Curbing financed emissions, aligning with partners: How S’pore insurer reduces carbon footprint for greener future

AS THE climate crisis intensifies, some of the most significant contributors to global warming are hidden within a company’s value chains. These complex emissions – known as Scope 3 carbon emissions – are difficult to track, manage and mitigate, and they account for more than 70 per cent of a business’ carbon footprint, according to the UN Global Compact Network.

At Singapore-based Income Insurance, chief investment officer David Chua shares that Scope 3 emissions account for a staggering 90 per cent of the insurer’s total carbon footprint, primarily due to financed emissions from its invested assets.

A report by global disclosure system CDP says greenhouse gas emissions associated with global financial institutions’ investing, lending and underwriting activities are on average over 700 times higher than their direct emissions, underscoring the importance of addressing Scope 3 financed emissions in the financial sector.

To reduce its carbon footprint, Income Insurance focuses on decarbonising its investment portfolio. While other forms of emissions are also being addressed, Chua says that focusing on where its environmental impact is most concentrated offers the greatest opportunity for meaningful change and impact.

By underwriting financing and investing across industry sectors, insurers are in a unique position to influence sustainability, Chua explains. Income Insurance has S$43 billion in assets invested in Asia and globally.

In the following Q&A, he shares more about Income Insurance’s strategic approach to driving change across the insurance industry, with a special focus on Asia’s challenging yet critical brown-to-green transition.

Q: How does Income Insurance’s dual role as both an underwriter of risk and an investor of capital shape and differentiate its sustainability approach?

A: On the underwriting side, our approach to risk has evolved significantly. In the past, extreme weather events like flooding in Singapore might not have been fully factored into risk models, but today we are much more conscious about physical climate risks and the impact on our claims exposure. This helps us to manage catastrophic risks better.

On the investment side, we have S$43 billion in assets invested in Asia and globally, which allows us to play a significant role in driving and supporting the climate transition. Over the last few years, we have actively engaged our fund partners to align our investments with decarbonisation objectives, so that we address both the risks and return opportunities associated with global climate action.

Q: Why has Income Insurance decided to focus on the more complex and difficult task of reducing Scope 3 emissions, particularly financed emissions?

A: Scope 3 emissions account for over 90 per cent of our total measurable emissions currently, largely due to our larger investment portfolio. Our goal is to drive real-world impact and, by focusing on Scope 3 financed emissions, we believe we can exercise the biggest lever to reduce our overall carbon footprint. We are obviously working towards net zero over the long term, and we have set an interim goal to reduce Scope 3 financed emissions in our public assets¹ portfolio by 20 per cent by 2025².

We are concurrently addressing our Scope 1 and 2 emissions, but we are a little bit more ahead in Scope 3 financed emissions.

Q: Given Income Insurance’s significant investments in Asia, how do you balance your sustainability commitments with the realities on the ground, where coal remains a dominant source of energy?

A: We recognise that Asia’s brown-to-green transition will not happen overnight because of the inherent gaps in financing, infrastructure and technology. This is why we take a nuanced and pragmatic approach in Asia. For example, we apply a strict 10-per-cent revenue cap on global companies involved in coal-related activities, such as thermal coal mining or coal-fired power generation, while in this region, the cap is set at 30 per cent.

Our approach reflects that businesses in Asia have started making efforts in the brown-to-green transition. However, the region is making the transition from a different starting point, with many countries still reliant on fossil fuels, including coal, for their energy needs. Even though we invest globally, we have a differentiated approach for this region because it has a significant financing gap for green projects and infrastructure. We believe that we can help to narrow that gap and drive meaningful impact in energy transition for Asian economies and businesses.

Q: The International Monetary Fund estimates that the Asia-Pacific region faces a shortfall of at least US$800 billion (S$1.07 trillion) in climate financing. How can Income Insurance help to bridge the gap?

A: We have committed S$1 billion to climate financing and have started with investing US$50 million in the Fullerton Carbon Action Fund as an anchor investor in January 2024. This is a private equity fund that is purely focused on Asia, and we are looking to support companies that are developing climate mitigation technologies and transitioning towards greener operations. Private capital is crucial in addressing these long-term financing needs because it can be more patient and focused on emerging opportunities.

Our aim is not only to help companies in Asia shift towards sustainable practices and generate returns for our customers, but to also encourage other investors to help close this financing gap. This is where our active engagements with fellow asset owners in the Asia Investor Group on Climate Change and other insurance industry associations are crucial, as they allow us to collaborate with other industry players to tackle these challenges.

Q: How do Income Insurance’s partnerships with its external fund managers align with and support your sustainability goals?

A: Sustainable investing is complex and rapidly evolving, and thus, requires dedicated expertise. Our partnerships with external fund managers (EFM) are crucial for fostering knowledge exchange and allowing us to provide insights into new regulations, influence industry trends and share best practices to stay at the forefront of our sustainability efforts.

We believe in strength in numbers. With our partners, who are global players and work with multiple clients, we can be part of a collective effort to support businesses towards more sustainable business operations and transition pathways.

We also provide sustainable solutions in our investment-linked funds for our customers, so they can invest in a manner that is aligned to their personal values and causes. This helps us to maximise our impact and ensure our approach remains effective and relevant.

Q: How does Income Insurance approach and track meaningful impact in its evolving sustainability journey?

A: It is difficult to measure and quantify success on this front given how sustainability is constantly changing and evolving. While we have set measurable internal targets for ourselves, the true success lies in how we eventually contribute to the broader net-zero transition in communities. This requires collaboration across all stakeholders and staying the course because rising temperatures and extreme weather affect all of us.

As an asset owner, we aim to influence real-world sustainability practices by engaging portfolio companies through our EFMs. Our EFM Engagement and Stewardship Statement sets out our expectations for our EFMs, promoting responsible corporate behaviour on issues like climate change.

For our customers, we continue to expand our sustainable investment options, while for the public, we advocate for industry-wide progress through active participation in coalitions like the Life Insurance Association and the Singapore Sustainable Finance Association.

By focusing on these efforts, we strive to future-proof our investment portfolios while uncovering new return opportunities, such as investing in green technologies like renewable energy, that align with our sustainability values. Ultimately, ensuring that we progress on sustainability is not just a trend but an essential business strategy to ensure long-term resilience and growth.

Footnotes:

¹ Public assets refer to listed equities and corporate bonds in Income Insurance’s insurance portfolios.

² Against Income Insurance’s baseline emissions as at 2022.

Disclaimer: This is for general information only and does not constitute an offer, recommendation, solicitation, and/or advice to buy or sell any product(s). Please seek independent financial advice before making any decision.