17 August: What’s going on in ESG and insurance?
August 17, 2023
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. This week’s topic: Laws, litigation, and (re)insurer’s ability to navigate
Read our summary and analysis below
Analysis
Laws, litigation, and (re)insurer’s ability to navigate
(Re)insurers ability to manage the increasingly challenging ESG legal landscape will be tested in the coming years. On one side, we see a consensus among insurers, executives, and analysts on the importance of ESG factors in deal and decision making (evidenced by: 96% of exec respondents in a survey expecting ESG scrutiny over the next 3 years to increase, and ESG being the primary topic in insurance filings in the last year). On the other, pushback against ESG requirements is mounting – through legislation or more generally (S&P’s decision to drop ESG scoring, for example).
Divergence is most stark in the US, with red and blue states firmly moving in opposite directions – restrictions on ESG metrics in decisions vs increasing reporting requirements, respectively.
At the same time, climate litigation as a tool to effect change is becoming more prevalent, a theme we had discussed before and is reaffirmed in the survey below which found 24% of executives see environmental litigation as the primary disruption concern to M&A deals over the next 3 years.
Legal requirements are diverging, litigation risk is increasing and, at the same time, metrics for (re)insurers to understand their ESG standing (credit ratings and methodologies) are being challenged. An approach we are seeing (re)insurers take is dropping “ESG” language but continuing to set targets, launch products, and include in decision making – we can expect ESG to remain a key focus area in terms of action, even if mentions in next years filings reduce.
Summary
ESG challenges
Alternative financing, ESG scrutiny to increase in M&A: Report (Reinsurance News)
Alternative financing is expected to increase over the next 12 months, according to Aon’s and data provider Mergermarket’s M&A Risk in Review latest edition.
The survey revealed that 50 senior executives from corporate development teams, private equity firms and investment banks, dealmakers remain upbeat about the health of the M&A arena. However, analysts note that climate, tax, and cyber risk (as well as geopolitical uncertainty) will impact M&A strategies.
Focussing on the ESG findings, 96% of respondents expect ESG scrutiny of M&A deals to “increase” in the next 3 years, and 48% expect “significant increase”. 24% have said environmental litigation creates the most concern in terms of disruption.
ESG Investing Laws Diverge in Red and Blue States: Explained (BloombergLaw)
We are continuing to see laws around ESG investments diverge between red and blue states with republicans increasingly placing restrictions on the ESG considerations of pensions and contracts while Democrats push investment sustainability measures. It is primarily red states that are seeing change, with proposed bills pending in almost a dozen states. At the same time, democrats have enacted laws in Illinois and Colorado requiring additional disclosures on risks and sustainability.
AIG Women’s Open disrupted by protesters (Insurance Business)
Money Rebellion protesters disrupted the final round of the AIG Women’s Open on Sunday in the UK, targeting the tournament’s sponsor.
Money Rebellion’s Jane Clarke said “AIG is insuring climate breakdown by enabling deadly fossil fuel projects to pump out more and more greenhouse gasses,” in an emailed release.
A sister movement to Extinction Rebellion, Money Rebellion said AIG is one of the world’s leading insurers of oil & gas projects and has refused to rule out support for the proposed East African Crude Oil Pipeline.
Targets & transparency
ESG scores ended by S&P | Pensions & Investments (Pensions & Investments)
Credit agency S&P Global Ratings will cease to include new environmental, social and governance credit indicators in its reports or updating existing scores, effective immediately.
S&P Global Ratings said in a news release Aug. 4 that while it “remains committed to providing the market with transparency on how and when environmental, social and governance factors influence our assessment of creditworthiness,” the firm will no longer publish new ESG credit indicators in its reports or update outstanding ESG credit indicators.
The ratings agency has said this policy will not affect its ESG principles criteria or research and commentary on ESG topics, it is hard however, not to view this as a buckling to anti-ESG pressure.
Fitch and Moody’s will continue to provide numeric ESG scores.
Increased transparency is needed for corporate science-based targets to be effective (Nature Climate Change)
Companies rarely disclose underlying calculations for their science-based emission reduction targets and the targets themselves lack important details. Increased transparency is necessary to assess justice implications, evaluate the sufficiency of aggregate emission reductions and hold companies accountable for actions on their targets.
The paper concludes that there is a “pervasive lack of transparency” around Science-based Targets (SBTs) which threatens to undermine their effectiveness. Specific focus areas suggested by the paper include company inputs to SBT calculations and greater specificity on targets companies are aiming to meet.
Further, the paper recommends the Science Based Targets Initiative (SBTi) creates a platform to facilitate methods and data in a consistent and standardised manner.
Signal: ESG the main theme in insurance filings over the last year (Global Data)
Analysis of insurance filings from August 2022 to July 2023 has found that ESG has been the number one topic mentioned by insurers. The only exception was Q4 2022 where deal making was mentioned 4,788 times vs 4,513 for ESG. Over the course of the year however, ESG was mentioned 46,351 times against 27,169 for deal making – ESG is the primary focus over the long term with temporal shifts in focus at key points in the year, it seems.
New products
AXA XL launches carbon emissions product for marine clients (AXA XL)
Last week, AXA XL in the UK launched its Excess Emissions Insurance product helping marine clients to manage their environmental footprint and support action on carbon emissions.
Excess Emissions Insurance, which is an extension to AXA XL’s existing marine hull product, indemnifies a vessel’s carbon output in the event of an unforeseen extended journey, caused by a covered risk, which results in additional emissions. Following such an event, the policy pays out with voluntary carbon credits equal to the amount of excess emissions emitted.
