Contributing authors: Jodi Scarlett, Meaghan Ralston, Maureen Cureton
Insurers are pursuing aggressive Net Zero insurance operations targets, due to the cost of increasingly frequent and more severe natural disasters. Additionally, incoming regulatory mandates from government are also requiring insurers to disclose their Scope 3 emissions. These factors are creating a knock-on effect for insurance supply chain partners, like restoration companies, who must adjust their practices to measure, manage, and reduce emissions to remain at the top of the preferred vendor list as a claims service provider.
The term Net Zero refers to the zero-sum output of Greenhouse Gas (GhG) emissions. GhG emissions are categorized into three main Scopes: Scope 1, Scope 2 and Scope 3. Restoration companies generate a significant proportion of insurers’ Scope 3 emissions, primarily due to the construction activity they engage in when working on property claims. They are now facing downward pressure from the claims marketplace to measure, manage, and reduce their own GhG emissions.
We will explain why insurers are actively striving toward Net Zero insurance operations targets, provide an overview of the various scopes of emissions and discuss how restoration contractors can get ahead of the climate curve in this article.
Why Insurers are Actively Pursuing Ambitious Net Zero Targets
The insurance sector is facing extreme financial and physical risks stemming from the impacts of climate change, as it is increasing the frequency and severity of weather events. In 2023, property claims in the US cost insurers $200 billion and 50% of those claims were related to climate change, which resulted in a net loss on property claims for insurers of $21.2 billion.
In addition to this, over 40 governments across the world have legislated that financial institutions (including insurance companies) must report their Scope 3 emissions. All this to say, the insurance industry cares deeply about climate change as they are not only paying for it, but being held accountable for it.
The ambitious climate targets set by insurers affect the entire value chain, including claims, goods, and service providers. Now is the time to join the movement and begin to measure, manage, and reduce your own GhG emissions.
What are My Own GhG Emissions? Breaking Down the Scopes of Emissions
Scope 1, Scope 2 and Scope 3 emissions are different categories that help organizations measure and manage their GhG emissions.
Scope 1 includes direct emissions from owned or controlled sources like emissions associated with fuel combustion in boilers, furnaces, and vehicles.
Scope 2 primarily includes indirect emissions from the generation of purchased electricity. The emissions are indirect as they occur at the power utility where the electricity is generated. It has its own category as almost every organization (or individual) relies on electricity.
Scope 3 encompass all other indirect emissions that occur within a company’s value chain. There are 15 sub-categories of Scope 3 emissions, which include categories such as purchased goods or services, business travel, waste generated, and employee commuting. These reflect indirect GhG emissions across supply chains that are beyond a company’s direct control. Essentially, restoration contractors’ Scope 1, 2, and 3 emissions, associated with servicing insurance claims, are the Scope 3 emissions of the entities above them in the value chain such as, insurers, MGA’s, brokers, and adjusters.
Experts estimate that Scope 3 emissions account for up to 70% of a company’s total carbon emissions. This percentage varies by sector, and research done by the Carbon Disclosure Project (CDP) estimates that, on average, Scope 3 emissions account for 99.5% of total emissions for companies in the financial services sector.
With the pressure of regulatory reporting mandates increasing rapidly, many insurers are escalating their action throughout their supply chain to obtain emissions data. Due to these regulatory pressures, which specify a move away from benchmarked estimates toward actual data, they are extending their focus beyond Scope 1 and Scope 2 emissions, to the Scope 3 emissions generated by their value chains. As such, it should be top of mind for restorers to begin understanding, measuring, and reducing their Scope 1, Scope 2, and Scope 3 emissions, as they will surely be required to report this to insurance companies in the near future.
What Can Restoration Companies and Contractors Do to Get Ahead of the Curve?
Restorers and contractors can begin to track GhG inventories. A GhG inventory quantifies your carbon footprint and enables you to identify activities with the biggest impact such as fuel consumption for a fleet-based company. As with financial measurement, completing an annual GhG inventory helps you track progress, but in this case it’s towards environmental sustainability goals.
GhG measurement and disclosure is one of the first steps in developing a roadmap to reducing your costs, increasing efficiencies, and finding other opportunities associated with corporate climate action, including reaching an audience of insurers who care. By harnessing climate leadership and climate action, restorers and contractors can position themselves to thrive as a premier partner for insurers.
How Can I Get Started?
Seek out a company to measure, manage, and reduce GhG emissions. The right company will provide implementation tools and training to ensure the successful implementation as part of the company’s ESG strategy.
Ted Shabecoff
Ted Shabecoff is an experienced communications and technology professional. Ted worked in communications at blockchain scaling company, Polygon, and at the equity crowdfunding platform, Republic. He is a student in Sustainability Management at Columbia University, and currently working as an intern at EcoClaim.
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