11 August: What’s going on in ESG and insurance?
August 11, 2022 Miqdaad Versi
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news.
The focus this month: Challenges of ESG data.
Read our summary and analysis below.
Analysis
Challenges of ESG data
Challenges of ESG data were heightened this month, with several significant stories driving the need for reliable, standardised data. Firstly, we see billions being pulled from an ESG investing fund category (Article 8 or “light green” funds, a category within Europe’s ESG investing rulebook that saw huge growth last quarter), given the lack of confidence in the ESG-ness of these funds.
Concerns about the reliability and consistency of ESG rating agency scores are not new. Earlier this year, S&P removed Tesla from its ESG index for a number of reasons [whilst adding oil refiner Phillips and rating ExxonMobil in its top 10], whilst MSCI gives Tesla an “A” rating, and Sustainalytics gives Tesla a “medium” rating. Insurers and reinsurers have a challenging time navigating through these problems with reliability and consistency.
However, there had been a positive, with the ISSB creating a baseline of sustainability disclosures, which many were hoping may be a silver bullet to tackle their concerns. This week, however, their initial proposals have been criticised for not requiring companies to provide detailed disclosures about the impact of their operations on the environment. There will be no silver bullet.
Perhaps because of this it is understandable why the FCA has called on the government to regulate ESG ratings, given how they are currently acting without regulatory oversight.
Co-ordination and standardisation will be needed if insurers are able to reliably use ESG ratings in their underwriting decisions.
Summary
ESG investment funds take a hit
Billions pulled from Europe’s controversial ESG investing fund category (Bloomberg)
Article 8 funds, a concept enshrined by the EU’s Sustainable Finance Disclosure Regulation in 2021 as “promoting” sustainability, saw huge growth last quarter, as well over 600 other funds that previously weren’t classified as sustainable. However at the same time, clients withdrew more than $30 billion from such products last quarter, too – perhaps in response to questions about the ESG-ness of Article 8. Meanwhile Article 9, a stricter ESG classification, saw $6 billion of inflows.
Read the full article
Encouraging industry reports
Lloyd’s Neal: Culture survey shows “encouraging progress” but market can’t be complacent (The Insurer – subscription required)
Lloyd’s CEO John Neal has called on the market to “keep the momentum going” after the Corporation published the market’s Culture Dashboard for 2022, which highlighted progress on all five of the market’s culture principles over the past year. The survey found that 85% of managing agents now have a behavioural framework in place to set out clear expectations of staff (up 6% from last year), with 58% of firms having specific behavioural expectations for leaders. However, these statistics still indicate that there is some way to go – women, for instance, occupy only 30% of leadership positions, 1% up from last year — and CEO John Neal has called on the market to “keep the momentum going”, especially in relation to drug and alcohol policies.
Read the full article
AXA releases Climate and Biodiversity Report 2022 (AXA)
AXA have released their 2022 Climate and Biodiversity Report. As well as outlining AXA’s progress towards ambitious green objectives (including an exit from coal by 2040, and a -20% carbon footprint target), the report outlines the latest in their research and thinking about insurance ESG. One key development on last year’s report is the increased focus on biodiversity, and the creation of frameworks and financial metrics by which biodiversity can be evaluated and strategically protected. Other issues raised include the importance of transparency, government-led legislation, and considering issues from the point of view of multiple stakeholders to ensure that the transition to sustainable business is, itself, sustainable.
Read the full article
ESG Commitments
FM Global allocates $300mn to encourage climate resilience investment (The Insurer – subscription required)
Mutual insurer FM Global is set to allocate around $300mn to a ‘resilience credit’ to help policyholders proactively invest in climate resilience solutions, reducing total loss expectancies related to wind, flood and wildfire by more than $120bn. CEO Malcolm Roberts hopes that the credit — applied as a 5 percent premium offset against FM Global policies – will be a “game-changer” for companies increasingly affected by ESG regulation and climate risk.
Read the full article
Fidelis joins ClimateWise (Bermuda:Re + ILS)
Fidelis has become the latest member of ClimateWise, the voluntary working group facilitated by the University of Cambridge Institute for Sustainability Leadership. The global working group is made up of leading (re)insurance industry players, with the stated aim to lead the industry in responding to the risks and opportunities of climate change. This commitment follows Fidelis joining the NZIA in May of this year, a move which highlighted its commitment to supporting the insurance industry’s transition to net-zero underwriting by 2050.
Read the full article
Industry doubts about Cat models and Climate Change
Cat models don’t properly reflect climate change: RenRe CEO O’Donnell (Artemis)
RenaissanceRe CEO Kevin O’Donnell has spoken out about the failure of the catastrophe modelling vendors to model climate change accurately, stating that they misunderstand the underlying physics and therefore underestimates the risks involved and ‘inadequately capture the growing influence of climate change’. O’Donnel suggested that having a robust and independent approach to analysing, quantifying and pricing catastrophe risks will become an increasingly attractive proposition for insurers if vendors continue to underperform.
Read the full article
ESG Ratings
FCA calls on govt for powers to regulate ESG ratings (The Insurer – subscription required)
The Financial Conduct Authority (FCA) has asked the UK government for new powers that would allow the regulator to recommend where it expands its area of responsibility, including the regulation of ESG ratings providers. Previously, the HM Treasury outlined recommendations to the FCA based on specific aspects of the government’s economic policy to consider when creating objectives and performing functions. Writing to the FCA last month, CEO Nikhil Rathi argued that more independent powers would enable the regulator to “play a leading role in supporting the market-led transition to a more sustainable economy.”
Read the full article
New sustainability rules attacked for protecting profits over planet (Insurance Journal)
The International Sustainability Standards Board (ISSB) has announced their intention to create a “comprehensive global baseline of sustainability disclosures, designed to meet the information needs of investors” by end of 2022. However, their first proposals have been criticised as it does not require companies to provide detailed disclosures about the environmental or social impact of their operations, or chart a path to keeping temperatures increases below 1.5 degrees celsius. The ISSB has responded that as a service to support investor decisions about where to put their money, these issues are not within their remit, but have agreed to review the feedback in the second half of 2022 before issuing the new standards.
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