and microplastics
Sustainable insurance knowledge
Members can also take advantage of a range of events and webinars to learn from leaders and experts in the field of sustainable insurance.
These include events such as the PSI COP26 Sustainable Insurance Series, the most comprehensive and ambitious series of events for the insurance industry during COP26, spanning net zero/mitigation and resilience/adaptation, and actions by insurance industry participants, insurance regulators and supervisors, financial policymakers, governments and other key stakeholders.
Equally, the Nature-Positive Insurance Series organised by the PSI and the UN Convention on Biological Diversity (CBD) has set the global agenda for nature-positive insurance, particularly in view of the expected adoption of the Post-2020 Global Biodiversity Framework next year and the work of the Task Force on Nature-related Financial Disclosures.
Members can also access PSI market events and UNEP FI’s regional roundtables which bring together members and their peers in their respective regions.
Coming in 2022: The PSI’s 10-year anniversary event
The PSI will celebrate its 10th anniversary in mid-June 2022.
The event will not only look back at how the PSI created and shaped the sustainable insurance agenda in the past decade. It will showcase how the PSI will amplify sustainable insurance in this decisive UN Decade of Action that aims to cut carbon emissions in half, to halt biodiversity loss and achieve a nature-positive economy, and to realise the SDGs—all by 2030.
Stay tuned for more details!