SBTi's for insurers - questions

Section 7.2.3. of the FINANCIAL SECTOR SCIENCE-BASED TARGETS GUIDANCE outlines outlines the engagement practices recommended for investment consultants, including investment managers, with a series of recommended actions. As an insurer, investment managers manage a portion of our assets according to the mandates that we have provided.

Given the recommendations in 7.2.3, am I correct in understanding:

  1. Asset owners are encouraged to engage with IM’s on areas discussed in 7.2.3., but otherwise assets managed by IM’s are outside any target scope?

  2. In baselining emissions, am I correct then in understanding that assets managed by IM’s are outside this scope once again?

A few additional questions:
3. All other in-scope assets for the SBTi are as outlined in table 5.2. I’ve noticed that funds are out scope, or optional in the case of funds of funds.

  1. Investment-Linked Products, which are savings linked insurance products are also out scope. This is where a customer’s investments are invested in a fund/vehicle of their choice managed by a third party.

  2. Should the portfolio coverage target be framed or presented by sector/asset class? Or is it just one engagement target for all issuers not covered by an SDA or other approach?

Thank you

Hi Mark,

Thanks for your questions.

  1. Assets owned by insurers but managed by external investment managers are within target scope. AOs should encourage IMs to manage their assets in a manner that help the AOs achieve their SBTs. This is in line with our theory of change that all actors in the same value chain should exert influence to achieve the greatest impact.
  2. Assets managed by IMs are within emissions baseline, per above. However, please note the below:
    "For category 15, the scope 3 standard only requires the emissions measurement of corporate debt holdings with known use of proceeds.25 This framework goes beyond this requirement and therefore expands the minimum boundary of category 15. This means, financial institutions shall follow the emissions measurement requirements in the relevant asset class methods and measure emissions of debt investments without known use of proceeds, where applicable. Section 4.2 and Section 5.4.1 explain that among the current methods supported by the SBTi, only the SDA requires the measurement of financed emissions of the relevant asset classes. Therefore, financial institutions are not required to measure and annually report total financed emissions for the “Required Products” in Table 5.2. Nor are financial institutions setting SDA targets required to annually report the absolute amount of financed emissions in metric tonnes of CO2 equivalent (tCO2e) or metric tonnes of CO2 (tCO2) covered by these targets (See Section 6.1 for more information on reporting target progress). "
    3&4 Could you please clarify what your question is? In general:
  • Optional activities that FIs may include in the target boundary. There is no minimum coverage requirement on optional activities, and FIs may cover as much of these activities as they wish. For example, FIs that wish to set targets on the optional category of residential mortgage loans should use the SDA method and could determine the target boundary themselves. These activities are deemed optional as they can be impractical to set targets for, given challenges such as unavailability
    of data or short-term period of an investment/loan.
  • Out-of-scope activities that cannot be covered by available methods or do not apply to the project audience. Products not listed in Table 5.2 are likely also out of scope.
  1. The portfolio coverage method is sector agnostic, so you may use one target to cover multiple asset classes to reduce the total number of targets submitted for clearer target communication.
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Dear Chendan,

Thank you for the reply, this was very helpful!

Could I please confirm with you our understanding then. Just want to ensure our understanding is correct.

  1. IM assets are within target and any emissions baseline.
  2. That said, we do not actually need to footprint financed emissions by IM’s or even our owned assets if we do not follow an SDA approach. There is also no requirement to report on portfolio emissions on an annual basis, even if we choose an SDA approach.
  3. We need to encourage IM’s to comply with and align with our approach to achieve our target.

Hi Mark, yes your understanding is correct. About point 2, to summarize, FIs are only required to measure financed emissions if the method requires it as an input data. We would encourage FIs to measure financed emissions but at this point, we do not require it as it can be a barrier to the adoption of portfolio SBTs.