Sustainability enters age of pragmatism

THERE have been distinct stages in the evolution of sustainability reporting, according to Felicity Alvey, programme director of ClimateWise, a network of re/insurers convened almost 20 years ago by the University of Cambridge Centre for Sustainable Leadership.

From the Brussels-led “going for green” approach with new EU taxonomies, to a period of “consolidation” with the arrival of the International Sustainability Standards Board in 2021, Alvey identifies the latest phase as “pragmatism” and says ClimateWise members are increasingly engaged in this shift.

Membership benefits
Alvey lists the four main benefits of becoming a member of ClimateWise. First, its long track record, having been formed as long ago as 2007. Second, its disclosure framework is aligned with global reporting standards but tailored to the insurance sector. Third, its benchmarking exercise provides feedback that is private. Fourth, it provides access to the climate research of a world-class university.

In exchange, ClimateWise expects its members to engage fully with other members and to report according to its “principles”, which are regularly adapted to new regulatory requirements. In 2018, the ClimateWise Principles were aligned to the Task Force on Climate-related Financial Disclosures. In 2024, they were updated to reflect a much wider range of requirements including the Corporate Sustainability Reporting Directive and the Taskforce on Nature-related Financial Disclosures. Then, in 2025, the ClimateWise framework for the first time formally assessed transition plans.

It has 31 members, with more in the pipeline, partly because of the Prudential Regulation Authority’s new supervisory statement — SS5/25 — which aims to enhance banks’ and insurers’ approaches to managing climate-related risks.

There remains uncertainty among re/insurers, Alvey tells Insurance Day, on additional “incoming requirements”, but the increase in ClimateWise members’ scores proves they are managing to navigate the various approaches of the jurisdictions where they operate. “Regardless of the moving parts, there’s an interesting dynamic in the market to use reporting standards in a way that has the greatest impact,” she says.

In addition to the ClimateWise Principles, should re/insurers keep an internal scorecard of their progress with sustainability? Alvey replies: “Looking externally to ClimateWise for a sense check is important, while internally you can have a big focus on your materiality assessment.”

Although the number may seem small, Alvey says the increase proves that re/insurers are making progress in spite of 2025 being a “strange year, geopolitically”. She adds: “It shows there’s been a quiet continuation going on under the bonnet, even in a complex geopolitical environment.”

Another highlight of the report is that momentum is building on transition plans. “We were really pleased to see organisations saying they value transition planning, regardless of what happens from a regulatory perspective,” Alvey says. One-third of its members have already submitted full transition plans, demonstrating how long-term net zero commitments are being translated into tangible, near-term underwriting and investment actions. A further one-third of its members have made formal commitments to develop transition plans and have disclosed detailed roadmaps outlining how these will be developed.

The report also indicated that incorporating nature into transition planning is seen as an emerging challenge. Alvey explains: “Organisations are starting to build a foundation to understanding their nature-related risks, both within their underwriting and in their investment portfolios, and we’ve seen an uptick in bringing that into governance too.” The most challenging aspect, however, is that these risks “cascade” into multiple areas of a re/insurer’s portfolio, and organisations therefore need to address any “disconnect” this creates, she says.

Davos doubts
Alvey notes that attention appeared to shift away from climate policy and the transition to net zero during the World Economic Forum’s latest annual meeting, in January, where leaders expressed concerns around resilience and “insurability”.

Alvey explains: “If climate impacts continue to worsen and insurers, from a purely economic perspective, are forced to step out of the market, then that would create huge systemic risks. It was interesting to see the topic of building business cases around resilience come through really strongly in Davos.”

She continues: “There’s been a reality check in the past year, for better or worse, across a number of jurisdictions, and we’ve moved from aspirational environmentalism and the moral aspects of the transition to net zero, to pragmatic resilience. There’s a lot more focus now by companies on building strength around adaptation and resilience to climate change, and a shift away from language around environmental, social and governance.”

To any politician’s claim that energy security is a bigger priority than climate risk, Alvey responds these are not competing priorities.

She explains: “For a long time, we’ve relied on volatile global supply chains that can leave us vulnerable to geopolitical shocks, but action on climate change is in many ways an answer to that, and we’ve seen proof of this in the market. Energy security means moving towards domestic renewable power that can’t been turned on or off by geopolitical shifts. You can therefore create a virtuous circle of managing your climate risks and having energy security. We can look at the two in lockstep — and not as separate issues — to give us a much better footing for resilience.”

Implementation COP
Pragmatism was clearly the focus of the head of the UN’s latest round of climate talks, in Brazil last November, Alvey says. COP30 president, André Aranha Corrêa do Lago, wrote in a letter on January 28 that the negotiations in Belém had shown a new model of global response is emerging — “one fully entangled with its context, rendering climate implementation increasingly ubiquitous, much as the effects of global warming already are”. In fact, the word “implementation” appears 22 times in his letter.

Alvey’s first COP  — COP26 in Glasgow in 2021 — was led by the UK’s Alok Sharma, who famously offered an emotional apology when agreement had only been reached with last-minute changes to its wording on coal. Alvey remembers the flurry of announcements during the event and notes that COP30 showed a shift from that mindset to one focused on delivery.

One of the clearest achievements of COP30, she continues, is the Tropical Forest Forever Facility, which aims to establish a permanent financial incentive for preserving standing tropical forests, transforming them into protected, valuable assets. “If there hadn’t been progress on nature at a COP based in the Amazon,” Alvey says, “then where could there be?”

She adds: “Did we see progress with mitigation? Probably not, as the lack of fossil fuel language in the main text of the COP30 agreement reflected the geopolitical environment going into the discussions, and this is going to be harder as we move into the implementation phase of any climate policy.”

COP31 will be a unique event, she notes, as it will be based in one country (Türkiye) but led by another (Australia). This begs the question, she adds, “Will it create a really powerful force because two countries are backing it, or will it weaken the talks?” Whichever outcome transpires, 2026 is significant in that the COP31 climate talks and the COP17 biodiversity talks (in Armenia) are happening in the same year.

“I’d be hopeful that good things for nature come out of COP31 in November, following COP17 in October,” Alvey says.

Preventing nature loss
Asked how re/insurers can help prevent nature and ecosystem loss to climate change, Alvey stresses that nature is an “invaluable, yet often under-recognised asset”. The finance industry is shifting towards the “nature positive” approach called for by the United Nations Environment Programme, she says. This recognises that protecting natural landscapes, such as wetlands or mangroves, creates a “natural insurance policy”, she adds, to directly support resilience against floods, for example.

To meet this ambition, Alvey describes the four “levers” re/insurers can utilise to protect natural capital.

• Underwriting nature-based solutions: this includes developing products like parametric insurance for coral reefs, which ensures that if a storm hits, then funds are released immediately for reef repair, maintaining the natural barrier that prevents coastal erosion.
• Addressing harmful underwriting: implementing guidelines that help to reduce the availability of cover for projects contributing to issues such as deforestation or the destruction of biodiversity hotspots. This effectively raises the cost of capital for activities that are harmful to nature.
• Investing in natural capital: directing asset management towards projects that restore biodiversity and high-quality carbon sequestration, prioritising ecosystem health alongside financial returns.
• Standardising disclosure: supporting frameworks, such as the Taskforce on Nature-related Financial Disclosures. This ensures that nature-related risks are reported with the same rigour as climate risks, bringing transparency to how companies both impact and also depend on the natural world.

Three roles
Alvey underlines the importance of the three roles re/insurers have in tackling the impacts of climate change — risk transfer, asset management and investment.

“How do you see those reinforcing one another currently and also how can you make sure they do? That’s an interesting dynamic and challenging for quite a few re/insurers,” she says.

Nevertheless, re/insurance was one of the first sectors within the financial services industry to “sound the alarm” on climate change, she stresses, because of the data it sees. “Over the past couple of years, there has been a push for re/insurers to play a greater role, thanks to the three mechanisms within that,” she adds.

As well as serving as an “early warning system” with their awareness of risk, she continues, re/insurers have “stewardship policies” that can determine how they manage assets and direct where they invest capital to support mitigation outcomes. “It’s really important to keep underwriting as climate risks worsen,” she adds. Policymakers are increasingly aware that re/insurers “straddle” three functions, she continues, which means they are being encouraged to engage fully in climate talks.

Embedding climate risk
To effectively embed climate risk into financial modelling, actuaries and underwriters must move beyond their traditional methods, Alvey stresses. “Because climate risk is non-stationary, the historical data we rely on is no longer necessarily a reliable predictor of the future,” she says.

Modern modelling must shift its focus therefore towards “cascading and systemic risks”. Alvey explains: “Increasingly, we need to move from looking at individual hazards to understanding how shocks propagate through interconnected systems.”

Studies can clarify when a risk shifts from being a systems risk to a systemic one. Alvey notes a “very visual example of this fragility” — though not climate-related — is the 2021 Suez Canal blockage. “A single chokepoint disruption sent ripples through global supply chains and credit markets,” she says. “In a climate context, we must model for similar dynamics, such as multiple major global ports being forced to close simultaneously due to overlapping hurricane events.”

Examples like this show that a systemic risk is typically characterised by three critical conditions, Alvey continues. These are:

• Correlation: A single shock affecting multiple markets simultaneously.
• Duration: Disruptions that last long enough to exhaust existing financial buffers.
• Feedback loops: Initial losses that amplify further losses elsewhere in the system.

Alvey concludes: “These are the factors we need to be increasingly embedding into modelling.”