Representing a comprehensive global standardized framework to measure and manage greenhouse gas (GHG) emissions, and developed over a twenty-year partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) together with a wide range of stakeholders, the GHG Protocol is a respected standard used to define emissions from private and public sector operations, value chains and mitigation actions.
The GHG Protocol defines three scopes of emissions:
Scope 1: Direct emissions from sources owned or controlled by the reporting company
Scope 2: Indirect emissions from the generation of purchased or acquired electricity consumed by the reporting company
Scope 3: All other indirect GHG emissions that occur in the value chain of the reporting company.
The Protocol categorizes Scope 3 emissions into 15 sub-categories. Category 15 covers investments and other financial services. Insurance-associated emissions also fall into this category, which is the most significant part of an insurer’s indirect GHG emissions.
Figure 1: Overview of the GHG Protocol scopes and emissions across the value chain. Reproduced from the PCAF GHG Reporting and Accounting Standard Part C, Figure 2-1, page 13.
The industry is already moving toward formally incorporating the PCAF Standard for Scope 3 emissions reporting. The Canadian regulator OSFI, in their Climate Risk Management Guideline B-15, sets out expectations of Federally Regulated Financial Institutions (FRFIs) to disclose IAE using the PCAF framework (or a comparable industry-accepted approach).
A handful of insurers, notably Allianz and Swiss Re, have disclosed their Scope 3 IAE for 2023 in alignment with the PCAF standard.
Challenges of Insurance Associated Emissions Accounting
Moody’s recognizes the challenges faced by insurers who wish to implement a solution for insurance-associated emissions accounting. We are uniquely positioned to help, by drawing on comprehensive data resources and modern cloud-based software solutions tailored to the insurance industry.
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.
Operationalizing an emissions reporting solution requires insurers to overcome three key challenges:
Sourcing the data
Connecting this data from multiple sources
Doing it all at scale
Sourcing the Data
Company emissions disclosures are often limited and sourcing the required emissions data is challenging, especially for SMEs that typically represent a significant proportion of an insurer’s underwriting portfolio.
Sourcing emissions data is only half the problem, as alignment with the PCAF standard also requires insurers to obtain their customers' revenue data [1].
This is not straightforward as financial disclosures vary significantly by jurisdiction, company size, and type.
Even if a company has disclosed financials, they may not necessarily include revenue data. For example, statutory U.K. SME filings with Companies House often record asset value, not revenue.
Connecting the Dots
To obtain necessary data on their insureds, insurers must work with one or more third-party providers.
Identifying a credible source or provider is just the first step; insurers must then be able to link the insureds in their own policy dataset with the companies in both the emissions and revenue datasets.
Figure 2: Joining third-party revenue and emissions data with their own insureds' policy data will be a significant challenge for insurers.
Mainstream database management functions could link matching records, but a common identifier or key for insureds is required for all the datasets. No company identification standard currently exists that goes beyond publicly listed companies.
Working with a single source of emissions and revenue data would ease the pain, but insurers would still need to match companies from this source with their insureds.
Tackling Scale
Finding each of the thousands of companies in an underwriting portfolio in a company database without some automated toolkit would require an impractical amount of manual work.
The Moody’s Orbis Database holds information on over 550 million companies (public and private); to help clients unlock the value of this data, an automated name-matching tool reads information on insureds from an insurer's policy data and automatically identifies matches.
All matches are returned with an Orbis ID, uniquely identifying companies in the database, and allowing Moody’s to be the single source of financial revenue and emissions data, without the complications of using another provider’s data.
The volume of policy-level data associated with the Scope 3 emissions calculation can become sizeable, particularly for insurers with large books of underwriting business, as reporting requirements and the generation of actionable analytics require an aggregated data view.
To achieve effective data aggregation, insurers need a data analytics solution tailored for an underwriting portfolio, to manage the storage and retrieval of the volume of policy data.
Using a Software-as-a-Service (SaaS) platform allows insurers to manage these large portfolios and to run analysis tools that give key insights into the emissions profile of their portfolio or sub-portfolios.
Figure 3: Moody's IAE Solution - Data Coverage by Accounts Figure 4: Moody's IAE Solution - Emissions Accounting Aggregations
Emissions Reporting Via an Analytics Platform
PCAF recommends presenting key metrics such as weighted average carbon intensities and weighted average data quality scores, by sub-portfolios, such as the line of business or the industry classification for an insured.
However, to support their business objectives, insurers can benefit from additional analytical insights that go beyond these key metrics to look at emissions heatmaps or pre-/post-bind impact.
Insurers may also want to go beyond backward-looking disclosure metrics and incorporate forward-looking analysis, such as projections of the emissions profile under different scenarios.
To address the challenges insurers face when implementing the PCAF standard for IAE accounting, we have developed Moody’s Insurance-Associated Emissions (IAE) solution.
The Moody’s IAE Solution offers a dedicated emissions accounting dashboard (see Figures 3 and 4 above).
It is designed to deliver clear and actionable insights within insurers' portfolios, synthesizing data across Moody’s data capabilities in revenue and financials, reported GHG emissions, and emissions proxy models into a single unified source, with supporting data source and methodology audit data.
Users can review the matched companies for accurate data alignment and see the data coverage for their portfolio, including the coverage of company revenue and emissions data of different types.
Moody’s IAE solution uses the data output to produce analytics that align with the PCAF IAE Standard for commercial lines, calculating the attributed emissions and associated data quality scores and ensuring full compliance with the IAE Standard, 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.
Getting to Value Faster with Managed Services and More
There are many options available to insurers to get the emissions insights they need.
For instance, Moody’s offers IAE-managed services to outsource the data processing for insurers who want to receive a simple data delivery of key metrics, which may better serve a smaller insurer.
For insurers with the internal resources to proactively explore and manage their IAE reporting, the value of the full platform solution comes into its own.
Plotting a Course
Whichever way an insurer plots its course toward IAE disclosures, it should be mindful of the challenges it can expect to face when going beyond simply sourcing the data.
Data from different sources must be carefully joined together and unlock the key metrics and insights required for the right choice of infrastructure for their business.
Moody’s IAE Solution offers insurers a way to meet emissions reporting goals, plan for the future, and utilize ExposureIQ, a proven Moody’s Intelligent Risk Platform application already used by many insurers.
To find out more about Moody’s Insurance-Associated Emissions Solution, visit our webpage here or contact your Moody’s sales representative.
As part of Moody's insurance strategy team, Justin is one of the lead members in the research and development of Moody's Insurance Associated Emissions Solution. The solution enables insurers to measure the greenhouse gas (GHG) emissions associated with their underwriting portfolio in alignment with the PCAF GHG Reporting and Accounting Standard.
Justin has worked closely with the proof of concept (POC) and early adopter users of the solution, leveraging his expertise across data, modeling, and technology to support the delivery of the solution.
He has a doctorate in Physics with a specialism in statistical physics and stochastic models.
In 2016, Justin joined Moody’s working in the Economic Scenario Generator team supporting insurers with the use of stochastic models and scenarios for solvency capital reporting and financial asset risk management.
