21 July: What’s going on in ESG and insurance?
July 21, 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: The new disclosure landscape
Read our summary and analysis below
Analysis
The new disclosure landscape
The TCFD matters. It is the climate disclosure which has gained the greatest traction amongst insurers across the globe.
But last week, it was announced that the IFRS Foundation’s International Sustainability Standards Board (ISSB), will take over responsibility for monitoring companies sustainability and climate related disclosures from the Financial Stability Board’s (FSB) Task Force on Climate-related Financial Disclosures (TCFD).
This follows a request from the FSB following the release of the inaugural ISSB Standards which will provide a global baseline for sustainability-related disclosures and monitoring. The transfer of responsibilities marks a significant step in the ongoing consolidation of sustainability reporting standards and will come into effect January 1 next year.
As the ISSB Standards become the norm and its direction looks like it will become more ambitious (e.g. including double materiality), the pressure for (re)insurers to disclose more, and even have those disclosures audited, will grow. And if it’s public, the potential pressure for action will grow.
Structurally, this matters – and will have an impact. We can only wait to see how much…
Summary
Disclosures & ESG Rating Agencies
The International Sustainability Standards Board (ISSB) will take over the responsibilities of the Task Force on Climate-related Financial Disclosures (TCFD) starting from next year (Fintech Global)
Earlier this year, G7 leaders convened at a summit in Japan, where they reiterated their commitment to the Paris Agreement’s goal of limiting global temperature rise to 1.5°C degrees, they pledged to support the ISSB development of sustainability and climate-related corporate reporting standards. The transfer of responsibility, of the TCFD to the ISSB, marks a significant development in the ongoing efforts towards consolidation of sustainability reporting standards.
Rating the ESG rating agencies (Financial Times)
ESG rating agencies play a crucial role in providing investors with information about companies’ performance in ESG areas, however according to this FT article there are currently two main problems within the industry. Firstly, conflicts of interest, where agencies also offer consulting services to companies they rate; and disagreements among ESG raters, due to agencies using different objectives and methodologies.
The article outlines that the future of ESG rating agencies hinges on standardising corporate ESG disclosure, contextualising data points and establishing an accountability mechanism for agencies. Emphasising standardisation and transparency will maintain a competitive market promoting quality and efficiency, to better serve investors and society.
Industry group launches world-leading Code of Conduct for ESG Ratings and Data Product Providers (International Regulatory Strategy Group, IRSG)
A demand for reliable ESG ratings is growing with sustainable finance being a key pillar in the drive for net zero. The IRSG has supported the launch of a first of its kind provisional voluntary code of conduct for ESG ratings and data product providers, which is now open for consultation. The code, which sets out four key best practise principles aims to enhance consistency, accountability, and transparency within the financial services industry.
ESG Opportunities
Specialist insurer unveils next phase of ESG Consortium (Insurance Business)
Beazley has announced the next phase of its ESG Consortium’s development. Initially established in January 2022 under the “syndicate in a box” structure of 4321, the consortium’s capacity will fully transition, subject to regulatory approval, to a specialist follow-only Syndicate 5623 starting from January 2024. The ESG consortium will also explore opportunities in offering additional capacity to businesses with high ESG scores.
Inigo and 90 North Foundation announce strategic partnership (Reinsurance News)
Inigo Limited has formed a strategic partnership with the 90 North Foundation, a conservation non-profit organisation focused on safeguarding the biodiversity and ecosystem services of the Central Arctic Ocean surrounding the North Pole. Inigo’s commitment to sustainable practices and advocacy aligns with the foundations mission to protect the vulnerable diversity of the Arctic Ocean. Inigo will provide strategic research, raise awareness among stakeholders, and assist in proposing regulatory frameworks.
Probitas 1492 confirms move away from Adani (Insurance Business)
Lloyd’s syndicate Probitas 1492 will no longer provide insurance for Adani’s Carmichael coal mine and will not support any future ancillary or associated activities. More than 110 companies in the banking, insurance, rail freight, and engineering sectors have already ruled out support for Adani Carmichael or the entire Adani Group. The coal mine has quickly become one of the most controversial projects in Australia’s history.
WTW unveils Asia’s first 4-peril parametric insurance offering (Reinsurance News)
Willis Towers Watson has launched Asia’s first 4-peril parametric insurance to protect Sri Lanka’s shrimp farms against weather risks (earthquake, typhoon, excess rainfall and heat stress), marking a major turning point in Asia’s aquaculture development. The solution was designed and placed for Taprobane Seafood group, Sri Lanka’s largest seafood company, to help them secure the loan to develop sustainable shrimp farming and provide gainful employment to vulnerable communities locally.
AXA XL launches carbon emissions product for marine clients (AXA XL)
AXA XL in the UK has launched its Excess Emissions Insurance product, an extension to their existing marine hull product, helping marine clients to manage their environmental footprint and support action on carbon emissions. This new product has been developed with AXA XL’s in-house carbon team, in partnership with ClimateSeed, an impact company providing premium carbon removal and avoidance projects.
ESG debates in the USA
US House subcommittee debates ESG mandates’ impact on insurance costs (ESG Insurer – subscription required)
Democrats and Republicans clashed over the impact of ESG mandates on housing and insurance costs during a hearing titled “How mandates Like ESG Distort Markets and Drive Up Costs for Insurance and Housing”. Monica De La Cruz, the chair of the meeting, stated that government-imposed ESG mandates increase the cost and limit the availability of insurance and housing in the US, calling ESG a ‘modern shakedown’ in many cases.
A Democrat representing Missouri contrasted this view suggesting costs are higher from not having ESG mandates. Jerry Theodorou, director of the finance, insurance and trade policy programme at the R Street Institute, highlighted 3 main ways the insurance industry may be affected by ESG considerations: availability of insurance coverage may be reduced; cost of available insurance protection may rise; and insurers’ investment portfolios may underperform.
Net-Zero Insurance Alliance
NZIA ditches all emissions targets for insurers (Environmental Finance)
Following the recent departures of all but 12 members, the NZIA have scrapped requirements for member firms to set and publish emissions reduction targets. The coalition’s target setting protocol will now serve as a voluntary best practice for insurers and reinsurers.
Aviva’s Blanc issues call for action on transition in wake of NZIA departures (ESG Insurer – subscription required)
In the wake of mass departures from the UN-convened NZIA, AVIVA CEO Amanda Blanc spoke out on the importance of collective action across financial services in tackling climate change. Blanc spoke in the Climate Change Summit hosted by the Association of British Insurers (ABI) stating that catastrophic climate change may become the norm if action is not taken.
Blanc calls on insurers to set initial transition plans and increase communication with regulators to help ensure that future regulatory guidance on transition plans happens in an appropriate and constructive manner. She also calls for further action from UK government emphasising that the response to date is insufficient. Blanc concluded with a call for UK insurers to seize the opportunity to lead their sector in the drive to decarbonise.
About the author
Abigail Robins is a Consultant at Oxbow Partners. She has worked on engagements spanning UK retail and strategy. She was recently involved in the design of a global (re)insurer’s follow strategy in which she provided assurance of key figures and financials. In her most recent project Abigail worked with a UK personal lines insurer to design an outsourcing strategy for customer facing services.
