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Eleanor Ewen
13 October: What’s going on in ESG and insurance?
October 13, 2022 Eleanor Ewen
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. The highlight this month: Exclusions are becoming a core part of large (re)insurers’ ESG arsenal – what does this mean for the rest of the industry?
Read our summary and analysis below.
Analysis
Exclusions are becoming a core part of large (re)insurers’ ESG arsenal – what does this mean for the rest of the industry?
This week Munich Re announced it will no longer invest or insure projects involving new oil and gas fields, midstream oil infrastructure or oil-fired power plants as of April 2023. In addition, Munich Re also said they are aiming to phase out thermal coal in its reinsurance treaty business by 2040.
Whilst activists have been pushing for exclusions, much of the (re)insurance industry has traditionally favoured “supporting the transition”. So, the question we need to ask is, “Does Munich Re’s recent announcement change this?”
On a fundamental basis, we think the answer is “no”.
The core arguments remain the same: the financial impact has not yet changed. Clients need to be supported through the transition and there is a trade-off between E and S in implementing hard exclusions (especially if the fossil fuels players are in emerging markets).
In addition, Munich Re’s position has already been applied by other climate leaders. So far, 12 other (re)insurers have committed to end or restrict underwriting for oil and gas production (Allianz, Aviva, AXA, Hannover Re, Fidelis, Generali, KBC, Mapfre, Swiss Re, SCOR, Suncorp, and Zurich). Likewise, the next three biggest reinsurers (SCOR, Swiss Re and Hannover Re) have already committed to restricting thermal coal exposures across their treaty portfolios.
However, this is not to say Munich Re’s announcement does not mean anything – on the contrary. As the world’s largest reinsurer, underwriting 22% of the global economy, the tightening of their exclusion policy is a significant sign that hard exclusions are becoming an increasingly routine step in a large (re)insurers journey to net-zero. Furthermore, the phasing out of thermal coal in Munich Re’s reinsurance treaty business will likely cause others to reflect on whether they should follow suit.
Exclusions have previously seemed a big step for some insurers, especially where there is a material impact on their book. But as the large (re)insurers continue to ramp up their policies, perhaps increasingly less so?
Summary
Exclusions ramp up
Munich Re tightens oil and gas policies (Reuters)
Munich Re has said it will no longer invest or insure projects involving new oil and gas fields, midstream oil infrastructure or oil-fired power plants as of April 2023. This is a significant development for the industry as exclusion policies have tended to focus on coal as opposed to oil and gas. As Munich Re is the world’s largest reinsurer, underwriting 22% of the global economy, this announcement will likely set a precedent for others in the industry to follow.
Tokio Marine toughens on climate, drops oil sands and arctic projects (Intelligent Insurer – subscription required)
Tokio Marine Holdings has tightened its climate policy to exclude new business in oil sands mining and arctic extraction projects not adhering to Paris-compliant decarbonisation plans.
Improving ESG transparency: metrics & greenwashing
ESG factors to play a larger role in the future of underwriting (Reinsurance News)
Marsh has released data from a survey of 30 insurers representing a significant cross-section of the UK insurance market, exploring how ESG factors are being used to assess clients’ risk profiles and the extent to which this trend might accelerate. The survey found that all respondents confirmed that ESG factors will play a larger role in future underwriting. Therefore, Marsh notes that it is key for risk managers to ensure they have a good understanding of their own ESG journey.
Protecdiv launches industry tool to model “social” component of ESG (Reinsurance News)
(Re)insurance broker Protecdiv has launched a tool designed to measure and report the “social” component of ESG on the liability side of a balance sheet. Protecdiv states that SERV-S, the Social Equity Risk Vector Score, provides a score for commercial property, residential property, and mortgage re/insurers to quantify the social element of their ESG goals. The tool combines re/insurers’ portfolio data with national economic and risk data to calculate the social benefit generated by their insurance portfolios.
Investors dismiss carbon metrics as top measure of net zero transition risks (Insurance Business)
In an effort to meet net-zero targets, regulators are increasingly requiring investors to disclose their climate-related financial risks and companies to report their carbon emissions. However, 85% of respondents to a WTW survey rejected carbon metrics as the best measure to assess the financial risks of the low-carbon transition to their investments. Survey respondents also ranked the most significant barriers to greater adoption of ESG principles across their investment portfolios; data quality & consistency (66%) availability of tools & metrics to measure transition risk (41%) and a lack of conviction that ESG integration will improve performance over the long term (41%).
ACCC begins ‘greenwashing’ crackdown on companies’ false environmental claims (The Guardian – subscription required)
Australia’s competition watchdog has begun to crackdown on “greenwashing” by Australian companies after a global investigation found that up to 40% of claims about environmental action may be fraudulent.
Auditors fall down on climate risk as corporate polluters fail basic tests, study shows (Financial Times)
Independent non-profit Carbon Tracker group found that carbon-intensive companies were not sufficiently disclosing the effects of climate-related risks and net zero emissions plans in their financial statements, depriving investors of key information. Out of more than 130 industrial companies that account for the bulk of pollution, 98 per cent did not provide evidence that their 2021 financial statements had taken into account the effects of climate-related matters.
Offering additional capacity
Marsh extends ESG-led D&O capacity to European firms (Strategic Risk)
Marsh has announced that European clients can access additional directors and officers liability (D&O) insurance capacity based on their ESG risk scores and ESG risk management frameworks. On completion of Marsh’s ESG Risk insurers AIG and Zurich will consider European Marsh clients for preferred D&O policy terms on ESG-related exposures, such as climate change disclosures and representations. The extension of the program to Marsh’s European clients follows an increase in EU regulation concerning ESG and sustainability reporting, which includes the 2018 Non-Financial Reporting Directive (NFRD) and Corporate Sustainability Reporting Directive (CSRD), which could be adopted by the EU by the end of 2022.
