The Australian Sustainability Reporting Standards (ASRS) are coming into play and having a ripple effect that’s already impacting insurance brokers. Scope 1 and Scope 2 emissions reporting is now in force for large companies, including insurers and brokers, already raising the compliance bar. However, its Scope 3 reporting starting next year that will likely present the biggest challenge. This puts brokers in the hot seat – forcing them to untangle complex supply chain emissions and rethink risk advice in a whole new regulatory era.
The ASRS provides a structured framework for companies to report their climate-related risks, including greenhouse gas emissions. Carla Wilson (pictured above left), head of Environment and Climate Change at Allianz Australia Insurance, said this is the first time emissions reporting has been mandated for insurance firms.
“It's quite leading globally in regard to how far that the disclosures are required,” said Wilson.
Australia’s new regulation stands out for explicitly requiring companies to provide reports on Scope 3 emissions – that is, indirect emissions that occur in a company’s value chain, including those from suppliers, distributors and customers. There’s also no longer much of a soft landing left: the reporting begins in 2026.
Experts also say the detailed data required under the regulation will push brokers to dig deep into their customers’ value chains.
Anthony Saunders (pictured above right), a senior broker who specialises in environmental risk quantification, said this can be complicated.
“We have to think about how we're going to address the potential liabilities that those companies may have and whether the policies that we are providing give them the correct protection in the event that they or might be in breach,” said Sauders, partnership director for EnviroSure at Gow-Gates Insurance Australasia.
Wilson put the potential “mind blowing” scale of the Scope 3 task into perspective.
“The Partnership for Carbon Accounting Financials (PCAF), believe that something like 95% of the total emissions that come from companies like Allianz actually come from our Scope 3 emissions,” she said.
This means a detailed risk analysis with granular details is needed for the firms that insurers underwrite and invest in. Brokers will be key helpers in this task.
“The biggest challenge for us is collecting all of the information,” said Wilson.
She said that major task involves pulling together all the pieces of strategy, risk management, governance, metrics and targets. Wilson said these all have to be informed by a robust climate related risk and opportunity assessment.
“I think it will improve reporting across the board,” she said.
Saunders said that once the Scope 3 reporting starts – and likely provides greater transparency than ever about the firms responsible for Australia’s carbon emissions and who insurers them – brokers will have some choices to make.
“We may be forced to start selecting insurance companies that have a focused investment on companies that have the lowest environmental externalities,” he said.
Saunders said there will also be opportunities for brokers in the environmental risk space to provide financial risk advice to firms that need to reduce a carbon footprint that comes in as high under Scope 3.
“These firms have got to start looking at their balance sheet and demonstrate on their tax returns that they are sustainable and viable,” he said.
What challenges does Scope 3 emissions reporting present for you as an insurance broker? Please tell us below.
