21 September: What’s going on in ESG and insurance?
September 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: ESG data – a wave is coming
Read our summary and analysis below
Analysis
ESG data – a wave is coming
The EU commission has announced a consultation on expansion of the Sustainable Finance Disclosure Regulations (SFDR) to include products that do not make sustainability claims (i.e. funds other than article 8 and 9). A change that will increase the range of required insurance disclosures, particularly around investments. They argue:
- Focussing only on products with sustainability claims places an undue burden on companies that offer them.
- Investors would benefit from understanding sustainability impacts of financial products whether they explicitly aim to be sustainable or not.
Separately, Lloyd’s and Moody’s have announced a joint partnership aiming to quantify GHG emissions across managing agent’s underwriting and investment portfolios.
And across the pond, the SEC is preparing a final version of its climate-related disclosure requirements. The initial SEC proposal released in March 2022 did lay out requirements on scope 3 reporting however the SEC Chair, Gary Gensler, has said they are considering adjustments following concerns raised around the costs and difficulty of reporting scope 3 emissions.
At the same time, the California Assembly has passed a bill that could require companies with >$1B in revenue to disclose emissions across their value chains (explicitly including scope 3). A law which, if passed, will go further than even the initial version of the SEC rules.
(Re)insurers will be watching these developments closely. While there is potential for an increase in reporting requirements, the biggest impact for (re)insurers will be from the volume of new data available from these company disclosures.
Those best positioned to capitalise on the opportunity are (re)insurers who already know how to manage and pull insight from ESG data. Time will tell which (if any) of the above come into force, in the meantime we can expect supportive cheers from (re)insurers with mature ESG data capabilities.
Summary
Mounting Pressure
California Lawmakers Pass Bill Requiring Companies to Disclose Full Value Chain Emissions (ESG Today)
The California state Assembly have passed a bill that could require most large US companies to disclose GHG emissions across their full value chain.
The bill will return to the senate, were it has already been passed, and then to the Governor for a final decision.
If passed, companies with >$1b revenue will have to annually report on:
- Scope 1 – direct emissions
- Scope 2 – emissions from purchased electricity
- Scope 3 – indirect emissions
The law also requires third party assurance of the reported figures.
Investors warn ‘fluffy’ environmental and social metrics are being gamed to boost bonuses – The Irish Times (The Irish Times)
Most of S&P 500 companies use ESG (environmental, social and governance) criteria to guide pay. With almost half using environmental criteria, specifically.
Some asset managers are arguing that these metrics are poorly defined and therefore easily achieved, further – that they are used to justify underperformance in other business focussed criteria. Worth noting, the most vocal are often conservative leaning and largely against ESG metrics in principle.
Others support companies using ESG metrics in remuneration decisions, Legal & General for example have said it wants to see net zero emissions targets linked to pay by 2025.
While opinions on ESG metrics as a topic vary, the article above makes a strong case that those focusing on “engagement” and “strategic goals” are opaque and subjective.
EU Commission Considers Requiring Sustainability-Related Disclosures for All Financial Products (ESG Today)
The EU commission has launched a consultation on sustainable financial disclosure practices, requesting feedback on introduction of requirements across all financial products sold in the EU – whether or not they have made sustainability claims.
The consultation centres the Sustainable Finance Disclosure Regulations (SFDR), which sets out requirements around communications on article 8 and 9 funds – those which “promote environmental or social characteristics or a combination of those characteristics,” and, “have sustainable investment as their objective.”, respectively.
A question the consultation aims to answer is whether these requirements place an undue burden on companies that include sustainability considerations in their products.
The deadline for participation is the 15th of December 2023, the consultation can be found HERE.
Final TNFD Recommendations on nature related issues published and corporates and financial institutions begin adopting (TNFD)
The Taskforce on Nature-related Financial Disclosures has published its final recommendations, members represent over $20 trillion in assets under management. Companies including GSK have started to announce their intention to adopt recommendations, with the inaugural cohort of adopters set to be announced at the World Economic Forum at Davos.
There are 14 recommendations spanning governance, strategy, risk, and impact management as well as metrics and targets. The taskforce has said their aim is to “inform better decision making by companies and capital providers, and ultimately contribute to a shift in global financial flows toward nature-positive outcomes”.
Progress – products and tools
WTW and Hannover Re complete two-year IDF climate resilience project (ESG Insurer)
The Insurance Development Forum has concluded its two-year project to improve the climate resilience of Medellín, Colombia, which saw WTW and Hannover Re collaborate to introduce a parametric insurance product for vulnerable communities.
Lloyd’s to develop emissions measurement tool with Moody’s (Insurance Insider)
Lloyd’s and Moody’s have announced a joint partnership aiming to quantify GHG emissions across managing agent’s underwriting and investment portfolios.
Lloyd’s Market Association launches ESG Academy (LMA)
The Lloyd’s Market Association (LMA) has announced the launch of its Environmental, Social and Governance (ESG) Academy, designed for professionals within the Lloyd’s market and the global (re)insurance sector. Developed in collaboration with market leading external ESG advisors including the Better Insurance Network, the LMA ESG Academy represents a significant milestone in the insurance sector’s journey towards a more sustainable and responsible future.
Courses are aimed at all experience levels and cover content from initial grounding in sustainable practice through to specific knowledge for practitioners and senior leaders.
ARC parametric triggers integrated with World Bank social protection in Malawi (Artemis)
The African Risk Capacity (ARC) has designed a parametric risk transfer solution that will be integrated with a World Bank designed social protection program for Malawi, to provide emergency financing in response to drought conditions in the country.
The ARC has partnered with the Malawi Government, to scale up the World Bank’s Social Support for Resilient Livelihoods Project using innovative parametric and responsive insurance.
The parametric insurance product underwritten by ARC will be used to partly cover the costs of scaling up the SCTP for the 2023/24 and 2024/25 agricultural seasons, should rainfall deficits occur.
Lloyd’s and the UN team up to get insurance to climate vulnerable countries (Reuters)
Lloyd’s of London (SOLYD.UL) is teaming up with the United Nations Capital Development Fund (UNCDF) to try and improve access to insurance for climate vulnerable countries, with an initial focus on Fiji and Pacific island countries.
Activism
Insurance Firms Won’t Provide Financial Backing for Cumbrian Coal Mine (Byline Times)
The proposed West Cumbria Coalmine is set to be the UK’s first new deep mine in more than 30 years, EMR Capital is the private equity firm financing the proposal.
So far, 4 major insurers (AEGIS Managing Agency, Argenta Syndicate Management, Hannover Re, and Talanx) have ruled out underwriting the project – citing a combination of environmental, social, corporate governance, and risk appetite concerns.
HSBC have previously financed EMR Capital and branches across the country are facing action from campaigners. The bank has previously committed to phasing out financing of new coal mines.
The mine would see approximately 2.8m tonnes of coking coal extracted annually.
Campaigners argue that extraction of any new coal is incompatible with the UK’s environmental commitments.
New York climate march sets tone for week of UN talks (FT)
It’s climate week in NYC and thousands of protestors have taken to the streets to urge President Biden to stop issuing new fossil fuel licenses.
Discussion topics will include: how to address lack of political commitment, how to finance the transition, and how to manage the fact that those who have contributed least to climate change are facing the brunt of the impact.
Announcements
Allianz outlines net-zero transition plan (Reuters)
Allianz has outlined it’s intermediate emission reductions targets, aligned with their 2050 ambition to become net-zero across proprietary investment and P&C underwriting portfolios.
They are aiming for a 30% reduction in emissions in their retail motor segment, and a 45 % reduction in the commercial insurance segment.
In support of this ambition, Allianz is committing to investing over $20b in climate and cleantech solutions by 2030 (Allianz to Invest Over $20 Billion in Climate & Cleantech Solutions by 2030, ESG Today).
“We believe our intermediate targets will help us realize our growth potential and contribute to a healthier, more secure future for everyone,” said Allianz CEO, Oliver Baete.
Hannover Re 2022 Sustainability report (Hannover Re)
Hannover Re have released their 2022 sustainability report.
Allianz joins PCAF (InsuranceERM)
Allianz has joined the Partnership for Carbon Accounting Financials, committing to calculating and disclosing emissions across their portfolios.
Aon joins international emissions trading association (Intelligent Insurer)
Global re/insurance broker Aon has joined the International Emissions Trading Association (IETA) as the first member with risk capital capabilities.
The IETA aims to:
- Empower business to engage in climate action and pursue net zero ambitions to advance the Paris Agreement’s objectives, and
- Establish effective market-based trading systems for GHG emissions and reductions that are environmentally robust, fair, open, efficient, accountable and consistent across national boundaries.
Ariel Green launched as a clean energy technology insurer (H2 View)
Ariel Re has relaunched its clean energy division as Ariel Green, recognising the increase in innovative areas such as hydrogen, solar, bioenergy and energy storage.
The division will focus specifically on technology performance insurance, enabling the clean energy sector to manage risk.
