Ensuring a Greener Future: Leading insurer Aviva sets out new climate strategy
March 18, 2021
2 min read
What's going on here?
Aviva announces its plan to reach net-zero carbon emissions by 2040 and promises to increase its green investments.
What does this mean?
The UK’s leading general insurance, savings and investment management provider Aviva has unveiled its new strategy to reduce its environmental impact. On Monday 1 March, it announced its plans to reduce carbon emissions from its own operations and from its investments. Its targets include:
- Reaching net-zero carbon emissions from its own operations and supply chain by 2030,
- Cutting 25% of the carbon emissions from its investments by 2025, 60% by 2030, and reaching net-zero emissions from its investments by 2040,
- Investing £6bn in green assets by 2025.
- Reporting on its progress each year
Aviva will stop providing insurance cover for companies that make over 5% of their revenue from coal by the end of 2021 unless they join the Science Based Targets initiative (an organisation helping companies set and adhere to emissions reductions targets). It will also stop investing in these companies completely if they have not signed up for the initiative by late 2022.
What's the big picture effect?
The European insurance industry is currently shifting away from environmentally damaging business practices and towards a greener future. Like Aviva, major insurers AXA, Allianz and Zurich have stopped offering insurance coverage to coal companies. They are all also members of the United Nations Net-Zero Asset Owner Alliance and are committed to reducing the carbon emissions generated by their investments.
This is known as self-regulation. Insurers set their own emissions targets and hold themselves accountable for their progress towards them. There are various reasons why insurance companies have chosen to self-regulate. They have a lot to lose from the effects of climate change. For example, the increasing frequency of natural disasters, which often cause property damage, means that insurers must pay out money for increasing numbers of insurance claims. Thus, they may try to avert these disasters by becoming more environmentally friendly. Additionally, many environmentally damaging industries such as coal are dying out and will become unprofitable anyway.
Self-regulation, however, is not always the most effective method of environmental protection. It can lack transparency and there are very few commercial consequences for a company if it fails to meet its environmental targets. Legislative action, therefore, may be needed to ensure that insurers are reducing their carbon emissions. Insurance companies are extremely important in the fight against climate change due to their significant influence over the UK’s economy. By refusing to insure against certain risks, they can accelerate the shift away from environmentally damaging practices. Legally requiring insurers to reach net-zero carbon emissions would therefore be of significant help to the government in tackling climate change and reaching its commitments under the Paris Agreement.
We can see huge strides being made by the European insurance industry towards reducing carbon emissions and ensuring environmentally friendly business practices. Nevertheless, we will have to wait and see whether any legal intervention is needed to ensure that they reach their targets.
Report written by Catrin Trefor
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