15 September: What’s going on in ESG and insurance?
September 14, 2022 Miqdaad Versi
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. The theme this month: New opportunities for insurers presented by ESG.
Read our summary and analysis below.
Analysis
New opportunities
The insurance industry is uniquely positioned to facilitate the transition towards a more sustainable future. Notably, we are starting to see insurers capitalising on the opportunities presented by a society increasingly committed to a lower carbon future. In recent weeks we have seen a number of insurers launch innovative ESG-related coverages and products:
These new ESG propositions are emerging in novel areas of demand as society transitions towards a lower carbon future, albeit currently lacking material scale. We expect to see more innovative products launch over the coming years – and are especially excited to see how the industry engages with “S” as well as “E” via new coverages. We will continue to add new propositions to our internal innovation & best practice database.
As the transition continues to move at pace and expectations grow for more environmental and social impact, insurers should look to tailor products to meet new demand. For example, Swiss Re has predicted that if countries deliver on building all the renewable energy capacity, investments in green energy are expected to generate additional energy-sector related premiums of USD 237 billion by 2035.
Insurers need to look forward and trust the transition.
Summary
The road to change
Chaucer launches ESG scorecard created with Moody’s (Insurance Business)
Chaucer has collaborated with risk assessment firm Moody’s to develop a data driven ESG scorecard across underwriting, investments and operations. The scorecard will measure the ESG performance of clients and business partners, providing an evaluation of businesses’ risks and opportunities for improvement. The ESG Balanced Scorecard uses 158 data points, including disclosure of GHG and integration of environmental factors into the supply chain, to assign ESG scores.
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In a recent survey conducted by CRIF Decision Solutions in conjunction with the Insurance Post, just over 70% of insurer respondents ranked ESG as a top five priority for their organisation and a further 23.5% as a top ten priority. However, only 8.8% of respondents currently validate the ESG credentials of their supply chain, with 41.2% saying they validated some. With supply chains operating as an extension of insurers’ brands, focusing on the ESG factors of supply chain management is a strategic necessity in an increasingly transparent global economy.
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AXA IM launches active ETF Platform with new climate and biodiversity funds (ESG Today)
AXA Investment Managers have announced the launch of AXA IM ETF, a new exchange traded fund platform focused on active strategies and responsible investing. The new platform is being introduced with two UN SDG-aligned ETFs, focused on climate and biodiversity themes. The new funds will be classified as Article 9 under the SFDR regulation, with dual objectives to have a positive and measurable impact on the environment, and to deliver long-term financial growth. The new platform aims to offer investors access to each firm’s strengths in responsible, thematic, and quantitative investing, while providing the enhanced liquidity and transparency of an ETF structure.
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Europe’s big four reinsurers lead industry’s nascent exodus from conventional oil and gas (The Insurer)
The Insurer’s analysis shows that the big four Europe-based global reinsurers have broadly continued to enhance their underwriting portfolio decarbonisation policies over the past 12 months:
- Swiss Re was the first of Europe’s big four reinsurers to unveil plans to phase out coal from treaty reinsurance underwriting
- Hannover Re and Swiss Re both unveiled new policies to restrict oil and gas underwriting in March this year
- Scor has announced curbs to conventional oil but has not yet restricted gas
Read the full article
New opportunities
Howden launches carbon credit cover with Respira and Nephila Capital (Insurance Insider – subscription required)
Howden has announced the launch of a carbon credit invalidation insurance product in partnership with Respira, Nephila and Parhelion, to increase confidence in the voluntary carbon market (VCM). The VCM will play a vital role in the transition to a low-carbon economy, estimated to be worth between USD 20 billion and USD 50 billion by 2030. It is therefore critical for the VCM to implement processes to improve credibility and transparency, and to differentiate independently verified, high-quality carbon credits from unverified credits. Howden’s new insurance product will add a layer of security, providing cover for third-party negligence and fraud.
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Time for insurers to lean in to transition and support greening of global economy (The Insurer)
The insurance industry is uniquely positioned to facilitate and accelerate clients’ transition towards a more sustainable future. Insurers will need to employ strategies beyond the scope of traditional underwriting, taking steps to enhance their capabilities and support clients’ transition in three key areas: coverage and product innovation, cross-industry collaboration and advisory through becoming a transition partner to clients.
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Why nature matters: Nature-related risks and opportunities for insurance underwriting (ClimateWise)
The University of Cambridge Institute for Sustainability Leadership’s (CISL) ClimateWise has published a new report on Nature Insurance. The report summarises key concepts and introduces a framework for identifying and assessing nature-related risks in the re/insurance industry. It also discusses four different approaches that insurers can adopt to reduce the impact on nature or contribute to its protection and restoration:
- Incentivising nature-positive behaviours with clients and customers
- Innovating in asset protection
- Facilitating capital flows
- Collaborating with governments
The insurance industry has the opportunity to redefine its role in society to support risk management through proactive nature-positive activities, rather than simply responding to claims following a disaster or loss.
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Renewables will generate $237bn of premium by 2035: Swiss Re (Insurance Insider – subscription required)
Swiss Re has estimated that investments in green energy are set to generate cumulative insurance premiums of USD 237 billion by 2035 as countries look to transition away from fossil fuels. Climate change, geopolitical tensions, inflation and knock-on effects such as energy shocks, cyber threats and supply chain disruptions will pose a challenge and opportunity for the industry. Increased risk awareness and exposures will result in more demand for insurance protection, translating into a positive outlook for premiums. Swiss Re Institute expects a USD 33 billion increase in commercial premium volumes in the period from 2022 to 2026 as a result of supply chain reshoring. And if countries deliver on building all the renewable energy capacity, investments in green energy are expected to generate additional energy-sector related premiums of USD 237 billion by 2035.
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Climate change and the industry: Where do we stand today? (The Insurer)
Climate change and its impacts on insurance will remain a key topic in the coming years. In addition to risks that must be managed, there will be opportunities in the transition such as the exploding growth in renewables, offering investment and insurance opportunities. The Insurer considers ESG best practise for insurers as including quantifying physical risk through modelling, internal education, and proactively preparing for inevitable regulatory and policy changes. Increased transparency, data collection and disclosure are also important, along with increased dialogue with stakeholders and counterparties.
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ESG accomplishments
Winners revealed at 2022 Insurance Insider Honours (Insurance Insider)
The 2022 Insurance Insider Honours featured a new award for ESG Initiative of the Year, won by AXIS Capital for their Enhances Climate Initiatives and Fossil Fuel Policy. Other nominees included Beazley’s Syndicate 4321 and Chaucer & Moody’s data driven ESG scorecard (as mentioned above). Other new awards valuing “S” included Employer of the Year (won by QBE), the Diversity and Inclusion Award (won by McGill and Partners), and the Woman in Insurance Award (won by LCP Women’s network). Congratulations to all nominees and winners.
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Aon publishes 2021 ESG Impact Report
Aon have published their 2021 ESG Impact Report focused on “Better Decisions for a Better World”.
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