How to navigate the challenges of insurance-associated emissions reporting

The Partnership for Carbon Accounting Financials (PCAF) greenhouse gas reporting and accounting standard is becoming the go-to framework for insurers disclosing their Scope 3 insurance-associated emissions.

Scope 3 of the respected Greenhouse Gas (GHG) Protocol covering ‘all other indirect GHG emissions that occur in the value chain of the reporting company’ is of relevance to insurers, and with fifteen Scope 3 sub-categories, it is category 15 that covers investments and other financial services, including insurance-associated emissions.

The new Moody’s Insurance-Associated Emissions (IAE) solution can help insurers move toward IAE accounting, as regulators such as OSFI in Canada move toward formally incorporating PCAF for Scope 3 emissions reporting, and major insurers disclose their 2023 Scope 3 IAE in alignment with PCAF.

Moody’s had a head start in overcoming key challenges after working with insurers in the Lloyd’s and company market, with an initiative that demonstrated Moody’s capability to connect the dots between insured entities and the GHG emissions and revenue data required by PCAF and to deliver data as a service or through an analytics platform.

Operationalising an emissions reporting solution requires insurers to overcome three key challenges:

Sourcing the data: Emissions disclosure data from companies is often limited, especially for SMEs in an insurer’s underwriting portfolio. Aligning with the PCAF standard then requires insurers to obtain customer revenue data on their customers, with financial disclosures varying significantly by jurisdiction and by company size and type.

Connecting the dots: Insurers often need to work with one or more third-party providers to link their insureds with companies in both the emissions and revenue datasets, with no market standard for company identification beyond publicly listed companies.

Tackling scale: Finding each of the thousands of companies in an underwriting portfolio in a company database without some automated toolkit would then require an impractical amount of manual work.

Moving toward PCAF

To help, clients use Moody’s Orbis database with over 80 million companies (public and private) and automated name-matching with the insurers’ policy data to return a unique Orbis ID, allowing Moody’s to be the single source of both financial revenue and emissions data.

PCAF recommends presenting key metrics such as weighted average carbon intensities and weighted average data quality scores by sub-portfolios, such as line of business or industry classification of insured.

Using a software-as-a-service (SaaS) platform allows insurers to achieve effective data aggregation, and use tools to analyse large portfolios for key insights into the emissions profile of their portfolio or sub-portfolios.

To go beyond key metrics and look at emissions heatmaps or pre-post-bind impact, or move from backward-looking disclosure metrics to incorporate forward-looking analysis, such as projections of the emissions profile under different scenarios, the Moody’s Insurance-Associated Emissions solution offers a dedicated emissions accounting dashboard.

Providing clear and actionable insights within insurers’ portfolios, the solution synthesizes all company and emissions data into a single unified source.

Aligning with the PCAF IAE Standard for commercial lines, Moody’s IAE solution calculates both attributed emissions and associated data quality scores to ensure full compliance, with the platform providing supporting analytics including aggregated statistics and charting for direct insights. Users can also see breakdowns of their results by their own defined lines of business, as well as by European Classification of Economic Activities (NACE) sector classifications and countries of insured entities.

Simply sourcing the data is not the issue; data from different sources must be carefully joined together, and unlocking the key metrics and insights requires the right choice of infrastructure for their business.

Utilizing ExposureIQ™, a proven Moody’s Intelligent Risk Platform™ application already used by many insurers, Moody’s IAE Solution offers insurers a way to meet emissions reporting goals and plan for the future.

Justin Whitehouse is associate director, advisory services at Moody’s.