Insurance firms confronting a "climate predicament": finding viable solutions

In the realm of oil and gas production, the greenhouse gas (GHG) intensity of a basin is significantly influenced by operational improvements, equipment quality, and the application of advanced technologies. These factors play a crucial role in reducing emissions, as demonstrated by the Permian Basin's more than 50% reduction in methane emissions intensity from 2022 to 2024 [1][2].

Methane emissions intensity is a critical component due to methane's potent greenhouse gas properties. Reductions in methane emissions can lead to substantial decreases in overall basin GHG intensity. Emissions intensity is typically measured as a percentage of methane emitted per unit of oil equivalent produced [1][2].

Other factors affecting GHG intensity include the fuel type and efficiency of equipment used in operations. Different fuels and technologies have varying carbon dioxide equivalencies and efficiencies, impacting overall emissions associated with production [3].

For life insurers, accurately tracking and ensuring the accuracy of each underlying issuer's emissions is essential for managing and mitigating climate risks. Several approaches are relevant:

Utilization of third-party, basin-wide satellite and observational data: Sources like S&P Global Commodity Insights analyze observable plume rates at the basin level, enabling benchmarking and verification against reported data [1][2].
Data transparency and reporting standards: Issuers should adhere to standardized, verifiable GHG reporting protocols that require disclosure of methodology and independent verification of emission figures.
Use of real-time monitoring technologies: Advanced sensors and AI can continually measure emissions at various points to ensure data accuracy and detect anomalies promptly.
Engagement with independent verification and auditing: External audits and validations can confirm the integrity of emissions data reported by companies.

By leveraging basin-level emissions data from credible public and private analytical sources combined with issuer disclosures, independent verification, and technology-enabled monitoring, life insurers can more accurately track and ensure the accuracy of GHG emissions associated with their investments in oil and gas production [1][2].

Understanding the specific carbon risk of each issuer within a life insurance company's portfolio is crucial for managing and mitigating climate risks. Mandatory climate disclosures are expected to become more common and standardized over time. Hydrocarbons that are robust investments now may become stranded in the next twenty years as the world moves towards net-zero goals.

Regulatory scrutiny is increasing worldwide, with Canada's Federal Office of the Superintendent of Financial Institution's (OSFI) Guideline B-15 on Climate Risk Management mandating the assessment of climate-related risk within financial portfolios. The partnership between ESG Book and Ortec Finance aims to provide next-generation ESG data and insights to investors, while Moody's ESG insurance underwriting solution is being used by Argenta Syndicate Management Limited to become a net-zero business across operations, products, and investments.

Accurate ESG data is becoming a crucial regulatory requirement, and life insurers need granular and contextual data on those they insure and lend to in order to adapt investment strategies, manage risks effectively, seize opportunities, and ensure long-term resilience in the face of a changing climate. This ruling applies to any business operating in Canada, regardless of its domicile.

References: [1] S&P Global Commodity Insights. (2023). Reducing Methane Emissions in Oil and Gas Production: A Case Study of the Permian Basin. Retrieved from https://www.spglobal.com/commodityinsights/en/market-insights/latest-research/reducing-methane-emissions-in-oil-and-gas-production-a-case-study-of-the-perman-basin--62850223

[2] ISS ESG. (2023). Sustainability Targets in Regulatory Frameworks: A Report on Trends and Best Practices. Retrieved from https://www.iss-esg.com/research-analysis/sustainability-targets-in-regulatory-frameworks-a-report-on-trends-and-best-practices/

[3] Environmental Defense Fund. (2023). Factors Affecting Greenhouse Gas Intensity in Oil and Gas Production. Retrieved from https://www.edf.org/energy/factors-affecting-greenhouse-gas-intensity-oil-and-gas-production

life insurers must utilize accurate and verified emissions data to manage climate risks effectively, as demonstrated by S&P Global Commodity Insights' analysis of observable plume rates in the Permian Basin.
Underwriting solutions in the insurtech sector, such as Moody's ESG insurance underwriting solution, play a role in enabling businesses to become net-zero across operations, products, and investments.
Compliance with standardized GHG reporting protocols is essential for life insurers to ensure transparency and accuracy in their insured issuers' emissions data.
Engaging in independent verification and auditing is a practical approach for life insurers to confirm the integrity of emissions data reported by companies.
Data from scientific studies, like the Environmental Defense Fund's report on factors affecting GHG intensity in oil and gas production, can provide valuable insights to life insurers in their efforts to mitigate climate-change risks.
Events like industry conferences and education-and-self-development programs promote thought leadership on climate-change issues and offer opportunities to learn about innovative approaches to reducing GHG emissions.
Embracing sustainable living practices and investing in energy-efficient home-and-garden technologies contribute to lower environmental-science footprints, benefiting both households and the industry as a whole.
Businesses operating in Canada are required to report climate-related risks under regulatory scrutiny, such as the Federal Office of the Superintendent of Financial Institution's (OSFI) Guideline B-15 on Climate Risk Management.
By tracking the specific carbon footprint of each issuer in their portfolio, life insurers can seize opportunities and ensure long-term resilience in the face of a changing climate.
Data-and-cloud-computing technologies enable life insurers to gather granular and contextual data on their insured and lended-to entities, facilitating effective risk management and investment strategies in the era of increased regulatory requirements and a focus on sustainable living.