The insurance industry has played a key role in driving innovation. It has also encouraged social change and supported human progress over time. Insurers have pushed for safer societies. They incentivized seatbelt use, promoted fire-resistant materials, and supported life-saving vaccines. Each effort encourages industries to become more resilient. Today, they face a challenge unlike any other: climate change.
In the last ten years, climate-related disasters have become more common and severe. This has led to record losses for insurers. The year 2025 has been yet another year marked by immense claims due to extreme weather events linked to global warming. Faced with this challenge, insurers are looking for ways not only to mitigate risk but to actively contribute to a sustainable future. And if done correctly, this transition can be a financial opportunity rather than a burden. Insurers can protect their finances by helping businesses lower their carbon footprints. This support also guides clients through the shift to a greener economy.
The Case for Sustainable Insurance Practices
The insurance sector is uniquely positioned to drive global decarbonization efforts. Insurers impact almost every industry through their underwriting and investment work. They can guide businesses to adopt more sustainable practices. Insurers can encourage companies to go green. This helps lower risks, cut fines, and boost long-term profits.
1. Underwriting for a Greener Future
For insurers, transitioning to net zero is not just about moral responsibility—it’s a business imperative. Companies that delay decarbonizing will face more regulations and market penalties. They might also deal with lawsuits for failing to meet new environmental standards. Insurers that align their underwriting policies with sustainable goals can reduce risks. They can also seize chances to partner with innovative, sustainable businesses.
Clients who make a successful green transition will likely have better financial health. This makes them safer choices for insurers. Companies that invest in renewable energy, green infrastructure, and low-carbon technology will earn more profits in the long run. They will enjoy lower operating costs and friendly regulations. This means fewer claims and better risk-adjusted returns for insurers.
2. Investing in a Carbon-Neutral Future
The role of insurers as investors is just as critical. Recently, climate issues have shaped investment choices. Now, 93% of investors believe climate risks will affect investment performance in the next two to five years. Companies that don’t shift to a low-carbon model may lose their investment-grade credit ratings. On the other hand, those leading the way—called ‘green stars’—can gain a lot.
Investing in sustainable companies can yield better returns in the long run. Green technologies are becoming common and affordable. Businesses leading in decarbonization will do better than those that fall behind. In a scenario that matches the Paris Agreement, insurers backing ‘green stars’ may gain a lot. In contrast, those supporting ‘climate laggards’ might face big losses. This shift happens as regulations tighten and consumers prefer sustainability.
The Need for a New Approach: GreenFinT
Insurers must use advanced tools to understand how decarbonization affects finances. This is key for a smooth transition. Grasping how a client’s emissions cuts affect financial risk is crucial. This knowledge helps in making smart underwriting and investment choices. At Accenture, we created GreenFinT (Green Financial Institution Tool). It’s also called the Profitable Portfolio Decarbonization Tool.
GreenFinT analyzes high-carbon client portfolios until 2050. It helps insurers find businesses set for long-term success. The tool helps insurance managers in investment, risk, and pricing teams. They can simulate various climate scenarios. This ranges from a ‘hot world’ with little decarbonization to a future that follows the Paris Agreement.
How GreenFinT Works
GreenFinT provides two key functionalities:
- Emissions Measurement and Reporting – This tool lets insurers monitor emissions from their investments and underwriting. It meets regulatory needs. This includes the European Sustainability Reporting Standards (ESRS E1) and quantitative KPIs for CSRD. This ensures compliance and enhances transparency.
- Business Value Assessment for Decarbonization – GreenFinT examines climate scenarios like 1.5°C and 2.4°C. It also analyzes the technology mix in portfolio companies. It also reviews their net zero goals and transition plans. This helps understand how these factors affect profits over time.
The tool models capital investments and operational costs. It forecasts profitability trends between ‘green stars’ and ‘climate laggards.’ This gives insurers data-driven insights for better decision-making.
Green Stars vs. Climate Laggards: A Long-Term Perspective
Let’s look at an insurance portfolio. It has 40 large clients. They come from four high-carbon industries: power generation, steel, real estate, and automotive. All these clients operate in Europe. In a 1.5°C scenario, the capital required for these companies to transition to net zero between 2023 and 2050 amounts to $650 billion.
At first, ‘climate laggards’ (companies that delay decarbonization) seem more profitable. They skip the high upfront costs of clean energy investments. GreenFinT modeling shows that by 2030, laggards might outperform green stars. They could lead by about 6 percentage points in EBT margin.
However, this short-term gain is misleading. Over time, green stars experience a significant shift in profitability. By 2050, smart companies will outpace slower ones by 30-40 points. They will enjoy lower costs because they invest in renewables and energy-efficient tech.
Breaking the ‘Tragedy of the Horizon’
A key barrier to corporate climate action is what Mark Carney, former Bank of England Governor, termed the ‘tragedy of the horizon.’ Businesses often focus on short-term goals. However, climate risks and benefits unfold over many years. This disconnect makes it difficult for companies—and insurers—to take decisive action on climate change.
GreenFinT helps insurers use scientific carbon budgets instead of old historical forecasts. This way, they can better include long-term climate risks in their decision-making. This step is key. It helps bridge the gap between urgent financial needs and the long-term goal of decarbonization.
Scope 3 Emissions and the ‘What-If’ Capability
GreenFinT goes beyond net zero business cases. It also offers insurers tools for Scope 3 emissions accounting. This is especially true for Category 15, which covers financed emissions. This helps insurers track total emissions and intensity-based emissions. They can then set achievable reduction targets.
Also, the tool’s ‘What-If’ feature lets insurers test different portfolio changes. This helps them see how shifts in investments or underwriting rules affect total emissions. This feature gives important insights for insurers. It helps them improve their decarbonization strategies and stay profitable.
The Time to Act is Now
The insurance industry has a proven track record of resilience and innovation in response to major challenges. The climate crisis is no exception. Insurers can protect their profits by moving to a carbon-neutral future. They can also help build a sustainable global economy.
Regulatory pressures and public expectations are only going to intensify. Insurers that act quickly will have an edge over others. They can dodge the risks of doing nothing and greenwashing. This will help them stand out as leaders in sustainable finance. Using the right tools, such as GreenFinT, and smart strategies makes decarbonizing your portfolio easier than ever.
The future belongs to those who lead the change. Will your firm be one of them? If you’re ready to explore how these strategies can be implemented in your enterprise, let’s start the conversation today.
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FAQs – The Role of Insurers in the Net Zero Transition
Why is climate change a critical concern for insurers?
Climate change is driving an increase in natural catastrophes, leading to record losses for insurers. More severe weather happens more often. This leads to more claims and puts insurance companies’ financial stability at risk. Insurers need to change. They should reassess risks, update pricing models, and adjust investment strategies. This will help them stay profitable and support climate resilience.
How can insurers influence the transition to a carbon-neutral future?
Insurers play a dual role as risk managers and investors. Insurers can speed up the move to sustainable industries by underwriting and investing in companies that cut emissions. They can encourage businesses to go green by offering better rates to those with strong climate plans.
What is GreenFinT, and how does it help insurers?
GreenFinT (Green Financial Institution Tool) is a portfolio decarbonization tool developed by Accenture. It helps insurers assess the financial implications of their clients’ emission reduction strategies. It examines future scenarios to identify businesses that will succeed in a low-carbon economy. These are called ‘green stars.’ It also finds those that might face challenges, known as ‘climate laggards.’
Why should insurers care about profitable portfolio decarbonization?
Decarbonization is more than just following rules or being socially responsible. It’s also a must for financial health. Companies that don’t shift to net zero may lose their investment-grade credit ratings. In contrast, those that adopt green technologies are likely to do better over time. Insurers can safeguard their profits by teaming up with businesses that have solid transition plans.
How does GreenFinT measure and predict financial outcomes?
GreenFinT uses climate scenarios, like 1.5°C or 2.4°C warming paths, to study companies. It looks at their technology mix, net-zero promises, and transition plans. It predicts future profits by examining capital investments, operational costs, and regulatory impacts. This enables insurers to make data-driven decisions about underwriting and investment.
