Supporting businesses that fall short of their climate pledges exposes underwriters to greater risks of fines, stranded assets, and damage to their reputation. Clients who embrace the green transformation, however, stand to benefit both financially and environmentally.
Another record-breaking year for damages from climate-related calamities has already been reached in 2024. That is a wake-up call for actuaries, not just a warning sign. The industry needs to change its focus from reactive to preventive, from passive coverage to proactive change. However, what if this change not only reduced risk but also opened the door to whole new growth?
Greetings from the lucrative portfolio decarbonization opportunity.
The Business Case: Being green is smart, not just good.
Insurers are in a unique position to hasten the worldwide shift to net zero as pressure from investors, regulators, and the environment grows. Why? Since they underwrite the very industries that need to change, they are at the intersection of coverage and funding.
Supporting businesses that fall short of their climate pledges exposes underwriters to greater risks of fines, stranded assets, and damage to their reputation. However, customers who adopt the green transition are set to surpass not merely economically, but ecologically.
The lesson is much more obvious when it comes to investing. More than 93% of investors, according to recent surveys, think that during the next two to five years, climate challenges will have a major impact on investment performance. Those who do not change could see their valuations drop and their credit ratings reduced. In the meanwhile, businesses that are advancing or adopting renewable technologies, or “green stars,” are well-positioned to prosper in a decarbonized economy.
Introducing GreenFInT: The Decarbonization of Portfolios through a Profit Lens
Accenture has unveiled a revolutionary solution called GreenFInT, or Green Financial Institution Tool, to assist insurers in putting their ideas into practice. The Profitable Portfolio Decarbonization Tool is another name for it.
Consider it a scientifically based crystal ball. It helps insurers balance risk, reward, and regulation from a climate-conscious perspective by enabling them to convert emissions data into financial effect.
You can use the tool to model several future states, such as a “hot world” where temperatures increase unchecked or one that complies with the Paris Agreement. It considers:
Net-zero commitments at the corporate level
Technology combinations (such as fossil fuels versus renewables)
Requirements for capital investments
Trajectories of operational expenses
GreenFInT creates forward-looking profitability curves by entering these factors, demonstrating how much better (or worse) certain paths can perform.
Real-World Perspective: Climate Laggards vs. Green Stars
Suppose you are providing insurance to a customer in the power generation industry.
Your “green star” client is actively developing renewable infrastructure and has a certified Net Zero aim.
Conversely, the “laggard” is maintaining the status quo.
The laggard may appear more profitable in the near run because there are no significant capital expenditures and everything is going smoothly. By 2040, however, the green star’s initial expenditures are beginning to pay off as operating costs soar and regulations become more stringent.
Green stars beat laggards by 30 to 40 percentage points in EBT margins between 2023 and 2050, based on GreenFInT’s modeling. Yes, you read correctly. This is an economic decision as well as an environmental one.
Thinking Beyond Carbon: “What Ifs,” Strategy, and Scope 3
GreenFInT’s genius lies not just in recognizing climate leaders but also in empowering insurers to make more intelligent plans.
It provides a comprehensive view of the downstream impact by helping to quantify Scope 3, Category 15 emissions.
It makes it possible to define goals according to carbon budgets unique to each industry.
You can rethink the makeup of your portfolio and predict the repercussions by using its “What-If” simulations.
In essence, it transforms ESG from a lofty goal into a practical approach that can be quantified, priced, and implemented.
Why This Is Important: The Next Competitive Advantage Is Decarbonization
Transformation is nothing new to insurers. The scope, scale, and speed of this moment, however, are what set it apart.
Climate risk is now today’s volatility rather than “future risk.” However, being a climate leader is now not just morally right, but also necessary from a business one. The next generation of market leaders will be shaped by the companies that adopt science-based goals, include decarbonization into their portfolios, and cultivate reliable connections with clients who are prepared for the change.
But those who put things off? They might become enmeshed in reputational tailspins and legacy losses.
The Path Ahead: Act Confidently, Lead With Clarity
GreenFInT provides clarity in an uncertain world. It gives insurers the ability to:
Early detection of clients that are transition-ready
Help clients achieve net zero in a meaningful way
Steer clear of greenwashing and rely on scientific legitimacy.
Profitably, not painfully, decarbonize
Risk management has always been the focus of the insurance sector. Today, the focus is on managing change in a way that fosters impact, growth, and trust.
Now is the moment to take action. The way is obvious. What about the upside? Enormous.
