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Wednesday, November 29, 2023

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Net-Zero Insurance Alliance’s target-setting protocol may elevate antitrust risk, says Sustainable Fitch

The recent exit of Munich Re and Zurich Insurance Group (Zurich) from the UN’s Net-Zero Insurance Alliance (NZIA) may indicate that antitrust risks are more significant in the insurance industry than previously understood, Sustainable Fitch, Fitch Rating’s sustainability arm, told ISFI.

“Sustainable Fitch has seen the issue of antitrust concerns raised but it has so far not been viewed as a critical obstacle to the work of global initiatives such as NZIA.

“The recent exit of Munich Re and Zurich shows that these risks might be significant and we will be looking to see how organizations respond to the need to avoid the conflict between addressing the climate change problem and prevention of business misconduct,” Inal Kishmariya, the associate director at Sustainable Fitch, told ISFI.

Over the past month, Munich Re and Zurich, both of whom are founding members of the NZIA, discontinued their memberships from the alliance within one week of each other, with Munich Re explicitly citing concerns over material antitrust risks as its motivation.

The NZIA’s new target-setting protocol released in January this year, which requires members to make their independently set sustainability targets within six months of the protocol publication, may have contributed to the operators withdrawing their memberships less than two years after the establishment of the NZIA in 2021.

The protocol outlines five target types within three target categories, namely emissions reduction, engagement and reinsurance of transition.

In the next version of the protocol set to be published by the end of 2023, the NZIA has indicated it intends to introduce a wider validation process covering a broader scope of insurance and reinsurance portfolios.

According to Inal, the protocol has the potential to further increase the coordination nature of the initiative, thereby elevating antitrust risk.

As such, the NZIA’s initiatives may be at once deterring operators from the alliance while pushing the envelope for transition standards in the insurance space.

Be that as it may, Sustainable Fitch opines that the NZIA, with its current 28 members, still has the potential to impact the insurance industry with its ambitious plans and initiatives including the development of the science-based global standard for financial sector net-zero targets led by the Science Based Targets Initiative, which is currently underway.

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