Insured Emissions

Get a better understanding of how carbon accounting standards are expanding to cover underwriting activities.
By CC Chatzicharalmpous
July 7, 20225 min read
August 4, 2022, 5:45 PMUpdated
July 7, 2022Updated: August 4, 2022, 5:45 PM5 min read

The role of insurance in net zero

With more than USD 6 trillion in global premium volume and USD, 36 trillion in assets under management, the insurance industry’s balance sheets hold a significant portion of global economic assets and liabilities. Through key activities such as risk management, risk transfer, and investment, the insurance industry has the ability to support transition to a resilient, net-zero future. 

Insurance-related emissions 

In line with the carbon accounting standards for financed emissions (which covers lending and investment activities), to account for the role of re/insurer’s underwriting activities, a global, standardized approach for measuring the greenhouse gas (GHG) emissions associated with insurance and reinsurance underwriting portfolios is needed. Such a standard can empower insurers to consider the climate impact and transition path of their underwriting portfolios and inspire action through innovative decarbonization interventions, products, and policies. All this, while underpinning reporting consistency and promoting transparency. More importantly, the carbon footprint of insurance-related activities can inform underwriting decisions and catalyze decarbonization at the portfolio level through target setting, scenario analysis, and strategy development. 

A standard in the making

The Partnership for Carbon Accounting Financials (PCAF) led the drafting of a scoping document that set out the guiding principles for developing a GHG accounting methodology for insurance and reinsurance underwriting. The key objective of the scoping paper was to initiate wider engagement on insurance related emissions and through feedback obtained, inform the consultation paper on the proposed approach, which is expected in due course. The scoping paper is, therefore, broad in remit as it considers various potential approaches. 

What do we know so far?

Lines of business

The proposed methodology will likely focus on insurance lines covering economic activities with a major role in the transition to a net-zero emissions economy. Therefore, the focus for the methodology will be on commercial lines insurance and personal motor lines covered by the insurance and reinsurance business. For the time being, any life or health insurance typically targeting individual persons is not likely to be in scope.

“Follow the risk” principle 

When it comes to financed emissions, the “follow the money” principle is applied, meaning that the money should be followed as far as possible to understand and account for the climate impact that financial assets have in the real economy. The GHG Protocol bases organizational boundaries on what is owned, controlled or financed by a reporting company.

In the context of underwriting, the nature of the relationship between the financial institution and the client is fundamentally different. Underwriting seeks to mitigate risks associated with economic activity, but does not finance this activity nor suggest any form of ownership. Therefore, the concept of organizational boundaries as specified above, does not apply to re/insurers as they do not hold capital interest in the client operations, and no financial or direct operational control is exerted. 

The absence of ownership or control over the client's activity impacts the influence an insurer can have on the decisions made by the client in terms of decarbonization. Therefore, in the case of insurance-associated emissions, the principle applied is “follow the risk” instead of “follow the money.”


Various approaches are considered for the re/insurer’s share of insurance-associated emissions of the insured risk. The scoping paper explores a range of technical insurance metrics to ascertain attribution. Those metrics can be both influenced by  1) general economic factors unrelated to the insured risks and 2) company proprietary methodologies. The former would impede an accurate reflection of real-world impact of portfolio changes if emissions are disproportionately affected by insurance markets than trends in company emissions. The latter could hinder the comparability of insurance-associated emissions between companies. 

Ultimately, the chosen attribution factor should incentivize an emission reduction in the real economy with as few side effects as possible. 

What challenges are anticipated? 

Lines of business differentiation 

Establishing one methodology applicable to all lines of business or different methodologies for different lines of business and reporting on them separately is expected to be a very difficult decision for PCAF. Whereas one methodology could come with lower data requirements and be easier to understand and implement, it will likely fall short in terms of providing granular portfolio steering and linking the insurance coverage with the emissions calculated. 

Double counting 

Although PCAF’s main objectives are transparency and consistency, concerns have been raised around the predisposition of the proposed standard towards double counting across underwriting and investment portfolios. Double counting may, in some cases, might remain unavoidable especially when scope 2 and 3 emissions are considered for various economic sectors. Where this is the case, materiality of accounted emissions might need to be reflected in reporting and decision-making.

Data quality and availability 

Based on insight provided by industry representatives, data is expected to be a key challenge, as only a subset of insurance clients may be able to report or even track their emissions. Data unavailability can be a significant limitation in measuring and reporting underwriting emissions. The challenge may be exacerbated if the chosen attribution factors require further data about the insurance client, which may not be readily available.

Persefoni’s role

Being the only SaaS platform that has codified the GHG Protocol and PCAF standard for financed emissions, we will be following the developments in the insurance-associate emission space closely. We aim to be able to continue to support global decarbonization through the provision of our agile and adaptable platform, which will be scaled to cater for the complex needs of the insurance sector. If you would like to find out how the Persefoni platform can automate your alignment with PCAF and the GHG Protocol you can schedule a demo here.  

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Persefoni is the leading Climate Management & Accounting Platform (CMAP). The company’s Software-as-a-Service solutions enable enterprises and financial institutions to meet stakeholder and regulatory climate disclosure requirements with the highest degrees of trust, transparency, and ease. As the ERP of Carbon, the Persefoni platform provides users a single source of carbon truth across their organization, enabling them to manage their carbon transactions and inventory with the same rigor and confidence as their financial transactions.