Environmental, social and governance (ESG) considerations are a rapidly growing aspect of businesses within the insurance industry and have a significant impact on the way the market functions. This will only increase in relevance.

We recognise the important role that we, at the Lloyd’s Market Association (LMA), must play in supporting the market to address climate change challenges and to help protect communities and economies from their increasing impacts.

The sustainability agenda has already formed a prominent part of all discussions at board level both among our members and within the LMA. We acknowledge our commitment to making the Lloyd’s market a better place and we will look to provide members with the tools needed to support you in the progression of sustainability strategies.

By offering resources and tools to support our members’ sustainability objectives, we will:

• Reinforce members’ ability to position the market as a place to foster innovations in products, distribution and capital structures to respond to client needs as they seek to do business more sustainably.
• Aim to provide tools and guidance for our members to showcase these benefits and growth opportunities, as well as supporting their transition strategies. 
• Support LMA stakeholder collaborations which can be utilised to provide services, support reporting standards, as well as risk analyses related to sustainability targets.
• Recognise the breadth of issues encompassed in sustainability and facilitate our members in generating creative solutions and opportunities across the full range of ESG impacts.

Underwriting the Transition

Objective
This report provides an understanding of what a transition to a low-carbon economy may mean in various key sectors for the market. By identifying key decarbonisation levers, we aim to identify some of the implications for underwriters in terms of coverage and changes in peril that may impact their business. 

Scope
Given the transition needs to happen and be integrated across the global economy, it is necessarily a very broad subject. For the purposes of this inaugural report, we have focused on first-party property damage from a coverage perspective and on the following sectors:

1. Transportation (Aviation, Marine, Road Freight);
2. Energy (Oil & Gas, Mining, Power Generation & Distribution); and
3. Construction and Commercial Real Estate.

We have not considered geographical considerations, apart from where explicitly mentioned such as the examples around policy and regulation. In addition, the ‘Just Transition’ defined as “a low-carbon transition that is fair, inclusive, creates decent work opportunities and leaves no one behind” is not explicitly considered. Lastly, although nature is inextricably linked to the climate transition, we have not considered nature as part of this report.

As part of the work, KPMG climate and sector experts’ opinions were obtained, as well as the opinions and views of the other industry experts and insureds, to develop a view on sectoral transition. The insurance implications of these transition pathways were discussed with underwriters from the various sectors, including separate underwriter workshops on Transportation, Energy, Construction and Commercial Real Estate.

This report is a step in the journey to understanding how insurance needs will evolve. We make no claims that the report is comprehensive or that it is an accurate prediction of what risks may emerge in the future.