Skip to content Skip to sidebar Skip to footer

PCAF for Climate Risk Reporting in the Insurance Industry

How insurance companies are hamstrung by the lack of industry specific scope 3 guidance, why help is on its way and what to do right now.

Pressures on financial institutions to align their activities to a net zero target are increasing. In November 2021 at the COP26 climate summit in Glasgow, United Nations (UN) Special Envoy on Climate Action and Finance Mark Carney announced that firms representing US$130 trillion in assets had joined the Glasgow Financial Alliance for Net Zero, a global coalition of leading financial institutions in the UN Race to Zero pledging to meet the goals of the Paris Agreement and reach net-zero in financed emissions by 2050.

The participants are organised in the respective United Nations Environment Programme Finance Initiative (UNEP-FI) convened alliances for banks, asset owners, and insurers, namely the Net-Zero Banking Alliance (NZBA), Net-Zero Asset Owner Alliance (NZAOA), and Net-Zero Insurance Alliance (NZIA) respectively. Australian signatories to the above include ANZ, CBA, Cbus Super, Macquarie Bank, NAB, and QBE.

Whilst the end goal in the race to net zero is clear, or at least clearer since the release of the Science-Based Target Initiative’s Net Zero Standard (SBTi Net Zero) and the requirement to deep decarbonisation of over 90% of full value chain emissions by the respective target year – the road is long and many financial institutions are stuck in the starting blocks: measuring emissions across value chains.

To understand how the regulatory environment is rapidly shifting, we explore how to calculate financed emissions under PCAF as an input into climate risk reporting for the insurance industry.

PCAF’s Guidance on Financed (and Insured) Emissions

Only as recently as November 2020, did the sector get additional guidance on the notorious GHG Protocol Scope 3 Standard category 15 ‘Investments’ by the industry-led Partnership for Carbon Accounting Financials (PCAF).

The PCAF standard provides detailed guidance for each asset class to calculate the financed emissions resulting from activities in the real economy that are financed through lending and investment portfolios. Until then, financial institutions either relied on their own interpretation of the GHG Protocol or omitted the calculations altogether. Therefore, public reporting of financed emissions pre 2020 was very rare, especially in Australia, with a few notable exceptions such as Future Super.

Since then, we have seen some cautious first (public) steps by the big 4 banks for example, but there is still a way to go to mass adoption. PCAF is a Euro- and US-centric initiative, which might partially explain why no major Australian bank, asset owner, or insurer has committed to PCAF to date. It’s fair to assume that companies have done more work behind the scenes which they hold close to their chests.

And by its own admission, PCAF still working on filling considerable gaps for certain asset classes (e.g., green and sovereign bonds), accounting modalities (e.g., how to treat emissions removals) as well as the climate impact of insurers and reinsurers. As announced in September 2021, PCAF is working on a new standard for “insured emissions” in cooperation with NZIA. Whilst the work only started in January 2022, and no real detail is in the public domain, there are a few steps insurance companies can already take to prepare.

How to Prepare for the PCAF Standard for Insured Emissions

Technically, insurance companies are covered under the PCAF standard and the SBT’s guidance for the finance sector, with the former allowing them to calculate the emissions from the lending and investment portion of their activities and the latter allowing them to set targets for such in line with the Paris Agreement. At present, the SBTi for example does not require financial institutions, including insurers, to measure and set targets on categories 1–14 scope 3 emissions as defined by GHG Protocol (albeit it is recommended). A scope 3 portfolio target for financed emissions suffices.

It’s safe to assume that PCAF’s working group will exclude and qualify where needed (e.g., life insurance, how will we go about attribution? etc.). It will also likely require additional quantifications in non-investment related parts of the insurers’ value chain. There are clues in NZIA’s commitment letter that for example clients’ Scope 1 and 2 and Scope 3 emissions, where significant, and where data allow, will be considered part of the attributable value chain emissions.

NZIA will also set underwriting criteria and guidelines to align activities within its underwriting portfolios with a 1.5-degree pathway, particularly the most GHG-intensive and GHG-emitting activities.

PCAF and Insured Emissions for Climate Risk Reporting – What Should Insurers do Today?

  • Calculate emissions of the lending and investment portion of your activities in line with PCAF for all asset classes that have existing methods (listed equity and corporate bonds, business loans and unlisted equity, project finance, commercial real estate, mortgages, and motor vehicle loans, and consider the new draft methods for public consultation for green and/or sovereign bonds and carbon removals).
  • Whilst you are at it, encourage your leadership to join PCAF. The only commitment is to report financed emissions within two years of signing the commitment letter, which is when disclosure is likely going to be a market expectation anyhow.
  • Start calculating client emissions for the parts of the business where this is workable, e.g., home and motor vehicle insurance, and potentially parts of your business insurance (noting that there might be data availability issues).
  • Start the discussion internally about 1.5-degree alignment and net zero commitment now and investigate requirements and pledges that might suit your company (the above UN convened alliances are a good starting point) and get an idea about timeframes. It takes time and a bit of practice to get the data for a 1.5 degree pathway or a science-based target, so get your ducks in a row for when the time comes, and your company is keen to commit.

As always, don’t let perfection be the enemy of the good. The entire financial sector is grappling with its role within the transition to a low carbon economy, so you are in good company. Just take the first step (or two).

Want to Learn More About PCAF or Net Zero Strategies?

Our experts are ready to discuss how we can support your financial institution become a leader in this space. Reach out to Michaela or the team on environment@ndevr.com.au or call 03 7035 1740.

Business Hours

Mon - Fri : 9am - 5.30pm

Melbourne - HQ

Level 2, 27 – 31 King street, Melbourne, VIC 3000 P: +61 3 7035 1740

Sydney

Commons Central, 20-40 Meagher St, Chippendale, Sydney, NSW 2000 P: +61 3 7035 1740

Brisbane

Level 6, 200 Adelaide Street, Brisbane, Qld, 4000 P: +61 3 7035 1740

Perth

Level 25, South 32 Building, 108 St Georges Terrace, Perth, WA 6000 P: +61 8 6557 8571

Ndevr Environmental Pty Ltd© 2021. All Rights Reserved. Founded 2010. Privacy Policy.
B-Corp-Climate-Active-logo

MAKE AN ENQUIRY

Please complete the form below and we’ll be in contact with you shortly.





    ATIYAH

    CARBON NEUTRAL PRODUCT

    ​AWESOME STREETFOOD, ZERO CARBON – that’s Atiyah. With its launch in 2020, Atiyah became Australia’s first 100% renewable-run street food zero-carbon kitchen certified under Climate Active. Atiyah sets operational carbon efficiency benchmarks and raises awareness about the global warming impact of food choices. They even disclosed the footprint of every item on their menu to empower their customers’ low-carbon lifestyle. We assist ATIYAH with their carbon neutrality certification.

    ORIGIN

    CARBON NEUTRAL ORGANISATION & PRODUCT

    Responsible business is at the heart of what Intrepid does. Intrepid has been a pioneer in measuring and reporting carbon emissions since 2010. When it joined the Climate Active family in 2018, it became the largest global provider of carbon neutral certified travel adventures and the first company to voluntarily include all global operations in its certification.

    NEXTDC

    CARBON NEUTRAL ORGANISATION & PRODUCT NEXTDC are one of Australia‘s most trusted providers of data centre solutions. Since 2018 we’ve been assisting them with their Greenhouse Gas (GHG) accounting and in March 2021, the company broke ground with the launch of NEXTneutral, an innovative Climate Active-compliant colocation opt-in program for their customers. Learn more.

    GOODMAN

    COMMERCIAL & INDUSTRIAL PROPERTY
    Goodman Group is an ASX20 global property expert in logistics and business space. It owns, develops and manages industrial property in 17 countries. We provide strategic advisory on Goodman’s operational GHG inventory and trajectory, the GHG intensity of its investment portfolio, net zero pathway and carbon neutral certification, as well as the renewable energy delivery strategy.

    ISPT

    PROPERTY FUND MANAGEMENT
    ISPT is one of Australia’s largest unlisted property fund managers, with over $11.9 billion of funds under management. We assist ISPT with its net zero pathway, land-based offset strategy as well as maintaining its carbon neutral certification. When ISPT joined the Climate Active network, it pioneered many concepts. It became the first participant under Climate Active to voluntarily include base building operations on all its owned and operated properties into its organisational certification and, as an industry first, procured 100% Australian Carbon Credit Offset Units (ACCUs).

    BHP

    METALS & MINING
    BHP is an ASX listed, world-leading resources company and are among the world’s top producers of major commodities, including iron ore, metallurgical coal and copper. They also have substantial interests in oil, gas and energy coal. We assist BHP comply with energy and greenhouse gas legislation and advise facilities on matters related to energy use and production emissions.

    Intrepid

    TRAVEL
    Intrepid Travel is the largest small group adventure travel company in the world. Responsible business is at the heart of what Intrepid does. We assist Intrepid with their Human Rights reporting obligations as well as many aspects of its GHG accounting and reporting. This includes its Science-based target (SBT), making them the first tour operator with approved SBT. When Intrepid joined the Climate Active family in 2018, it became the largest global provider of carbon neutral certified travel adventures and the first company to voluntarily include all global operations in its certification.

    LION

    BEVERAGES
    Lion is a global beverage company with a portfolio of brands in beer, cider, wine, spirits, seltzers, and non-alcoholic drinks. Lion has four large and four small Australian breweries, and its brands include XXXX, GOLD, Tooheys New, and Little Creatures. We assisted Lion to become Australia’s first large-scale brewer to be certified as carbon neutral under Climate Active in 2020.

    QANTAS Airline

    AIRLINE
    Founded in the Queensland outback in 1920, Qantas has grown to be Australia’s largest domestic and international airline. We have worked with Qantas since 2016 on a variety of emissions reduction projects.

    ORICA

    METALS & MINING
    Orica is the world’s largest provider of commercial explosives and innovative blasting systems to the mining, quarrying, oil and gas and construction markets, a leading supplier of sodium cyanide for gold extraction, and a specialist provider of ground support services in mining and tunnelling. We assist Orica with their regulatory reporting such as NGERs and also carbon abatement projects.

    Fulton Hogan

    CONSTRUCTION
    Fulton Hogan has more than 80 years experience in the transport, water, energy, mining, civil construction and land development infrastructure in New Zealand, Australia and the South Pacific.
    We assist Fulton Hogan comply with NGER and NPI legislation for their extensive national operations. We work Fulton’s team to streamline reporting procedures to avoid duplicating data handling and transparently demonstrate data flows and aggregations.

    TOYOTA AUSTRALIA

    AUTOMOTIVE
    Toyota Australia was founded in 1963 and is one of Australia’s leading automotive companies. We have worked with Toyota since 2018 on many aspects of its GHG accounting, target setting, reduction initiatives, and reporting. We continue to inform strategic decisions around the contribution of the Australian business to the realisation of Toyota’s global Environmental Challenge 2050.

    H&H Group / Swisse Wellness

    CONSUMER GOODS
    H&H Group is a global health and nutrition company listed on the Hong Kong Stock Exchange. Consumer brands include Biostime, Solid Gold Pet, Dodie, Good Goût, Aurelia Probiotic Skincare, CBII, and Swisse Wellness, a vitamin, supplement, and skincare brand, born in Australia in 1969. We have been working with Swisse and the group on many aspects of its GHG accounting and reporting, including the ongoing management of its Climate Active certification.

    AGL ENERGY

    ENERGY
    AGL is one of Australia’s leading energy companies offering electricity, gas, solar and renewable energy services, plus internet and mobile plans. We have assisted AGL for over five years on a variety of activities including audit and assurance projects.

    VIVA ENERGY

    ENERGY
    Viva Energy is a leading energy company which supplies about a quarter of Australia’s fuel requirements. Viva Energy make, import, blend and deliver fuels, lubricants, solvents and bitumen through extensive national and international supply chains. We assist Viva Energy with a range of energy and greenhouse gas related projects. These include annual NGER reporting, Safeguard baseline setting, advice on Emission Reduction Fund opportunities and emission trajectories.