Huzhou Green Finance

ⅠBackground

The insurance industry is currently facing a structural mismatch between supply and demand. As global climate change accelerates and China’s national “dual carbon” policy becomes more stringent, enterprises are increasingly exposed to both physical and transition risks in the course of their development. Physical risks refer to the direct impact of environmental changes—such as extreme weather events and natural disasters—on business operations. These risks include: 1. Damage to tangible assets, such as floods and hurricanes destroying factory equipment or inventory; 2. Disruption to intangible assets, for example, heatwaves and droughts leading to data center outages and resulting digital asset losses; 3. Supply chain risks, where regional disasters driven by climate change propagate through the industrial chain, affecting both upstream and downstream partners. Transition risks arise from the pressure to adapt to climate change through industrial upgrading and evolving policy frameworks. These include: Compliance risks, such as rising operational costs and penalties stemming from tighter carbon emission quotas; Technological disruption risks, where the rapid evolution of clean energy technologies may render traditional equipment obsolete; Market risks, including a decline in demand for high-carbon products due to shifting consumer preferences toward environmentally friendly alternatives. Amid these challenges, the insurance industry is also presented with structural opportunities, particularly in the rapidly expanding green insurance market. However, current offerings—mainly limited to environmental liability insurance—remain narrow in scope and insufficient to meet the broader and evolving needs of enterprises. In response, PICC P&C Huzhou Branch has developed an innovative ESG insurance solution, anchored in three core categories of enterprise risk and aligned with the three pillars of ESG: Environmental, Social, and Governance.

Ⅱ Initiative

1. Innovating the ESG Insurance Concept. Unlike traditional green or ESG insurance models that typically classify a single insurance product under one of the ESG dimensions—Environmental, Social, or Governance—based solely on the coverage provided, PICC P&C Huzhou Branch has pioneered a new, integrated ESG insurance approach. This innovative solution offers comprehensive coverage that simultaneously addresses risks across all three ESG dimensions, supporting enterprises in managing the complex challenges of sustainable development. Environmental risk coverage forms the foundation of the ESG insurance model. In cases where risk categories span multiple dimensions, environmental risks are given higher priority. The product is designed to ensure that businesses receive risk protection across all three ESG areas, while also delivering benefits in risk mitigation, insurance protection, and credit enhancement.

2. Focusing on the Enterprise User Experience. PICC P&C Huzhou Branch has developed a unified insurance solution that breaks through traditional product boundaries, integrating multiple coverage responsibilities into a cohesive package. A checklist-based flexible management model has been adopted to allow for future expansion of coverage. In addition, services have evolved from individual product offerings to holistic service packages. The company actively leverages external resources to deliver value-added risk reduction services—such as employee training, hazard inspections, and emergency drills—customized to enterprise needs and aimed at empowering sustainable growth.

3. Strengthening ESG Risk Assessment. The company has shifted from product-level, isolated risk evaluations to a comprehensive assessment of sustainability-related enterprise risks. A dedicated ESG Insurance Risk Assessment Scorecard has been developed, with detailed evaluation criteria under each ESG pillar. For example, under the environmental category, assessments include pollution control facilities, production safety management, and disaster prevention measures. The assessment criteria are tailored to the specific risks a company seeks to insure, and a cross-disciplinary team of experts conducts on-site evaluations. Each ESG dimension is scored individually, and final scores are calculated by applying weighted coefficients to reflect their relative importance.

4. Linking Risk Assessment to Pricing. PICC P&C Huzhou Branch has tied insurance pricing directly to the results of the ESG risk assessment. Based on a company’s score, different discount coefficients are applied—the higher the score, the stronger the company’s sustainable risk management capabilities, and the greater the discount applied to the premium rate. This pricing mechanism not only incentivizes better ESG performance but also helps enterprises significantly reduce insurance costs.

Ⅲ Outcomes

1. Expanding the Scope of Green Insurance. As a specialized category within green insurance, ESG insurance was officially included in the Green Insurance Classification Guidelines released by the Insurance Association of China in September 2023, marking a step toward industry-wide adoption. By June 2024, PICC P&C Huzhou Branch had underwritten 17 ESG insurance policies in the Huzhou region, providing over RMB 3.6 billion in total risk protection to 17 enterprises across sectors such as textiles and apparel, energy and power, electronics, chemicals, and resource recycling.

2.Empowering Enterprise Sustainability. ESG insurance integrates multiple dimensions of risk protection, helping companies reduce their overall premium costs compared to purchasing multiple standalone policies. Additionally, it enables the creation of an enterprise ESG profile from an insurance risk assessment perspective, enhancing the company’s reputation and its ability to access ESG-related resources. For example, PICC P&C Huzhou Branch issued one of China’s first ESG insurance policies to a local SME in the textile industry. The policy offered customizable coverage across key risks in the environmental, social, and governance dimensions, with a total insured amount of RMB 80 million. Calculations showed that the premium was more than 20% lower compared to purchasing multiple traditional policies for the same coverage. Moreover, PICC P&C Huzhou Branch provided the company’s management with tailored ESG consulting and training services. By leveraging the centralized procurement advantage of insurance institutions, the company significantly reduced the time and cost of sourcing ESG training resources.