Lancashire supports the aims of the TCFD, and recognises we need to play our part in supporting the transition to a more sustainable future. This includes supporting our customers and partners with their own transition journeys. Below are our disclosures consistent with the four recommendations and the 11 recommended disclosures.
Download our 2022 Annual Report and Accounts
Disclose the organisation’s governance around climate-related risks and opportunities.
Describe the Board’s oversight of climate-related risks and opportunities.
The LHL Board retains ultimate responsibility for climate-related risks and opportunities. It oversees the Group’s ERM activities and receives regular updates on material risks including ESG-related risks and opportunities. This is done through the Nomination, Corporate Governance and Sustainability Committee, the Underwriting and Underwriting Risk Committee, as well as the Investment Committee.
The Nomination, Corporate Governance and Sustainability Committee monitors issues of sustainability, including developments in climate change risk management and reporting.
The Underwriting and Underwriting Risk Committee and the Investment Committee each have responsibility for monitoring the impacts of climate change and transition risk, as well as the broader ESG risks, and to articulate appropriate appetites and tolerances for the Group.
Overall responsibility for the ESG programme sits with the Group CEO. The Board as a whole reviews and approves the Group’s risk framework and appetites, which are ordinarily addressed within the quarterly ORSA report.
The Board receives a quarterly ORSA report from the Group CRO. This covers the full range of risks and controls identified through the Group’s risk register and operated by the Group, including climate change and ESG risks and controls. Facilitated by the Group CRO, the Board discusses, agrees and monitors performance against a range of risk appetites. The Board discussions also cover consideration of emerging risks.
Examples of Board ESG and climate change oversight in 2022 include:
- Its annual review and approval of the Group’s ESG framework
- Annual review and approval of the Group’s ESG strategy
- Annual review and approval of the Group’s risk appetite statements, including the tolerances for elemental PMLs and non-elemental RDSs. More information on this can be found on page 138. These risk appetite statements include climate-related statements for both the asset and liability side of our business
- Review and approval of the Group’s ESG insurance underwriting guidelines
- Review and approval of the annual ORSA report
- Review of the quarterly ORSA reporting which contains information on all risk categories highlighting material risk considerations including climate-related risk where appropriate
- Review of the output from stress tests performed as part of both the annual business planning exercise and the annual ORSA reporting process, including climate-related scenarios.
The actual business underwritten within the Group is monitored against both the strategic plan and the Board-approved risk tolerances (including those linked to climate-related catastrophe loss events) and is reported to the Board quarterly within the Group CRO’s quarterly ORSA report. Please see page 27 of our Annual Report and Accounts for more information. In addition, the Group CUO and Group CRO regularly review current and emerging (re)insurance risks.
The Investment Committee oversees the management and performance of the Group’s investment portfolio including investment risk parameters, which include specific Board approved climate-related investment guidelines applied across the Group’s fixed maturity portfolio. In addition, the Investment Committee monitors performance against a Climate VaR risk appetite statement as part of the regular quarterly reporting process. This includes an agreed preference for the financial impact of the Climate VaR on the Group’s actual fixed maturity portfolio, covered by MSCI, to have a less detrimental impact than the MSCI benchmark model. The Committee also considers investment portfolio performance by reference to an MSCI carbon sensitivity tool and ESG profile tool. Please see the Investment Committee report starting on page 90 of our Annual Report and Accounts for more information.
Describe management’s role in assessing and managing climate-related risks and opportunities.
The Group CEO is accountable for the development and execution of the Group strategy, including the management of climate-related risks and opportunities. The Group CUO is ultimately responsible for the business written by the Group, assisted by the subsidiary CUOs and active underwriters. Climate-related risks and opportunities as they relate to the business written are assessed as part of the underwriting process. Each underwriter has their own underwriting authority in which climate-related underwriting guidelines have been embedded. Management information is available to monitor the business written against these guidelines.
The Group CRO is responsible for the overall management of the risk management framework, which includes facilitating the identification, assessment, evaluation and management of existing and emerging risks by management and the Board; ensuring these risks are given due consideration and are embedded within both management’s and the Board’s oversight and decision-making process.
The ESG Committee, established by management in 2021, is tasked with the oversight, co-ordination and internal management of the Group’s ESG strategy. The ESG Committee reports to the Board on a quarterly basis, as well as regular reporting to the Group Executive Committee, and is supported by both the Climate Change and Diversity, Equity & Inclusion Working Groups. Key developments are reported to the Nomination, Corporate Governance and Sustainability Committee as well as the Investment and the Underwriting and Underwriting Risk, Audit and Remuneration Committees as appropriate, and ultimately to the Board via the Group CRO’s quarterly reporting and periodic reporting from the ESG Committee Chair.
The RRC evaluates and monitors the Group’s modelled underwriting PML and RDS risk exposures against the Group’s tolerance levels on a monthly basis. Lancashire underwrites predominantly short-tail business, with loss exposures usually crystallising within a policy period of 12 months. As a result, with PML levels updated monthly and shared internally, we ensure we closely track both market pricing and coverage conditions and the Group’s modelled climate-related loss exposures. Please see page 146 of our Annual Report and Accounts for more information.
The IRRC actively monitors the potential impacts of climate change-related transitional risk on assets within the Group’s investment portfolio. The requirement to monitor, develop and implement ESG and TCFD principles is included within its terms of reference. Both the RRC and the IRRC are supported by the Climate Change Working Group.
The diagram on page 63 of our Annual Report and Accounts illustrates the Group Board, Board sub-committee and management committee governance structure as it pertains to ESG. The role and responsibilities of each of the Board’s sub-Committees is explained within the Governance section starting on page 76 of our Annual Report and Accounts and in each Committee’s Terms of Reference which can be found on the Group’s website. The Group CRO is a member or attendee of all the fora shown in the diagram on page 63, and provides a link between each individual forum and the management RRC and Group Executive Committee.
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning where such information is material.
Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning where such information is material.
We consider the actual and potential impacts of climate-related risks and opportunities on Lancashire’s strategy and financial planning across the following timeframes: short-term being up to five years, medium-term being five to 15 years and long-term being 15 to 30 years from now. Lancashire underwrites predominantly short-tail business, and so the principal impact of climate-related risks and opportunities is on short-term strategy. Such impact is mitigated by our ability to re-evaluate the portfolio on an annual basis and therefore re-price physical risks and reset exposure levels to take into account new data regarding the frequency and severity of elemental catastrophe events. During 2022, we have engaged more actively with our insured clients and seen an increase in the level of climate-related information provided as part of the underwriting process. We recognise that climate change does also impact the longer-term strategy in terms of emerging risk and accordingly management works with some of the leading external catastrophe model providers to understand the science which underlies and informs developments in the short- and long-term climate-related assumptions in their stochastic models. These developments are included in the Group’s management- and Board-approved annual five-year business strategy and the three-year forward-looking business plan. More information can be found in the going concern and viability statement on page 120 of our Annual Report and Accounts.
The Board also regularly discusses cycles and trends within the insurance sector as well as within the natural, commercial and political environment to which the Group’s business is subject. We also recognise the potential impacts of transitional climate change risk on the Group’s underwriting and investment portfolios and associated strategies. Whilst detailed strategic planning is based on short-term horizons (over a period of three to five years) the Board’s strategic discussions are informed by consideration of potential future trends in the medium to longer term such as the make-up of global energy demand (which may be influenced by climate-related factors), the impact on travel and transportation (aviation, shipping, cruise ships) or the potential for political instability (for example over a period of five to 30 years).
Since 2021, significant work has been undertaken to identify and articulate the financial impacts of climate-related risks, including physical, transitional, regulatory (current and emerging), technological, legal, market and reputational risks. As an example, for each physical risk identified, the loss amplification factors, time-frame and magnitude were considered, as were metrics by which these risks could be monitored and reported upon. Examples of short- to medium-term risks identified included increased severity of tropical cyclones and heightened storm surge resulting from the enhanced strength and duration of storms combined with sea level rise; increased intensity of extratropical cyclones; increased intense rainfall due to the warming atmosphere thus increased risk of flooding; and increased risk of wildfire due to warming temperatures combined with shifting precipitation patterns. A longer-term risk being considered is the emergence of new natural catastrophe zones due to the shifting weather patterns. The potential financial impact from these risks is included within the metrics and targets section on page 68 of our Annual Report and Accounts. In addition, the Group’s current catastrophe exposure by geographical zone for our peak perils are listed on page 146 along with details of annual gross premiums written by geographic area of risks insured and by business segment.
The physical risk to our own operations is less material. As a group operating out of three physical locations (Bermuda, London and Australia) we do not have significant physical assets to be impacted by physical risk; with the main impact of physical risk arising from our underwriting portfolio in the form of losses arising from elemental catastrophic events. We do however have robust BCP processes in place across the Group.
Examples of transitional risks that may be faced by the Group include the probability of a declining premium environment in the traditional oil and gas sector or transportation classes over time, or the risk of exposure to climate change-related litigation. The potential impact in terms of premium is thought to range from low to medium for the relevant subsidiary writing the business, however the financial impact to the Group of these risks ranges from very low to low at this time due to the inherent responsiveness in the Group’s nimble underwriting strategy. The impact would expect to be felt in both segments of the business i.e. insurance and reinsurance.
As a (re)insurer, the Group is in the business of accepting and mitigating risk; for every risk identified there is the potential for an opportunity. Opportunities come in the form of new products and services, as we work closely with existing clients to provide the insurance they need as they undertake their own transition; and access to new markets in the form of new assets and locations requiring insurance coverage.
The diagram on page 65 of our Annual Report and Accounts shows Lancashire’s current internal view of the physical and transition risks the Group may face from climate change include the potential time horizon over which they may be faced, potential magnitude of financial impact, and the geographical region (for physical risks).
Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning.
Lancashire is exposed to the risk of heightened severity and frequency of weather-related losses which may be influenced by climate change. We manage this risk by using the stochastic models from third-party vendors which have a long history of quality data governance. In addition, we adapt these models based upon our views of climate risk, as well as our clients’ exposure data, to create aggregate loss scenarios. Further, individual risks that are likely to materially utilise the Group’s capital are reviewed at the daily UMCC prior to binding. The modelling data and the capital deployment are closely monitored by executive management. Likewise, the Board monitors this on a quarterly basis as part of strategic risk and capital management, with the testing of the models leading to changes in risk levels, reinsurance purchasing and structuring strategy as required. As part of the financial planning process, the assumptions within the underwriting portfolio are reviewed including the expected rate adequacy and losses for each class of business. Our assumptions are driven by a number of factors, which include climate change-related factors such as frequency and severity of elemental events and the potential for associated claims inflation. The level and availability of capital, as well as capital utilisation by class of business, are also key considerations in the financial planning process. The business mix is also reviewed, with new products and lines considered where rates prove attractive and accretive.
For 2022, we developed insurance underwriting guidelines which were embedded within our Underwriting Authority framework, in order to effectively monitor and guide underwriting in the more carbon-intensive industries and we continue to further develop and enhance how we track premium and policies according to their climate profile.
Lancashire’s exposure to physical risk in our own operations is modest. As a business with an office in Bermuda we recognise that this is an area of the world that is vulnerable to catastrophic windstorm events and may be affected by any future climate change trends. All Lancashire offices have BCP and disaster recovery plans in place. Specifically, the Bermuda management team and Board consider hurricane and tsunami risk within the Bermuda office’s BCP. Please see page 36 of our Annual Report and Accounts for more information.
Outside of physical risk, Lancashire has been a risk partner of businesses operating in the aviation, marine and energy sectors across the world for many years. The risk solutions which we provide help deliver the wider social benefits of safer operations in a properly regulated environment with access to capital resources to quickly repair and remediate damage in the event of accidents or catastrophic failure. We will continue to support our clients in the journey required to transition away from carbon-based forms of energy to a net zero state. Substantial investments will be required to both meet global energy demand and to reduce carbon emissions and we remain committed to supporting our clients across the energy sector as they navigate this transition.
We also recognise the potential impacts of climate-related risks and opportunities upon the Group’s investment portfolio, in particular the potential impacts of the transition away from a carbon intensive economy. We have tools in place to identify, measure and manage these risks and opportunities; our findings are reviewed and reported through the IRRC, the RRC and the Investment Committee to the Board.
With respect to opportunities arising from climate change, immense investment in infrastructure will be required as the world transitions to a lower-carbon economy, and such infrastructure will require insurance which lies within the Group’s existing classes of business and appetite. The demand for environmental insurance products is also expected to increase. A summary of the opportunities, their likelihood, timeframe and magnitude of impact on comprehensive income, is included on page 66 of our Annual Report and Accounts.
Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C or lower scenario.
Stress and scenario tests and reverse stress tests are performed as part of the business planning process and the annual ORSA reporting process. More information on these processes can be found on pages 27 to 29 of our Annual Report and Accounts. The capital impacts from a range of scenarios, including climate-related risks and opportunities, are presented to the RRC and Board for review and discussion.
During 2022, stress testing has been performed on the Group’s business plans to understand the impact should the recent high catastrophe event experience (2017-2022) be more indicative of the average experience than that currently predicted by the third party catastrophe models. In addition, we have transitioned to a different catastrophe model provider to increase the range of secondary perils we are able to model. As part of this transition and our annual model review, we have explicitly considered the impact of climate change to ensure our hazard selections within the model are appropriate for our understanding of the current environment and impact with respect to climate change. On a quarterly basis we also model historic climate-related loss events for our current portfolio to understand the current day impact of their re-occurrence. Such events include the Katrina, Rita and Wilma hurricanes of 2005, the Florida hurricanes of 2004 (Charley, Frances and Ivan), the San Francisco earthquake of 1906, the New Madrid earthquake of 1811 and hurricanes Harvey, Maria and Irma of 2017.
One of Lancashire’s key operating principles, which supports the Group’s strategy to produce an attractive risk-adjusted total return to shareholders over the long term, is to ‘balance risk and return through the cycle’. Climate change may influence the severity and frequency of losses that impact our policyholders and Lancashire’s quick response to such post-loss situations can therefore be seen as a competitive advantage. A similarly ‘responsive’ approach to the management of climate change transition risk helps inform asset allocation and investment portfolio management. As of 31 December 2022, 93.9% of our externally managed investment portfolio, excluding internally managed cash, is managed by signatories to the United Nation’s Principles for Responsible Investment. Analysis of our investment portfolio, specifically the fixed maturity portfolio, has shown it is more resilient to the impacts of climate change than the relevant benchmark which we have linked to a 1.5C future pathway scenario. As part of our biennial strategic asset allocation study, we recommended a target percentage to be invested in a sustainable fund which we are looking to implement in 2023.
Given the Group’s predominately short-tail nature of, and the ability to model the geographical and economic impacts of climate risk on, the insurance products it sells and its ability to price insurance premiums on the basis of a flexible and dynamic risk analysis, the Board and management consider that there is some resilience in both the Group’s underwriting and investment strategy and its business model to the challenges of increased frequency and severity of physical damage and the effects of transition risk, as a result of climate change risk.
Disclose how the organisation identifies, assesses, and manages climate-related risks.
Describe the organisation’s processes for identifying and assessing climate-related risks.
The impact of climate-related risks is managed within existing principal risks see page 30 of our Annual Report and Accounts.
As a result, climate-related risks are identified and assessed as part of the usual risk identification and management process which includes but is not limited to: discussions with risk owners and with subject matter experts across the Group, along with discussions at the Group’s Emerging Risk Working Group, CCWG, and ESG Committee. Climate-related risks specific to the (re)insurance portfolios are identified and assessed as part of the day-to-day underwriting process by individual underwriters in their analysis of specific risk information, and more broadly in the context of the wider portfolio during the daily UMCC and the fortnightly RRC meetings. This includes, for example, the assets to be insured, their physical location, weather-related perils that have impacted that location, historical frequency and severity, as well as expected short- and long-term changes. The individual entity annual underwriting strategy days and the Group annual catastrophe underwriting strategy day also provide a good basis for discussion of the climate-related risks of both current and anticipated future risks.
Examples of such risks include transition risks arising from a decline in value of assets to be insured, changing energy costs and liability risks that could arise from climate-related litigation. Physical, transition and liability risks are considered by business segment and geographical location, and the expected impact from the risks identified is considered with respect to both magnitude and timescale.
Describe the organisation’s processes for managing climate-related risks.
We recognise the potential environmental effects of carbon emissions and in a global commercial and political environment which currently remains reliant on carbon-based forms of energy production, we will work with our clients through a period of global energy transition to help manage their operational and catastrophe-exposure risks in a controlled and responsible way.
Nonetheless, climate-related risks (and opportunities) are a constituent part of the Group’s underwriting and investment risks. As we have detailed in this TCFD report, such risks are managed in the same way as other risks: they are identified, monitored, mitigated and reported upon against tolerance as appropriate. For elemental perils this includes monitoring and reporting the PMLs related to the top perils on a monthly basis to the RRC and quarterly to the Board. In addition, we monitor our PMLs as a percentage of GPW; the chart on page 68 of our Annual Report and Accounts shows this for our 100 year Gulf of Mexico wind net PML at 31 December.
Opportunities are monitored and taken advantage of where it makes sense to do so. More information can be found on pages 26 and 27 of our Annual Report and Accounts.
Describe how processes for identifying, assessing, and managing climate-related risks are integrated into the organisation’s overall risk management.
As noted in the ERM section, the Group subscribes to a ‘three lines of defence’ model with respect to the identification, ownership, monitoring and mitigation of risk. The management of climate-related risk falls within this same framework, which is fully embedded throughout the Group and includes fora with climate change at the heart of their agenda such as the CCWG and the ESG Committee. The ESG Committee reports to the Group Executive Committee via the CRO and the Nomination, Corporate Governance and Sustainability Committee through the Chair of the ESG Committee. The CRO also provides an ESG update to the LHL Board in her Quarterly ORSA report. The RRC considers all aspects of risk for the Group at a management level and reports through the Group CRO to the Board. The Board of Directors is responsible for setting and monitoring the Group’s risk appetite and tolerances, whereas the individual entity boards of directors are responsible for setting and monitoring entity level risk tolerances. All risk tolerances are subject to at least an annual review and consideration by the respective boards of directors.
The Board considers the capital requirements of the business on at least a quarterly basis. The Group’s exposures to natural catastrophe risks are one of the key drivers of the capital held by the Group to support its underwriting activities.
The IRRC is alive to the potential impacts of climate change-related transitional risk on the Group’s assets within the Group’s investment portfolio and its work is reported to the Board-level Investment Committee. We continue to monitor the carbon intensity and transition risk of our fixed income portfolio and are working to develop our modelling capabilities to also monitor against MSCI Physical Risk. During 2022, carbon intensity limits were added to our fixed income managers’ guidelines. Updates on these metrics, including the exposure of the investment portfolio to climate-related risk, as compared to the MSCI Climate VaR, are provided to the Investment Committee on a quarterly basis.
Metrics and targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk management process.
Our underwriting strategy is based on a number of factors, including but not limited to: market conditions and opportunities, pricing adequacy and available capital. We define our risk appetite for underwriting risks as a percentage of capital we are willing to lose in a specific event, and we set a capital loss tolerance for, and track the Company’s modelled PMLs to, weather-related hurricane perils.
On pages 64 to 66 of our Annual Report and Accounts we described the work undertaken in 2022 to identify and articulate the financial impacts of climate-related risks. The table on page 68 sets out the financial impact of physical risk.
Our PMLs are derived using stochastic models licensed from third-party vendors. These models include perils such as windstorm, convective storm, wildfire and flood. Our actuarial team assesses the assumptions within the licensed model and, where appropriate, applies loadings to it. Model outputs are regularly challenged at both the macro and specific account level. Our PMLs, and the actual in-force exposure versus tolerance, are reviewed by the RRC on a monthly basis. The loadings applied to the model are reviewed by the RRC periodically to assess their ongoing appropriateness. Additionally, risk learning can be performed following a large catastrophe event to compare the actual loss versus the modelled loss to further assess the appropriateness of the assumptions and loadings within the model and establish whether further adjustments are required.
Impact of climate-related risk
The table on page 68 of our Annual Report and Accounts shows the impact based on our current portfolio, if exposure or experience was to change materially the financial impact could be more significant. However, the longer term impact to the Group should be managed by our ability to reprice contracts if needed and develop new products. Further detail is also included within insurance risk disclosures on pages 145 to 146 of our Annual Report and Accounts, where we have noted the geographical area of risks insured and the Group’s exposure to certain peak zone elemental losses by geography as a percentage of tangible capital over a 100 and 250 year return period.
Our PMLs are derived using stochastic models licensed from third-party vendors. Our actuarial team assesses the assumptions within the licensed model and, where appropriate, applies loadings to it. Model outputs are regularly challenged at both the macro and specific account level. Our PMLs, and the actual in-force exposure versus tolerance are reviewed by the RRC on a monthly basis. The loadings applied to the model are reviewed by the RRC periodically to assess their ongoing appropriateness. Additionally, risk learning is performed following a large catastrophe event to compare the actual loss versus the modelled loss to further assess the appropriateness of the assumptions and loadings within the model and establish whether further adjustments are required.
Similarly, with respect to our investments, we continue to monitor steps taken in 2021 to advance the previous approach for assessing our portfolio’s exposure to climate-related risks looking at the carbon intensity and transition risk within our fixed maturity portfolio. The Climate Value at Risk (VaR) of our fixed maturity portfolio (as covered by MSCI) at the 1.5°C global warming goal is monitored and reported to the Board and Investment Committee on a quarterly basis. Management’s target preference is for the impact of climate change to be less detrimental on our portfolio than the relevant benchmark at the same level.
As shown in the table on page 69 of our Annual Report and Accounts, we have 90.3% allocated to managed cash and fixed maturities. The majority of the fixed maturities consist of government-related securities: U.S. government treasuries, non-U.S. government sovereign debt, U.S. agency debt and U.S. agency mortgage-backed securities. In addition, we have 30.5% allocated to corporate bonds, of which we have a small amount of exposure to climate-related risks. The Group itself does not hold any equities (although we have exposure to a small number of equities in the hedge fund portfolio).
Disclose Scope 1, Scope 2, and if appropriate Scope 3 greenhouse gas (GHG) emissions, and the related risks.
The Group is committed to managing the environmental impact of its business. We measure our carbon footprint to minimise its negative impact through mitigation strategies and by offsetting 100% of our greenhouse gas (GHG) emissions, in order to remain carbon neutral. In 2022, we instructed ClimatePartner as our new consultant to calculate and facilitate the offsetting of our carbon emissions. Please see page 60 of our Annual Report and Accounts where we report our Scope 1, 2 and 3 GHG emissions and the changes to the methodology of this reporting following ClimatePartner’s appointment. The Group also recognises the challenges posed by climate change and considers its impact as part of the risk management and strategic planning processes, as discussed in the table on page 69 of our Annual Report and Accounts. The Group CRO and the Board oversee the Company’s annual submission to the CDP and note that the information which is requested as part of that reporting process is aligned with the recommendations of the TCFD.
With operations in London, Bermuda and Australia, as well as clients and brokers around the globe; the Lancashire Group has (with the exception of the period of the COVID-19 pandemic) incurred the bulk of its carbon footprint as a result of its business travel. We utilise a number of technologies to reduce inter-office travel, including full video and telephone conferencing facilities in all of our offices and our meeting spaces and boardrooms. During 2022, business travel has started its trajectory towards a more normal level as restrictions have lifted, in-person conferences and events have recommenced and it has been considered safe for our employees to travel.
Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets.
Last year, the Group articulated its path to meeting the UK Government’s net-zero target by 2050 with 2015 selected as our baseline year on the basis it was the first full year in our London office at 20 Fenchurch Street, an energy efficient building with a BREEAM Excellent rating.
The diagram on page 69 of our Annual Report and Accounts shows our path to carbon net-zero in 2050, illustrating the intended downwards trajectory of our emissions per FTE and the intended increase in offsetting projects which remove carbon from the atmosphere. In terms of the Group’s own emissions targets and with reference to the Group’s business travel emissions, we have travel policies in place to reduce our impact on the environment whilst balancing the needs of our staff and Directors. For instance, our policy is to not to ordinarily book a business class airline ticket, if the duration of the flight is less than five hours long.
The Group also commits to continue to offset 100% of Scope 1 and 2 emissions and 100% of the Scope 3 emissions pertaining to our operations which we are able to accurately calculate and exercise sufficient control over at this time. These include business travel, waste generated in operations, our employees’ commuting, and fuel and energy related activities not included within Scope 1 or Scope 2. As a small financial services company, we consider a number of the emissions categories to be either not applicable to our operations, or that we have minimal operational control over them. We are working with a specialist third party, and alongside others in the industry, to understand how to accurately calculate and track emissions within the unreported categories where applicable. The Group will continue to source and utilise 100% renewable electrical energy for its 20 Fenchurch Street London offices. Other targets for the Group’s own emissions remain under discussion but areas under consideration (outside of those related to business travel) include further reducing paper usage, reducing water waste, improving the level of recycling, and eliminating the use of single-use plastics. Please see page 59 of our Annual Report and Accounts for more information.
In relation to the Group’s investments, we have a target of managing the impacts of our fixed maturity portfolio by reference to a Climate VaR appetite statement.
For the Group’s underwriting exposure, Lancashire limits its tangible capital at risk by reference to a series of PML loss exposure scenarios (which include climate-related loss scenarios). PMLs are regularly monitored and reported to the Board on a quarterly basis and reflect real time changes in the Group’s underwriting portfolio. The Group’s stated tolerance is to expose not more than 25% of its tangible capital by reference to any one of its principal PMLs. For the reported outcomes of this process see page 146 of our Annual Report and Accounts which shows details of the Group’s principal PMLs including those related to catastrophic weather loss events linked to climate change risk.