Carbon emission reduction pledges (again) from world leaders will not by themselves save the planet from climate change peril. Similar promises have been made in the past, only to fail dismally, upended by domestic political roadblocks.

This is where the world now finds itself – running out of time to limit average global temperature rise this century to “well below” 2 degrees above pre-industrial levels, while pursuing 1.5 degrees Celsius or lower if possible, as set out in the 2015 Paris Agreement.

On Friday the United Nations (UN) will wrap up its annual climate summit, COP26, in Glasgow where it is hoped negotiators will hammer out a new treaty to cut drastically the production of toxic greenhouse gases that is the major contributor to global warming. The summit was delayed by a year because of the pandemic.

But as the race to net zero emissions heats up, one thing is becoming clear from talks in the Scottish port city: green finance holds the key to efforts to wean the world off its addiction to fossil fuels.

And insurers have once more been pressed to do all they can to speed up the global economy’s transition to clean energy.

“We know the science, we know what we need to do to make it happen,” Butch Bacani, leader of the UN Environment Programme’s Principles for Sustainable Insurance Initiative, said.

“That’s why I think for the insurance industry, this is really the moment to redraw the line to do whatever it is in its power to achieve a net zero economy and limit global warming.”

Mr Bacani, who was speaking at a Swiss Re-hosted virtual COP26 Insurance Leadership In the #RaceToZero virtual discussion, says the industry “can do so much” given its reservoir of risk knowledge and investment holdings of more than $US36 trillion ($48 trillion) in assets under management.

“So COP26 is really that moment for everyone to be on board, whether you are government, or the insurance industry, or civil societies or broader business, to really accelerate the agenda of net zero and bring it down so that we avoid the worst impacts of climate change,” Mr Bacani said.

“You should harness all of that to address and decarbonise economies and bring it down to net zero, [and] at the same time use that also to build resilience and make communities adapt to climate change.”

Not that insurers have been bystanders to climate action. The industry was one of the earliest to sound the alarm of global warming and has been pressing for urgent action to avert an avoidable catastrophe.

The last few years have seen many moving to phase out underwriting of coal businesses and tilt their investment portfolios towards green assets. But climate activists say the industry can do more as well as step up the pace of de-risking from fossil fuels.

In the leadup to COP26, the UN Environment’s Programme Principles for Sustainable Insurance Initiative established the Net-Zero Insurance Alliance at the G20 Climate Summit in Venice, backed by eight of the world’s leading insurers and reinsurers

The founding members – Axa, Allianz, Aviva, Generali, Munich Re, Scor, Swiss Re, and Zurich – have committed to individually transition their underwriting portfolios to net-zero greenhouse gas emissions by 2050, consistent with a maximum temperature rise of 1.5 degrees above pre-industrial levels by 2100.

Since then, Hannover Re, Lloyd’s and a few others from the industry have also joined the alliance but its ambition doesn’t stop there.

“We want to expand our base of insurers and reinsurers worldwide and would like to get brokers as part of the [alliance],” Mr Bacani said.

“We also want to get supporting institutions like insurance associations to be part of the alliance.”

Meanwhile a University of Cambridge paper launched during the Glasgow summit has set out in detail the way the insurance industry can help push the green revolution forward.

“Insurance has enabled previous industrial revolutions,” the paper says. “The scope and scale of the climate transition will require insurance products and related risk management governance to support clean energy systems, new technologies, the safe decommissioning of brown assets and decarbonisation across industries and agriculture.”

The “Risk sharing in the Climate Emergency” paper prepared by the university’s Institute for Sustainability Leadership says insurance supervisors should play a supportive role, using their convening power, to foster regulatory “sandpits” to consider opportunities for accelerating innovation, including public–private collaboration and market-wide implementation requirements.

According to the paper, risk sharing systems – public, private and mutual – sit among society’s most significant scientific, cultural and economic assets.

“Within risk-sharing systems, the insurance sector (premium-based risk-sharing) has unique risk quantification and management skills, overseen by regulation,” the paper says. “We propose these approaches spread across wider financial regulation, from microfinance to global financial institutions, to achieve a climate-smart financial system.

“In the Climate Emergency, everything and everybody should be a member of risk-sharing pools. We must ensure this happens on a large scale, across both public and private sectors.”

The paper made a total of 20 recommendations that it says will drive meaningful change, including the need for the industry to accelerate the development and implementation of its own climate risk assessment capabilities.

“With acute exposure to natural catastrophes, insurers and regulators are leaders in assessing current underwriting risks from many climate-related hazards,” the paper says.

The race to net zero is proceeding with no time to waste. Swiss Re Group CEO Christian Mumenthaler says it is a “mission possible” that can be achieved with “concerted action” from all corners of the planet and across all industries.

Net zero emissions refer to achieving an overall balance between greenhouse gas emissions produced and greenhouse gas emissions taken out of the atmosphere.

“Our planet is suffering, and the longer we take to decarbonise and protect it, the greater the cost will be,” he said. “But with global cooperation across a broad set of stakeholders this is a mission possible.”