Closing the gap on climate action - Zurich Insurance Group Climate Change Report 2021
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Closing the gap on climate action Zurich Insurance Group Climate Change Report 2021
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 2
Contents
Introduction Chapter 1 Chapter 2 Chapter 3 Chapter 4
Closing the gap between climate Five years on from the Corporate action: Corporate action: Getting to Net-Zero: Actions
rhetoric and climate action Paris agreement The drive to Net-Zero Adapting to climate change required from policymakers
to support transition
1.1 Current state of play 2.1 The net-zero conundrum 3.1 Type of risks
4.1 Overview
1.2 New commitments, new hope 2.2 Developing climate change 3.2 Understanding the challenge
strategies that drive 4.2 Carbon pricing
1.3 New green technologies 3.3 Data – A key component
‘abatement’
4.3 Standardized data
1.4 Green investment 3.4 Risk quantification
2.3 Developing climate change
4.4 Finance and risk sharing
1.5 Carbon pricing and fossil strategies that drive 3.5 Adapting to climate risks
fuel subsidies ‘compensation’
1.6 Action needed to meet 2.4 Developing climate change
commitments strategies that drive
‘neutralization’
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 3
Introduction:
Mitigation Adaptation
Measures taken to reduce Measures to reduce the
the impact of operations impact of the environment
‘Closing the gap between on the environment. on operations.
climate rhetoric and
climate action’
Sustainable Disaster Management
Transportation New Energy & Business Continuity
Systems
2021 has been a year of bold
commitments. From governments talking
Energy
tough on climate at President Biden’s Efficiency
Leaders Summit and at the G7 Summit, to a Water Education Infrastructure
plethora of corporate announcements Conservation Upgrades
stating ambitious net-zero targets. These
words are warmly received, but they are not
Clean
yet cooling the planet. Energy
Natural
We are seeing action on climate change, Environment
Flood Protection
but it is not enough. We need much more.
What these commitments have given us,
however, is greater clarity about the
possible long-term pathways to a greener
world and opportunities for more
constructive action in the short term.
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 4
‘Closing the gap between climate rhetoric
and climate action’
Achieving the Paris Agreement’s goal to limit The recent report from the Intergovernmental Chapter 2 explores how companies can adopt
temperature increase to well below 2 degrees Panel on Climate Change (IPCC) said we can mitigation measures to curb carbon emissions
Celsius (°C) and ideally to 1.5°C will be expect an increase in the frequency and and develop net-zero business models. It draws
complicated and difficult. We will have to intensity of these events with further global on market insights, Zurich’s own experiences,
break the relationship between carbon warming. Human behavior has already caused and highlights where insurers, as well as risk
emissions and economic activity, particularly global surface temperature to increase by 1.1°C managers and investors, can help companies
in carbon-intensive sectors. This will mean compared to pre-industrial levels. But the and societies manage the transition risks
undergoing an unprecedented transformation IPCC states that global warming of 1.5°C and associated with decarbonization, supporting
of the global economy and, most importantly, 2°C will be exceeded this century unless deep and accelerating the transition to a 1.5°C world.
the global energy system. reductions in CO2 and other greenhouse gas
Chapter 3 focuses on resilience and the
emissions occur in the coming decades.2
Doing this will require a significant level of unavoidable physical risks associated with
investment into new technologies, renewable The time for action is now. ongoing climate change. It advises on how
energy, low-carbon fuels, the electricity grid, businesses can include adaptation measures
Our 2019 report served as a guide for
energy storage capacity, energy efficiency into their strategies to tackle these risks and
businesses on how to build an informed view
measures, carbon capture innovations, and leverage them as opportunities.
of the climate-related exposures,
many other areas. All of this will have to be
vulnerabilities, and hazards. It provided an Finally, Chapter 4 addresses the debate on
done at the same time as we adapt our
update on the latest tools and risk climate policy. It offers recommendations on
infrastructure and societies to the ongoing
management practices and outlined Zurich where government action in the short term can
physical effects of climate change. The
Insurance Group (Zurich)’s three-step guide to have the biggest impact in supporting a smooth
required investment is an estimated
developing climate resilience strategies. transition to net-zero.
USD 6.9 trillion a year up to 2030.1
This report looks at how climate
These are high stakes for businesses,
change-related risks have evolved, and the
investors, and nations. There are risks, but
response from governments and businesses
we’re also being offered a historic investment
has progressed in the intervening two years. It
and business opportunity.
also looks forward to the strategic
The biggest gamble, the ultimate risk, is to developments that provide optimism about our Human behavior has
do nothing. During the summer of 2021 we ability to deliver against the targets required to
have witnessed the physical risks of climate limit global warming to 1.5°C.
already caused global
change with record-breaking extreme
Chapter 1 covers the latest edition of Zurich’s
surface temperature to
weather events across the world – from
heat domes and heat waves, to floods
Climate Change Scorecard, which tracks increase by 1.1°C
progress towards a 2°C scenario across 12 compared to
and wildfires.
climate metrics. The 2021 Scorecard highlights
where, sometimes surprisingly, positive pre-industrial levels.
developments have been made and where
challenges remain.
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 5
Chapter 1: Global Energy
Five years on Review 2021
Assessing the effects of economic recoveries on
global energy demand and CO2 emissions in 2021 These statistics offer a glimpse into a net-zero
future. There was much talk about a sustainable
from the Paris
recovery and a desire to “build back greener.”
1.1 Current state of play At the same time, it highlights the magnitude of
the task at hand as the 5.8 percent fall in global
Agreement
In the immediate aftermath of COP 21,
CO2 emissions will need to be replicated every
greenhouse gas emissions continued to rise
year for decades to meet the goals of the Paris
at an unchanged pace. Then, in 2020, the
Agreement. Yet the fall in emissions during
COVID-19 pandemic subdued global energy
2020 was associated with huge economic
demand as lockdowns designed to limit
and societal costs.
transmission of the virus decreased industrial
In the 2015 Paris Agreement, almost output and caused a sharp fall in vehicle usage Meanwhile, energy demand and emissions
all countries agreed to hold global and air travel. According to the International began to creep up towards the end of 2020.
Energy Agency (IEA),1 global energy demand The IEA now forecasts global energy demand
temperature rise to well below 2°C contracted by 4 percent in 2020 leading to a will increase by 4.6 percent in 2021, which
compared to pre-industrial levels, 5.8 percent decline in global CO2 emissions. offsets the 4 percent contraction in 2020,
Emissions fell further than energy demand as and CO2 emissions will rise by almost
and to pursue efforts to limit the pandemic impacted demand for oil and 5 percent. A renewed focus on emissions
temperature increase to 1.5°C. coal more severely than other energy sources. reduction is needed.
In his closing remarks, the then
Secretary-General of the United
Nations Ban Ki-moon, described What is COP?
these ambitions as “the floor, not the World governments have come together In this Paris Agreement, the G20 countries
annually for the UN’s climate change committed to national plans that set out
ceiling” and said the agreement would conference – known as Conference of the how much they would reduce emissions –
be reviewed every five years with Parties (COP) – since 1995. known as Nationally Determined
Contributions, or NDCs.
“what is needed in line with science.” During that period, climate change has gone
from a fringe issue to a global priority. COP 21 The goal for COP 26 in Glasgow in
So where do we stand, more than took place in Paris in 2015 and for the first November 2021 is to enhance those
time every country agreed to work together commitments and accelerate action towards
five years on and with the to limit global warming to well below 2°C and achieving the goals of the Paris Agreement
Conference of Parties (COP) The IEA now aim for 1.5°C. and the UN Framework Convention on
26 in Glasgow on the horizon? forecasts global Climate Change.
energy demand
will increase by
4.6 percent in 2021
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 6
1.2 New commitments, new hope
Climate Change Scorecard At the virtual Leaders Summit on Climate in Our Climate Change Scorecard considers the
April 2021, President Biden announced that the revised deadlines of these climate change
Zurich’s Climate Change Scorecard reflects a The trend on carbon pricing is more crisis. Instead, we saw a growing number U.S. will target a reduction in CO2 emissions of commitments – many brought forward from
mix of positive developments and remaining sustainable. The share of global carbon of companies announce commitments 50-52 percent by 2030 compared to 2005 2050 to 2030 – to be of greater significance
challenges. Since 2017, our scorecard has emissions covered by some form of a and take action on climate change. levels. Other leaders announced new targets or than the actual emissions reduction targets.
measured 12 climate change-related areas that pricing scheme rose above 20 percent for A similar picture was seen with reaffirmed existing commitments, including EU These tighter deadlines will inject greater
aim to capture progress in three critical areas: the first time, due to the rollout of a pilot investments and new technologies, President Ursula von der Leyen, who outlined urgency and ensure we see meaningful policy
policy, technology, and broader societal trends. emissions trading system in China. The where progress was expected to the EU’s goal to reduce CO2 emissions by at decisions and tangible actions sooner. It also
average price of carbon increased due deteriorate, but momentum was least 55 percent by 2030 compared to 1990 means we will know within the next 12–18
The scorecard became greener in 2020, mainly
mainly to positive developments in maintained and, in some cases, levels, and Chinese President Xi Jinping who months if these commitments are credible or
due to the pandemic. Energy demand fell due
Europe where the price of carbon improved. While the crisis has delayed said China will strive to peak CO2 emissions just statements of intent that are not backed
to the collapse in economic activity, which was
almost doubled.2 some progress, attention to climate before 2030 and achieve carbon neutrality up by concrete actions or investments. If we
combined with an improvement in energy
change has proven sticky. before 2060. do not see early action to back up governmental
efficiency. Carbon emissions fell by more than Other categories show no change
energy demand, due to a shift from fossil fuels compared to last year, yet this masks commitments, then the risk of a chaotic
to renewable energy. Fossil fuel subsidies some important developments. On policy, transition increases – rather than a “race to
slumped, though this largely reflected a we expected new climate legislation to zero” we may have to endure a crash landing.
collapse in both oil prices and demand, recede in 2020 as the pandemic took
requiring less subsidies to be paid out. priority. This is what initially happened, but
legislative activity rebounded sharply in
As the global recovery has been swift and
the first half of 2021. Progress on net-zero
strong, and oil prices have recovered, we
among corporates was also expected to
suspect most of these green developments
deteriorate, as they struggled with the
will be reversed in 2021.
12 1 12 1 12 1
11 2 11 2 11 2
10 August 3 10 August 3 10 August 3
9 2019 4 9 2020 4 9 2021 4
8 5 8 5 8 5
7 6 7 6 7 6
1. Carbon pricing 7. Energy demand and efficiency Not on track for 2OC scenario
2. Corporate action 8. CO2 emissions
3. CCUS technology 9. Investment Improving but more is needed
4. Social trends 10. Energy intergration and storage
5. Energy supply 11. Fossil fuel subsidies On track if pace is maintained
6. Legislation 12. Electrical vehicles
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 7
1.3 New green technologies Clean energy
Finding a way to curb our reliance on fossil Electricity generation from renewable sources This means fossil fuels, especially thermal coal, account for more than 60 percent of total
fuels depends on developing new green increased by almost 7 percent in 2020 and is are back in demand and are attracting higher passenger car sales by 2030 (up from 4.6
technologies and infrastructure that either predicted to rise by more than 8 percent in 2021 prices. This is exacerbated by supply percent in 2020) with the car fleet almost fully
provide alternative forms of clean energy or to 8,300 Terawatt-hours (TWh) – the fastest constraints driven by financiers refusing to electrified worldwide by 2050.
create efficiencies that reduce emissions. year-on-year growth since the 1970s.3 This fund new coal projects and supply disruptions
This will require a step-change in policies to
All while protecting our planet’s biodiversity. growth will push the share of renewables to an related to weather, transport infrastructure,
influence consumer demand, whether it is
all-time high of 30 percent in 2021. Combined and geopolitical trade barriers. Despite the
overcoming range-anxiety or the economics of
with nuclear, low-carbon sources of generation tight thermal coal market, which is likely to
purchasing a new electric car. It is also
are expected to exceed output from the world’s remain in the short term, the IEA predicts
constrained by the supply economics of
coal plants in 2021 for the first time. thermal coal electricity will increase 5 percent
batteries. Demand for batteries for transport is
in 2021 to exceed pre-pandemic levels and
The economics of energy supply mean there is forecast to reach 14 TWh in 2050 – 90-times
grow a further 3 percent in 2022 as electricity
a caveat to this optimistic picture. In the short higher than in 2020. This translates into greater
demand rebounds.4
term, rapid increases in energy demand as the need for critical minerals. For example, demand
world rebounds from the pandemic, especially So, while growth in renewables is a positive for lithium for use in batteries will grow 30-fold
the larger economies in Asia, combined with step in the longer-term transition to net-zero, by 2030 and more than 100-times higher in
drought conditions affecting the supply of the momentum needs to be increased. Annual 2050 than in 2020.8 This shortfall may be
hydroelectric power, mean that the renewable global clean energy investment must more addressed by new battery technologies, either
energy supply is struggling to meet needs. than triple by 2030 to USD 4 trillion to achieve in lithium-ion or other chemistries, as well as
net-zero emissions by 2050.5 Renewable developing a sizeable battery recycling industry.
sources will need to account for 90 percent For the time being, current battery technology
of global electricity generation by 2050, will ultimately be constrained by mineral supply.
compared to 29 percent in 2020, with solar
Electric vehicles are not the only solution for
and wind accounting for 70 percent.
road transport. Hydrogen fuel cells and the
Annual global clean energy Electric mobility development of a reliable zero-carbon
hydrogen supply chain are a priority for
Globally, sales of electric cars increased by
investment must more than 41 percent to 3 million in 2020 – representing
long distance commercial transportation in
many countries.
4.6 percent of all new car sales.6 But despite a
triple by 2030 to USD 4 decade of rapid growth, electric cars still only Electrification and hydrogen are not just about
trillion to achieve net-zero represented 1 percent of the global car stock
in 2020 with 10 million vehicles.
transport. They also offer clean alternatives for
the heating and cooling of domestic and
emissions by 2050. In the IEA’s ‘Net Zero by 2050’ scenario,7 it
commercial buildings, and as fuel in light
industry (replacing diesel power generation)
indicates that electric vehicles will need to
and even in heavy industry, such as steel
production with more recycling of steel in
electric arc furnaces and the use of hydrogen
to fuel blast furnaces.
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 8
Maritime shipping Aviation
Maritime shipping was excluded from the Paris Despite these challenges, A.P. Moller-Maersk Aviation, like maritime shipping, was excluded The industry set up the Carbon Offsetting and
Agreement, yet it accounted for 2.9 percent – one of the world’s largest shipping companies from the Paris Agreement as it was deemed too Reduction Scheme for International Aviation
of global emissions in 2018 with emissions – announced it will operate the world’s first difficult to allocate emissions to any one (Corsia) to ensure any rise in global aviation
projected to increase by 90–130 percent of carbon neutral liner vessel by 2023.10 It will be country, but mounting scrutiny from investors, emissions above 2020 levels are offset.
the 2008 baseline by 2050.9 This is because fueled by carbon neutral e-methanol or regulators, and consumers is putting pressure However, there are no guarantees the carbon
current zero-carbon fuels and technologies sustainable bio-methanol. Maersk intends to on airlines to decarbonize. credits purchased by airlines to offset their
are not available at the size, scale, or price have a carbon-neutral fleet by 2050 and is emissions under Corsia would be of a high
The challenge is the limited range of technical
required for the maritime industry. exploring several carbon-neutral fuel options. quality. This has led some critics, especially in
options for decarbonizing the airline industry.
It expects multiple fuel solutions to exist Europe, to suggest expanding the scope of the
It means global supply chains, many of which Electric airplanes, or hydrogen fueled planes,
alongside each other in the future, with EU’s emissions trading system for aviation.15
depend on maritime shipping, will become seem several decades into the future and
methanol (e-methanol and bio-methanol),
more carbon-intensive unless new lower different solutions are likely for short-haul vs. An alternative approach, rather like the maritime
alcohol-lignin blends, and ammonia as the
carbon fuels and propulsion units – together long-haul flights. On top of that, demand for industry, is to explore lower carbon fuel
primary fuel candidates for the future.
with upgraded vessels and a new global air travel is growing, especially in Asia, and transition pathways. Sustainable aviation fuel
refueling network – are developed as part of a As new fuel technologies are developed, solutions need support from major airline (SAF) is jet fuel produced from sustainable
transition pathway to reduce emissions across existing technologies can reduce emissions as engine suppliers and governments. sources such as cooking oil and other
the shipping value chain. an interim transition pathway. These include non-palm waste oils from animals or plants;
Aviation accounted for 2.4 percent of global
liquefied natural gas (LNG), which is 20 to 25 solid waste from homes and businesses;
There are several zero-carbon, or low carbon CO2 emissions in 2018,13 but to date most
percent less carbon intensive than heavy fuel forestry waste, such as waste wood; and energy
fuel options in development including: industry climate action has focused on carbon
oil (HFO), and emits less nitrogen oxides (NOx) crops, including fast-growing plants and algae.
offset programs or improving fuel efficiency.
• Hydrogen: It is currently costly to produce, and sulphur oxides (SOx).11 The prevailing view Most SAF reduces carbon emissions by up to
The industry has a good record on fuel
but the switching process requires the fewest is that LNG will have a role to play as a 80 percent compared to conventional jet fuel.16
efficiency, halving carbon emissions per
transformations for ship owners. It is transition fuel in the next decade, but there
passenger since 1990 and achieving an annual The main issue is supply and cost. In 2019, 2.4
dependent on developing low-cost, widely are concerns related to methane emissions
fuel efficiency improvement of 2.3 percent million gallons of SAF were produced in the
available fuel cells and sufficient quantities of in the supply chain.
since 2009.14 Yet more needs to be done to U.S., which compares to the 21.5 billion gallons
low-carbon hydrogen.
Other energy efficiency approaches are modernize fleets and improve operational of conventional jet fuel used by U.S. airlines
• Ammonia: It has a higher energy density than needed. For example, improved hull and efficiency to counter annual passenger mile during the same year – indicating that SAF
hydrogen, but has other issues with toxicity, onboard mechanical design, larger ships, new growth that will increase absolute emissions accounted for just over 0.01 percent of the
emissions, and high ignition energy. digital technologies to improve operations such over time. nation’s total jet fuel supply. On top of this, SAF
as ship speed and port scheduling, and the is three to five times more expensive.17
• Electrification: It has challenges with energy Carbon offsetting is one of the few options for
retirement of older, less efficient vessels.12 As
storage for long sea voyages requiring large the aviation industry to compensate for Plans are in place to increase SAF volumes and
with decarbonization pathways in other sectors,
scale battery units, reducing cargo capacity. emissions within the timescale of the Paris reduce costs through scale efficiencies. In
there is no “silver bullet” and shipping’s future
Agreement. The challenge – and business March 2021, Airlines for America, the trade
• Biofuels and methanol: They are cost will involve different parts of the sector using
opportunity – is finding negative emissions organization that represents the major U.S.
efficient and can be used in existing engines. different fuels, in what is sometimes called a
technologies that can operate at scale and can airlines, announced its member carriers, which
But they have scale and land-use challenges “poly-fuel” scenario.
be certified for carbon sequestration. These include American Airlines, Delta, and United
with developing sufficient volumes of biofuel, may include bio-sequestration, or nature-based Airlines, pledged to work with the government
which may have to be prioritized for other approaches such as enhancement of forest and other stakeholders to rapidly increase
sectors – like aviation – that are more difficult carbon stocks, or technical solutions involving annual production of SAF to 2 billion gallons by
to decarbonize. carbon capture (covered in more detail later in 2030 as part of its commitment to achieve
this report). net-zero carbon emissions by 2050.18
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 9
Carbon capture
Carbon capture, utilization and storage, or Importantly, CCUS is potentially a key In 2020, CO2 capture capacity from power and
CCUS, is an important group of emissions component of net-zero reduction commitments. industrial facilities totaled 40 million metric tons
reduction technologies that abate emissions Not only by decarbonizing a range of industrial of CO2 (MtCO2).20 However, to achieve
within an industry’s own operations, especially processes, but also through the net-zero emissions by 2050, the IEA indicates
in the ‘hard-to-decarbonize’ industries (such as decarbonization of hydrogen production. that carbon capture capacity needs to grow
steel, cement, and glass manufacture) where exponentially to 1,670 MtCO2 by 2030 and
Conventionally, hydrogen is produced by
the chemistry or physics of production make to 7,600 MtCO2 by 2050.21
splitting natural gas into hydrogen and CO2
alternative approaches technically very difficult.
through a carbon-intensive process called Despite progress, our Climate Change
CCUS technologies either capture CO2 from “steam methane reforming” – this is commonly Scorecard considers CCUS to not be on track
the source, such as power plants and industrial referred to as “grey” hydrogen. If CCUS for a 2°C scenario. These technologies are vital
facilities – this is called abatement – or they technologies are used to capture this carbon, to enable carbon-intensive industries, including
capture it from the atmosphere, which is then it is referred to as “blue” hydrogen. “Green” hydrogen production, to achieve net-zero and
considered “neutralization” and referred to as hydrogen is the cleanest option as it splits water are needed if we want to remove historical
carbon dioxide removal (CDR). In both cases, into hydrogen and oxygen by electrolysis carbon emissions.
the captured CO2 is compressed and powered by renewable energy sources –
transported by pipeline, ship, rail, or truck and with no CO2 created during the process.
used in a range of applications, or permanently
Blue and green hydrogen can decarbonize a
stored by injecting it deep into sealed
wide range of industries, power generation,
geological formations, including depleted oil
and transportation. Not all countries are
and gas reservoirs.
focused on hydrogen, although Japan and
the U.S. are two OECD nations with hydrogen
as a key part of their nationally determined
reduction commitments.19
Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 10
1.4 Green investment Green bonds GBP 15 billion (USD 21 billion). The UK will also
become the first country to offer a green retail
The development and rollout of new green Green bonds are a tried and tested approach
savings product – tied to its sovereign green
technologies and infrastructure must be for attracting “green finance” for specific
bonds – via its National Savings & Investments
financed by an unprecedented level of climate-related or environmental projects. The
(NS&I) platform.
investment. The OECD’s USD 6.9 trillion annual green bonds market passed the USD 1 trillion
infrastructure investment target will require the milestone in cumulative issuance in December Further good news came on June 1, 2021, with
“greening” of existing investment flows as well 2020 since market inception in 2007.23 the European Commission announcing it will
as incremental new green investment flows into issue an estimated EUR 80 billion of long-term
Green bonds help a broad spectrum of issuer
the energy sector, transport, and other green NextGenerationEU bonds in 2021, to
types – from corporate to supranational – invest
infrastructure.22 be topped up by tens of billions of euros of
in green technologies. A majority of the
short-term EU-Bills to cover the remaining
Currently there is a green investment gap too proceeds from green bonds flow directly into
financing requirements.
large to deliver on the Paris Agreement. But the generation and transmission of renewable
recent EU and U.S. announcements designed energy, as well as energy efficiency projects. Despite this expansion, the green bond market
to help to reposition their economies for a Transport operators are also among the largest represents less than 1 percent of the overall
greener and more sustainable recovery offer green bond issuers with the New York and Los USD 128.3 trillion global bond market. There
encouragement. Angeles Country metropolitan transportation is huge potential to scale up this market,
authorities, France’s SNCF and Japan’s fast particularly given strong investor demand,
A third of the EU’s EUR 1.1 trillion 2021-2027 train network operator JRRT all prominent though one of the challenges is the difficulty
budget is dedicated to fighting climate green issuers in 2020. of identifying well-defined green assets and
change, coupled with a EUR 750 billion projects, while also avoiding risks of
NextGenerationEU stimulus package that aims Sovereign green bond issuance is also gaining
greenwashing and a lack of liquidity.
to make Europe greener, more digital, and more momentum. Germany became the
resilient. In the U.S, Biden has vowed to invest second-largest green bond issuer in 2020
trillions of dollars to revamp the country’s following the debut of its USD 12.8 billion green
infrastructure, including investment into clean sovereign bond. France continues to be a
transportation, clean water, and clean power sovereign leader and was the fifth-largest
infrastructure, as well as building resilience to source of green bonds in 2020.
climate change. Ahead of COP 26, both Italy and the UK are
These ambitions represent a big step forward, entering the market in 2021. Italy raised EUR 8.5
but they – and other public finance measures billion (USD 10 billion) in its debut in March. The
– will not be sufficient to close the green UK will issue its first sovereign green bond, or
investment gap. Governments will need to “green gilt”, in September with issuances in the
mobilize private sector investment by providing 2021-22 financial year to total a minimum of
certainty and direction on climate change
mitigation strategies, as well as investment
incentives and significant regulatory and
market reform.
Transport operators are among the largest green bond issuers
with the New York and Los Angeles Country metropolitan
transportation authorities, France’s SNCF and Japan’s fast train
network operator JRRT all prominent green issuers in 2020.Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 11
1.5 Carbon pricing and fossil fuel subsidies 1.6 Action needed to meet
At Zurich, we believe a global price on carbon is one of the most commitments
effective methods to change behavior and reduce demand for Since the adoption of the Paris Agreement,
carbon-intensive products, services, and energy sources. For this momentum to tackle the climate crisis has been
reason, it is included in the Climate Change Scorecard. building. Progress has been made by all
Carbon pricing also stimulates investment into clean technology stakeholders: governments, businesses,
and innovation and provides confidence to fund large investors, and individuals. But the progress has
infrastructure projects required for a net-zero transition. not been anywhere near fast enough. This is
reflected in Zurich’s Climate Change Scorecard
Market-distorting fossil fuels subsidies contradict this economic where 7 out of 12 indicators remain amber and
incentive, and our Climate Change Scorecard considers them to require further action to achieve a 1.5°C future,
be a major roadblock on the way to a clean energy future. while others continue to show little improvement.
Carbon pricing Rhetoric continues to trump action. This needs
Article 6 of the Paris Agreement, which covers rules on how to be reversed. As a reminder of the need for
countries can use international carbon markets, was never agreed action, 2020 was one of the three warmest years
on in the French capital. But this has not stopped progress. on record – despite cooling La Niña conditions
– with a global mean surface temperature of 1.2°C
According to the World Bank, 64 carbon pricing instruments are above the pre-industrial baseline.26
now in operation around the world, covering over 20 percent of
global emissions and generating USD 53 billion in revenue – The IPCC’s recent report was a sobering report
a 17 percent increase in revenue compared to 2020.24 Revenue card on climate change.27 We will exceed 1.5°C
growth is driven by the rise in EU allowance prices and the launch and 2°C without deep reductions in CO2 and
of China’s emission trading system in January 2021 across its other greenhouse gas emissions. But it offered
power industry, which produces 30 percent of its national emissions. seeds of hope. It’s crystal clear: we are the
cause of climate change, which means we
Despite this growth, the World Bank considers the current level of can be the solution.
carbon pricing as falling short of what is needed to achieve the
goals of the Paris Agreement. Prices are too low. Only 3.76 percent
of emissions are covered by a carbon price at or above the World
Bank’s recommended USD 40-80/tCO2 range needed to meet
the 2°C scenario. Even higher prices will be needed over the next
decade to reach the 1.5°C target.
In another positive development, the EU is in the process of
establishing a carbon border adjustment mechanism that would
place a carbon price on imports of certain goods from outside
the EU, to reduce the risk of carbon leakage.
Fossil fuel subsidies
In 2020, the value of global fossil fuel subsidies (covering oil,
electricity, natural gas, and coal) fell 40 percent versus 2019 to
USD 180 billion – the lowest annual figure since the IEA began
tracking these figures in 2007.25 Subsidies for oil products
represented half of this total.
This is seen as a positive trend in the Climate Change Scorecard.
But it may just be a short-term turnaround as a key driver in this
decline was the fall in fossil fuel demand and prices caused by the
pandemic. A rebound in fuel prices and energy use could push
the value of these subsidies higher in 2021.Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 12
Chapter 2:
Corporate action:
The drive to Net-Zero
A Short Primer on Climate Change Terms
Abatement:
The elimination of sources of emissions within a
company’s value chain. For example, through carbon
capture technologies, but also changes in production
All businesses generate emissions – both directly processes, operations, and products and services.
and indirectly – as can be seen in Figure 1. Avoided emissions:
These relate to avoided emissions from activities such as
This chapter examines key trends, as conservation and protecting forests from deforestation,
well as the metrics from the Zurich or the development of low carbon technologies.
Climate Change Scorecard (see Figure 1: Source: Detailed breakdown of global greenhouse gas emissions, by major
Examples include products/services that avoid
Chapter 1). From this analysis it looks sector and key emitting activities. Emissions data are taken from each chapter of the IPCC
emissions, such as low-temperature detergents,
at three priority areas that businesses Fifth Assessment Report, Working Group Three. Graphic by Jonathan Foley© 2021.
fuel-saving tires, energy-efficient ball bearings, and
must focus on to achieve net-zero: teleconferencing services.
Flaring/Fugitive
1. Abatement: Identifying and 6%
Electricity Used in Buildings
Carbon credit:
Other Energy
implementing the most 4% 12% An emissions unit that is issued by a carbon crediting
cost-effective emission-reduction Building: Commercial/Other program and represents a reduction or removal of
options, and even changing 2%
Building: Residential
emissions. An umbrella term for voluntary carbon offsets
business models to decarbonize 4% Other Electricity Used in Industry and various forms of compliance carbon credits, such as
company operations and supply Transportation: Other 10%
2%
Buildings
Electricity
11% the EU Allowance (EUA) trading units under the EU’s
chains. Abatement should be Transportation: Flying 6%
Production emissions trading system (ETS).
the immediate priority for 2% 25%
all businesses. Carbon Dioxide Removal (CDR):
Transportation
14%
Other Electricity Use The IPCC defines CDR as “anthropogenic activities
2. Compensation: Investigating 2%
Transportation: Road removing CO2 from the atmosphere and durably storing it
compensation approaches 10%
Food, in geological, terrestrial, or ocean reservoirs, or in
(i.e. financing unabated Agriculture, Deforestation, Other Land Use products.” Also known as negative emissions.
Industry Land Use 9%
emissions in the value chain) Industry: Waste 24%
once all abatement opportunities 3%
21% Compensation:
have been exhausted. Industry: Chemicals This refers to measurable climate mitigation outcomes
3% Methane from Animals
5%
resulting from financing unabated emissions in the value
Industry: Cement
3. Neutralization: Exploring 3% Methane from Rice chain. This may include mechanisms like carbon credits,
nature-based and technical Industry: Metals 1%
which include carbon offsets.
5% Nitrous Oxide from Fertilizer, Manure
carbon dioxide removal 4%
(CDR) initiatives. Industry: Other
Other Food, Agriculture, Land Use
Neutralization:
7%
5% This refers to the measures taken to remove CO2 from the
atmosphere to counterbalance the impact of emissions
within the value chain that cannot be eliminated.
Neutralization of unabated emissions can only occur
through negative emissions.Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 13
2.1 The net-zero conundrum
The priority for carbon-intensive sectors (as well Figure 2 shows that in addition to emissions • Abatement: The top priority for the next
as governments and the finance sector) must reductions, all IPCC 1.5°C scenarios rely on 5 to 10 years.
be to undertake swift action to halve emissions large-scale carbon dioxide removal (CDR) using
• Compensation: Very important for the
by 2030 to achieve a trajectory of a 1.5°C, or land-based carbon sinks and technical
transition over the next 5 to 10 years.
net-zero, future by 2050. Businesses will need approaches. In Figure 2, green shaded areas
Companies need to understand the
to invest in new technologies and in some represent the CDR required from Bioenergy
efficacy of their compensation efforts,
cases entirely new business models to drive with Carbon Capture and Storage (BECCS),
while supporting the scaling of voluntary
deep decarbonization. gray areas are the removals required in the
carbon markets and ensuring they are
Agriculture, Forestry and Other Land Use
This is implicit in the IPCC scenarios that keep underpinned by assets, or projects that
(AFOLU) sector.
global warming within the Paris Agreement’s effectively remove carbon.
1.5°C limit. In Figure 2, the blue shaded areas The challenge is to accelerate corporate action
• Neutralization: Long-term carbon dioxide
represent the required emissions reductions that supports emissions reductions, while also
removal (CDR) will be needed to finally
from fossil fuels and industry. developing and tracking their own net-zero
reach net-zero over the next 30 years. In
targets. There are a range of emissions
the next 5-10 years, abatement is the focus
mitigation strategies and tactics falling under
for the technical solutions that are already
the abatement, compensation, and
developed, like carbon capture, utilization
neutralization categories (see Figure 3 below),
and storage (CCUS), but CDR solutions,
with the following timing.
both nature-based and technical, will need
to be developed at scale as well.
Breakdown of contributions to global net CO2 emissions in four illustrative model pathways
Mitigation tactics Mitigation outcomes
Fossil fuel and industry AFOLU BECCS
Billion tonnes CO2 per year (GtCO2/yr) Billion tonnes CO2 per year (GtCO2/yr) Billion tonnes CO2 per year (GtCO2/yr) Billion tonnes CO2 per year (GtCO2/yr)
Within the value chain of the company Outside the value chain of the company
40 40 40 40
20 20 20 20
Decarbonization
Abatement Compensation
0 0 0 0
Measures that companies take Measures that companies take
Reduce deforestation and
to prevent, reduce or eliminate to prevent, reduce or eliminate
land-use change emissions
-20 -20 -20 -20
sources of GHG emissions sources of GHG emissions
within its value-chain in their value-chain
2020 2060 2100 2020 2060 2100 2020 2060 2100 2020 2060 2100
Minimization of non-CO2
P1: A scenario in which social, P2: A scenario with a broad focus on P3: A middle-of-the-road scenario in P4: A resource- and energy-intensive GHG emissions
business and technological innovations sustainability including energy which societal as well as technological scenario in which economic growth
results in lower energy demand up to intensity, human development, development follows historical and globalization lead to widespread
2050 while living standards rise, economic convergence and patterns. Emissions reductions are adoption of greenhouse-gas-intensive
especially in the global South. A international cooperation, as well as mainly achieved by changing the way lifestyles, including high demand for
Neutralization
downsized energy system enables shifts towards sustainable and healthy in which energy and products are transportation fuels and livestock Measures that companies take to remove carbon from the atmosphere in order Removal of carbon dioxide
rapid decarbonization of energy supply. consumption patterns, low-carbon produced, and to a lesser degree by products. Emissions reductions are to counterbalance the impact of a source of emissions, within the value chain of from the atmosphere (CDR)
Afforestation is the only CDR option technology innovation, and reductions in demand. mainly achieved through technological the company, that remains unabated
considered; neither fossil fuels with well-managed land systems with means, making strong use of CDR
CCS nor BECCS are used. limited societal acceptability for BECCS. through the deployment of BECCS.
Figure 3: Source: CDP/SBTi – ‘Taxonomy of climate mitigation tactics and outcomes’2
Figure 2: Source: IPCC – ‘Characteristics of four illustrative pathways’ IPCC1Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 14
2.2 Developing climate change strategies that
drive ‘abatement’
The Zurich Climate Change Scorecard rates “corporate action”
as amber: “improving but more is needed to achieve a 2°C
future.” This represents a positive shift, as in the three years from
2017-2019 it was in the red, “not on track.” Yet, more still needs
to be done to shift from ambitious statements to action and
implementation. This is true as much for governments as it is Net-zero and business
for business. In this section, we explore how companies are In October 2018, the Intergovernmental Panel on Climate
developing and implementing their climate change strategies. Change (IPCC) published its Special Report on Global
Warming of 1.5°C. It explained that to limit global warming
to 1.5°C, global CO2 emissions would need to decline by
45 percent from 2010 levels by 2030 – and then reach
“net-zero” by around 2050. A new buzzword was born.
Developing a Climate Change Strategy community in which the organization operates.
Since then, businesses have been talking tough on net-zero. For instance, the Zurich Flood Resilience
Within the broader sustainability context, it is
For example, more than 100 companies and organizations, Alliance has been engaged in pre-event
important to understand the double materiality
including IBM, Mercedes-Benz, and Unilever, have signed climate change adaptation work since 2013 and
of climate change:
up to The Climate Pledge, a public commitment launched supports more than 300 communities across
by Amazon and Jeff Bezos, to be net-zero carbon emitters • Inside-out: How the company impacts 23 countries to build community resilience to
by 2040. What does it all mean? climate change. Typically, through its own flood (see Appendix 2 for more information).
emissions and reported historically through
To develop a net-zero strategy, businesses must first An important step in setting and communicating
approaches like the early Carbon
understand what is meant by net-zero. At a global level, strategy is putting in place the processes and
Disclosure Project (CDP), and
the IPCC provides a clear definition: capabilities to develop scenario-based
• Outside-in: How climate change impacts climate risk assessments that allow the
“Net-zero emissions are achieved when anthropogenic the business and ability to operate. Often organization to develop potential climate
(i.e., human-caused) emissions of greenhouse reported using the framework from the pathways and consider the potential strategic
gases to the atmosphere are balanced Taskforce for Climate Related Financial responses available.
by anthropogenic removals over a specified period.” Disclosures (TCFD), and the latest versions
With investors increasingly wanting assurance
of CDP reporting.
The Science Based Targets initiative (SBTi) developed the first that companies understand and manage the
global science-based standard for companies to set net-zero To manage the impacts from both elements impacts from climate change, the elements
targets. It sets out two guiding principles to achieve net-zero it is important to understand how climate above also provide the basis to disclose within
emissions consistent with a 1.5°C future: change considerations can be integrated the TCFD framework on the governance, risk
into a company’s existing risk management management strategy, and measures or metrics
1. To achieve a scale of value-chain emission reductions framework. From the strategy of the organization of the impact of climate change used by your
consistent with the depth of abatement achieved in pathways through to governance arrangements business. Primarily, this enables investors to
that limit warming to 1.5°C with no or limited overshoot. (including roles and responsibilities). This make key investment decisions, as well as
2. To neutralize the impact of any source of residual includes defining how climate risks fit within the allowing wider stakeholder engagement.
emissions that remains unfeasible to be eliminated by organization’s risk appetite and integrated into
To achieve meaningful emission reductions
permanently removing an equivalent amount of established risk identification, measurement,
and communicate them in a credible way,
atmospheric carbon dioxide. management, monitoring and reporting
many organizations are developing their
activities, and scenario analysis processes
own science-based targets, following
– as well as exploring the link to supporting
recommendations from the Science Based
business decisions and management actions.
Targets initiative (SBTi). The SBTi methodology
A key consequence of this is to build and provides an excellent way of not only deciding
coordinate capabilities across the organization what is the best strategy to decarbonize, but
to address climate change holistically with also to set interim targets on the way to achieve
multiple stakeholders: investees, customers, net-zero goals by 2050.
employees, regulators, and the broaderFive years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 15
How are companies already moving considered Scope 3 emissions (see box on We see that regardless of industry, more and
towards net zero? next page). Companies can, for example, more businesses are prioritizing net-zero within
influence activities within their supply chains their own strategies. Those that are not direct
We reviewed publicly available data from
either by selecting partners that are aligned producers of emissions, including companies
100 key Zurich corporate customers and other
to their climate goals or working with existing such as Zurich and others in the financial
corporations to assess their climate strategies
partners in understanding the changes that services industry, are committing to achieving
and the steps they are taking to achieve
need to take place. net-zero within their investment or underwriting
net-zero.
portfolios. Pension funds are looking for green
Positive climate impact can be gained by
Companies within the manufacturing and investments to facilitate the transition and
identifying emission reduction opportunities
transportation industries have committed to a other large financing bodies are increasingly
such as converting fleets to electric or
net-zero future with many focusing on circular measuring the environmental impact of
hydrogen-powered vehicles within the supply
economy practices. In fact, even those that their investments.
chain, or by working with your partners to
have no public commitment to net-zero are
adopt nature-based solutions. For example, While net-zero ambitions may seem to be
working on circular economy or waste
using sustainable agriculture practices that focused on adapting, changing, and investing
management, which is already an important
avoid deforestation. in infrastructure, it clearly creates a huge
step towards reducing energy use and
opportunity for our customers as they are also
limiting emissions. Technologies to reduce the emissions required
directing R&D efforts towards low carbon
to heat buildings are also rising in popularity.
Reducing emissions and maintaining a technology. These and other opportunities
They are designed to reduce the energy
competitive industry is the rationale behind the should also be embedded into a net-zero
requirements to heat domestic or commercial
EU’s plans to develop a circular economy. strategy as we look at how businesses,
premises and cover the remaining energy
Changing the consumption of raw materials by governments, and society can move towards
requirements from renewable energy sources.
designing products using recycled materials net-zero together.
The technologies focus on high levels of
and ensuring the products themselves are, as
building insulation and on designing new There is no one approach for each company
far as possible, completely recyclable is at the
buildings that are deemed “zero carbon”– or individual, but there is only one approach
heart of these actions. This will be particularly
so well-insulated that they do not need much for the planet.
important in sectors and technologies where
heating or cooling, and use heat exchangers
new dependencies are emerging as part of the
to recover any lost heat or cold. Renewable
economy’s energy transition, for example
heat technologies include biofuels, solar
cobalt and rare earths metals in batteries for
heating, geothermal heating, and heat pumps.
electric vehicles or other applications.
“Greening” agriculture is also critical to a
There is a clear focus on green energy, both
net-zero future for businesses in the agricultural
in developing and implementing new
sector and those relying on agricultural
technologies, and by utilizing green energy
products. Many are looking at how regenerative
across their organizations.
farming techniques can reduce reliance on
Another large contributor to business emissions “oil-based” farming with its over-concentrated
are those produced within the value chain use of synthetic pesticides and fertilizers,
outside of direct operations. These are mostly focusing instead on soil quality and its
effectiveness as a carbon sink. It does not just
impact the food and beverage industries, but
also packaging and clothing, anywhere a
naturally grown material is used to produce
the end product.Five years on from Corporate action: Corporate action: Getting to Net-Zero: Actions required
Introduction the Paris agreement The drive to Net-Zero Adapting to climate change from policymakers to support transition Zurich Insurance Group Climate Change Report 2021 16
Reducing and abating emissions But first, businesses need to understand their Reducing emissions in the heavy industries from greater energy efficiency, the use of
value chain carbon footprint. Then, develop and recycled input, and material efficiency
All businesses generate emissions – both Heavy industries such as iron and steel,
implement a decarbonization strategy that strategies. A change of use, so that lighter,
directly and indirectly – during the activities chemicals, and cement account for almost
includes a suite of evolving mitigation tactics that lower-carbon intensity cement or steel can
they undertake to create a product or service. 20 percent of global CO2 emissions.3 The
cover the three groups, or Scopes, of emissions be manufactured is another option.
To reach net-zero, businesses must take actions challenge for decarbonizing these industries is
categorized by the Greenhouse Gas Protocol –
to remove, reduce, replace, or offset emissions that many processes require high-temperature However, some sectors, such as ammonia
the global standard for corporate accounting and
across the entire value chain and, crucially, heat for blast furnaces, etc. This is usually production, generate emissions in the
reporting emissions. Don’t forget your customers’ emissions
undertake a robust monitoring, accounting, generated by the combustion of fossil fuels as production process, so decarbonizing them
and reporting process. Scope 3 emissions cover customers as it is difficult to generate these temperatures will require new processes rather than a
well as suppliers. It is why Zurich is one using electricity alone. different energy strategy. Cement production,
of eight insurers that co-founded the for instance, relies on a chemical reaction to
There are cleaner options. These include
UN-convened net-zero Insurance turn limestone (CaCO3) into lime (CaO), but it
replacing fossil fuels with “green” or “blue”
Alliance (NZIA). releases waste CO2 that cannot be eliminated
hydrogen, biofuels, or in some cases a
by changing fuel or reducing energy use.
They have committed to transition their technology shift to enable renewable electricity.
underwriting portfolios to net-zero Reductions in carbon-intensity can also come
emissions by 2050. As risk managers,
insurers, and investors, the insurance
industry has a key role in supporting the
Scope 1, 2 and 3 Emissions – The easiest and quickest way to cut Scope 2 transition. NZIA members will individually
What are they and how to reduce them? emissions is to switch to a renewable or set science-based interim targets for every
low-carbon energy supplier. Another way to five years and independently report on
Scope 1 emissions are under the direct control
make reductions – and reduce costs – is to their progress publicly on an annual basis.
of the business, so the first step is to identify
improve the energy efficiency of the
the major sources of emissions then remove, Zurich considers net-zero underwriting a
property portfolio and business operations,
reduce, replace, or offset. critical step in reducing emissions beyond
and to optimize manufacturing and
• Remove the source of the emissions production processes. its own operations and investments. It has
by avoiding carbon-intensive activities, identified the thermal coal, oil sands, and
Scope 3 emissions are beyond a company’s oil shales sectors as particularly carbon
if possible.
direct control so cutting them can be a intense and will no longer underwrite or
• Reduce emissions is the next best step. This challenge. Reducing Scope 3 emissions also invest in companies with business models
can be done by improving efficiency by, for differs from business-to-business, dominated by these fossil fuels and
example, upgrading or replacing boilers, industry-to-industry, and country-to-country. without plans to transition to less
furnaces, and processing equipment. A good place to start is to work closely with carbon-intensive business models.
suppliers, customers, and other companies
• Replace carbon-intensive energy sources, in the value chain.
such as fossil fuels, with cleaner, low-carbon
alternatives. For instance, switch to renewable For instance, you could redesign products or
energy, biomass, biodiesel, biogas, or services to be lower carbon, or remodel
bioethanol. Consider converting the packaging to increase the volume per shipment
company fleet or distribution and delivery – or source supplies locally – to reduce
network to electric. transportation emissions.
• Offset any remaining Scope 1 emissions. But Scope 3 emissions are often a blind spot,
according to the Climate Action 100+ net-zero
Scope 2 emissions come from the energy that Company Benchmark, which assesses
a business uses. They are considered indirect company performance on emissions reduction,
emissions, but there are opportunities to reduce governance, and disclosure. It found that half
them. The first step is to collate information from of businesses with an ambition to achieve
energy suppliers to understand the carbon net-zero by 2050 do not cover the full scope
footprint under Scope 2. of their value chain emissions.You can also read
