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Insurance-associated emissions

What they are, why they matter and how PCAF can help

Lloyd Richards, Director, Consulting and Archie Putt, Senior Consultant, Consulting
30/01/2025
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As insurers embark on their journey toward net zero emissions, a critical first step involves calculating their ‘carbon inventory’ and identifying the specific segments of their portfolio responsible for emissions.

Our Consulting team recently carried out a Climate transition planning survey of 17 insurers headquartered across the UK, EU, US and Bermuda with questions targeted around responsible underwriting. The survey revealed that 47% of respondents are seeking to understand the makeup of carbon emissions in their underwriting portfolio and 29% are seeking to reduce their insured emissions by restricting coverage to portions of their underwriting portfolio. However, 65% of respondents have not yet undertaken any calculations to assess their insurance associated emissions (IAEs). These results suggest respondents have the ambition to measure and reduce their IAEs, yet the majority have not yet taken action to address their aims. Therefore, we expect to see an increase in IAEs calculations being performed and disclosed in the near future.

We believe that it is best practice to start this process as early as possible as this allows insurers to not only get ahead of upcoming regulations, but also kick start an integral part of their transition plan towards net zero journey.

This article explains why it is important to calculate IAEs, the benefits and challenges of using the Partnership for Carbon Accounting Financials (PCAF) and how we can help insurers overcome these challenges.

Why report IAEs?

Support transition plans: If insurers are serious about meeting their net zero transition targets, they must first understand their baseline emissions – how can you have a reduction target without a starting figure? IAEs are likely to make up the largest share of a company’s emissions and consequently these are the most important emissions to measure if an insurer wants to know their total baseline emissions.

Regulation: Where previously regulators suggested companies disclose scope 3 emissions, as was the case for Taskforce for Climate Related Financial Disclosure (TCFD), increasingly scope 3 emission reporting will be mandatory, such as under the Corporate Sustainability Reporting Directive (CSRD) and the new International Financial Reporting Standard on climate (IFRS S2).

Risk management: By understanding how the IAEs are distributed amongst their portfolio, insurers can make informed and specific decisions to reduce their emissions.

Stakeholder expectations: Investors, policyholders, employees, and other key stakeholders are increasingly expecting more from insurers in relation to climate change policies and actions. By reporting IAEs, insurers can showcase their commitment to the transparency and accountability that will be required of companies in their journey to net-zero.

Why PCAF?

PCAF provides insurers with clear guidance, on how to calculate and disclose their IAEs, which is in line with the Green House Gas (GHG) protocol methodology and TCFD. By using this standardised approach insurers will have comparable year-on-year figures. This comparability and consistency in calculation methodology is important as it allows insurers to make informed business decisions, track their progress and set meaningful targets.

PCAF is also available to help members interpret the standard, gain access to relevant events, and provide guidance on how they can align with the Paris Agreement and other global climate finance initiatives.

Additionally, PCAF provides estimated emissions factors that insurers can use to calculate an initial estimate of their IAEs.

Although the PCAF emissions factors are not necessarily as accurate as reported emissions data (since they are based on industry and geography proxies) the factors help in two ways: 

  1. forming an initial assessment: By first using the PCAF emission factors on their entire portfolio, insurers can get an understanding of the how the carbon emissions are spread throughout their portfolio. This understanding can be invaluable when re/insurers are deciding between third party emissions data providers 
  2. plugging the data gap: Where reported emissions data is unavailable, the emissions factors can be used to ensure there is a reasonable estimate in place of the missing data.

What are the challenges of PCAF reporting and how can they be overcome?

Data cleansing: One of the main challenges with PCAF reporting lies in converting underwriting data into a useable format. This data cleansing can be time consuming, but re/insurers can adapt their internal systems to allow them to print data in a format that flows more seamlessly into future IAEs calculations.

Data availability and quality: Reported emissions data is not always readily available, particularly for smaller entities that do not meet the thresholds for climate regulations. Using PCAF’s provided proxy emissions factors in place of reported emissions allows for a sensible baseline to be placed on unavailable data.

Scoping: Another challenge lies in working out which insureds lie within the scope of PCAF. This problem is exacerbated by the fact that PCAF’s guidance lacks details in some of these areas. For instance, structured trade credit lines of business, within commercial lines, are out of scope of the standard. However, the exact definition of structured trade credit is not provided in granular detail, which is one example of where interpreting and applying the standard can be difficult.

Emission factors: The estimated emission factors provided by PCAF can vary greatly from reported emissions data, which raises concerns of the accuracy of these estimations. Nevertheless, PCAF declare in their standard that the emissions factors should only be used as a last resort and despite their apparent inaccuracy, they serve a purpose in forming an initial assessment and plugging the data gap, as mentioned previously. We recommend that the initial baselining using the PCAF emissions factors is used to rank contributors to a portfolio’s emissions in order to prioritise how organisations (1) engage with clients and (2) secure actual data directly from the client or an ESG data provider on a targeted basis.

Calculating IAEs is an essential part of sustainability reporting for insurers, but it can be challenging to know where to start. Crowe has expertise and experience advising, performing, and providing assurance on PCAF emissions calculations and reports. We have built a suite of tools to help clients streamline the reporting process and help clients get value out of the reported figures. Increasingly it is developing best practice to seek limited assurance over the process and outputs; in this context Allianz provide an extreme best practice example of using the PCAF methodology across large portfolios and publishing the outputs with reasonable assurance.

For more information contact Alex Hindson and Lloyd Richards or your usual Crowe contact.

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Alex Hindson
Alex Hindson
Partner, Head of Sustainability
London

Insights

Sustainability data is more than numbers, it’s about what it reveals to management and how it drives smarter, informed decisions.
Upcoming regulations will require limited assurance, with future expectations of reasonable assurance on statements.