Definition:Science-based target
🌱 Science-based target is a greenhouse gas emissions reduction goal aligned with what climate science indicates is necessary to limit global warming to 1.5°C or well below 2°C above pre-industrial levels, as set out in the Paris Agreement. Within the insurance industry, science-based targets have emerged as a concrete mechanism through which insurers and reinsurers formalize their commitments to decarbonize both their investment portfolios and underwriting books. The Science Based Targets initiative (SBTi) provides the most widely recognized framework for setting and validating these targets, and a growing number of major insurers — including members of the Net-Zero Insurance Alliance and similar coalitions — have adopted or are developing SBTi-aligned commitments.
⚙️ For an insurer, setting a science-based target involves quantifying its carbon footprint across multiple dimensions: Scope 1 emissions from direct operations, Scope 2 emissions from purchased energy, and — most consequentially — Scope 3 emissions, which encompass the carbon intensity of invested assets and, uniquely for insurance, the emissions profile of insured activities. The SBTi has developed sector-specific guidance for financial institutions, including criteria for how insurers should measure and reduce financed and insured emissions over defined timelines. In practice, this means an insurer committing to a science-based target must develop decarbonization pathways for its investment portfolio (reducing exposure to fossil fuel-intensive assets) and increasingly for its underwriting portfolio (adjusting appetite for carbon-intensive risks such as coal, oil sands, or heavy industry). The challenge lies in data availability and methodology: attributing emissions to individual policies or investment positions requires sophisticated analytics, and industry-wide standards for measuring insured emissions are still maturing.
📊 The significance of science-based targets for the insurance sector extends beyond reputational positioning. Regulatory and supervisory bodies are increasingly integrating climate risk into their oversight frameworks — the EIOPA, the UK's Prudential Regulation Authority, and the Monetary Authority of Singapore have all issued guidance or requirements relating to climate scenario analysis and sustainability disclosures. Having a validated science-based target demonstrates to regulators, investors, and rating agencies that an insurer is proactively managing its transition risk exposure. It also shapes commercial strategy: insurers with credible decarbonization pathways are better positioned to underwrite emerging renewable energy, green infrastructure, and climate adaptation risks, which represent growing segments of global premium. Conversely, failure to address carbon-intensive exposures may lead to stranded assets in investment portfolios and reputational drag as stakeholder expectations around ESG performance continue to tighten.
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