22 December: What’s going on in ESG and insurance?
December 22, 2022
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. The highlight this month: What to expect in 2023?
Read our summary and analysis below.
Analysis
What to expect in 2023?
Few topics have risen up the agenda of Boards across the insurance industry this year quite like ESG. Our view is that the gap between the front and the back of the pack will grow substantially in 2023.
Those at the back of the pack will continue to focus on business-as-usual activities and the absolute minimum they have to do.
On the other hand, we see 6 key activities of (re)insurers (aside from regulation) for those who are developing their ESG approach in the coming year:
- Delivering specific ESG training, education and comms
- Acquiring and using ESG-specific data and metrics
- Building an approach for incorporating ESG into underwriting decisions
- Developing an approach for net zero
- Going beyond “E” and thinking about social impact
- Identifying new ESG products and opportunities
As a result, we will see a widening of the gap between those doing the minimum and those making progress against many or all of these categories. This will lead to a serious challenge for the (re)insurance industry: what should we do with those who have been left behind and what are the ramifications of this for the global transition?
More collaboration, greater incentives for action and perhaps even regulation may form part of the answer. The worry is that this just might not be enough.
Read our piece covering reflections on 2022 and greater detail on the 6 activities mentioned above, in the ESG Insurer HERE.
Summary
Biodiversity
Cop15: Historic deal struck to halt biodiversity loss by 2030 (The Guardian)
Governments appear to have signed a once-in-a-decade deal to halt the destruction of Earth’s ecosystems, but the agreement seems to have been forced through by the Chinese president, ignoring the objections of some African states. Nearly 200 countries (but not the US or Vatican City) signed an agreement at COP15. A particularly controversial component was the refusal to set up a new biodiversity fund separate from the existing UN Global Environment Facility (GEF). Negotiators from Cameroon, Uganda and the DRC expressed incredulity that the agreement had been put through. The DRC said it had formally objected to the agreement, but a UN lawyer said it had not. The negotiator from Cameroon called it “a fraud”, while Uganda said there had been a “coup d’état” against the Cop15. The deal was negotiated over two weeks and includes targets to protect 30% of the planet for nature by the end of the decade, reform $500bn (£410bn) of environmentally damaging subsidies, and restore 30% of the planet’s degraded terrestrial, inland water, coastal and marine ecosystems.
MSCI to Launch Tools to Help Investors Assess Biodiversity, Deforestation Risk in Portfolios (ESG News)
MSCI Inc., a leading provider of critical decision support tools and services for the global investment community, announced the forthcoming launch of tools to help investors identify companies at risk of contributing to biodiversity loss and deforestation. The new screening tools combine thousands of ESG and climate data points, overlayed with MSCI’s proprietary geolocation data that helps pinpoint a company’s operations. The tools, which MSCI aims to make available to investors in early 2023, include:
- MSCI Biodiversity-Sensitive Areas Screening Metrics – enabling investors to identify companies that have physical assets located in areas of high biodiversity relevance, such as healthy forests, deforestation fronts, or species-rich areas.
- MSCI Deforestation Screening Metrics – which indicate companies exposed to deforestation-related risks, including those that may directly or indirectly (via their supply chains) contribute to deforestation.
New ESG initiatives, approaches & products
ARC launches parametric epidemic cover with Munich Re as lead reinsurer (Artemis)
The African Risk Capacity (ARC), a provider of parametric disaster insurance products, has launched its first epidemic risk transfer product, with the parametric insurance backed by Munich Re as the lead reinsurance company and initially covering Senegal. The parametric insurance product will cover Senegal against high-impact epidemic risks and is designed to deliver a source of rapid funding to support efforts to contain high-impact infectious disease outbreaks. Three pathogens are covered: Ebola virus disease, Marburg virus disease, and meningitis.
HSBC Ends Financing for New Oil and Gas Projects (ESG Today)
Global banking and financial services company HSBC will no longer provide financing for new oil and gas projects or for new metallurgical coal mines, according to its new Energy Policy released today, and the bank will require energy sector clients to provide transition plans consistent with its climate targets in order to continue receiving financing. While the policy will see the bank end financing for new oil and gas projects and related infrastructure, the bank said that it will continue to provide financing and advisory services to energy sector clients at the corporate level, if they provide transition plans consistent with HSBC’s 2030 financed emissions and 2050 net zero targets. Under the new policy, HSBC said that it will support clients taking an active role in the transition, including engaging on transition plans, and helping to finance related technologies and infrastructure. The bank also pledged to accelerate its activities in renewable energy and clean infrastructure.
Path to net-zero: Europe’s insurers stand firm on ESG goals amid energy crisis (S&P Global)
European insurers’ and reinsurers’ shorter-term goals to cut underwriting emissions are under pressure as several countries across the continent return to fossil fuels to stave off energy shortages triggered by the Russia-Ukraine war. Despite this unexpected policy shift, companies such as Zurich Insurance Group AG and Swiss Re AG say they are sticking to pledges to reduce greenhouse gas emissions across their underwriting portfolios. There is flexibility in some insurers’ and reinsurers’ fossil fuel exclusion policies that should allow them to accommodate short-term energy needs. Allianz SE’s oil and gas policy, announced in April, contains an exception for new upstream gas fields if needed for emergency energy security reasons. An Allianz spokesperson said in an email that the oil and gas policy was set “taking careful account of geopolitical developments” and that the company would continue to monitor developments closely.
Captives to play key role in energy transition (Captive Intelligence)
While the commercial market is signalling it is reducing capacity for, or total exit from, some so called ‘dirty industries’, there is also a race to find insurance for large green energy and renewable projects. Captives are being leaned on for capacity in both areas. Particular focus areas for captives include:
- Natural Catastrophe – Experts have highlighted the potential role captives can play in helping companies insure against natural catastrophe risks, as rates in the commercial market continue to harden, terms and conditions tighten, and reinsurance capacity declines.
- Non-traditional Risks – Joshua Nyaberi, head of captive fronting & management, continental Europe at Zurich noted that another way captives can play a role in the green transition involves retaining risks that the parent cannot buy coverage for in the commercial market.
- Categories of risk – Bacani said risks such as biodiversity loss and climate change, as well as new risks such as plastic pollution, could lead to insurers having to assess different categories of risk, which may be challenging to underwrite.
- Oil & gas – It is becoming apparent that captives could be used by oil and gas companies as a means of accessing capacity where the commercial market has stopped offering it.
Allianz AGCS sets up new unit with 10-year Zurich vet in major ESG push (Intelligent Insurer)
Allianz group’s specialist corporate insurer has established a dedicated in-house environmental, social & governance (ESG) division with several high-level leadership appointments to accelerate the integration of sustainability in its business, with a key focus on market opportunities in renewable energy and low-carbon technology to help transition to net zero.
AXA tops insurance industry in corporate sustainability index (Insurance Business Mag)
AXA has received the highest score among insurers in S&P Global’s 2022 Corporate Sustainability Assessment (CSA), achieving its highest result ever. AXA also announced that it has been included in the Dow Jones Sustainability Indices (DJSI) for the 16th consecutive year.
FCA announces ESG Advisory Committee to its Board (FCA)
The FCA has established a new advisory committee to the FCA’s Board to work on Environmental, Social and Governance (ESG) issues. This includes meeting the Government’s expectation that they ‘have regard’ to the UK’s commitment to achieving a net zero economy by 2050, when considering how to advance and achieve objectives and functions. Additionally, the Committee will provide guidance to the Board on relevant emerging ESG topics or issues and views on how the FCA should develop its ESG strategy in keeping with the organisation’s statutory objectives and regulatory principles.
ESG Pushback & Activism
Vanguard Drops Out of Net Zero Asset Managers Initiative (ESG Today)
Vanguard, one of the largest investment managers in the world, announced today that it is withdrawing from the Net Zero Asset Managers initiative (NZAM), a major multi-trillion dollar group of investment managers committed to supporting the goal of net zero greenhouse gas emissions by 2050. the decision was made in order to provide its investors with “clarity… about the role of index funds and about how we think about material risks, including climate-related risks—and to make clear that Vanguard speaks independently on matters of importance to our investors.” Republican politicians were quick to take credit for the change.
Insurer targeted over controversial Adani coal project (Strategic Risk)
Activists received a tip-off that Probitas1492 is insuring the Adani Carmichael’s thermal coal project rail line, haulage operation and port. They held a rally outside the Probitas1492 offices in London in what they say will be an ongoing campaign to convince the Lloyd’s syndicate to rule out renewing insurance for the project in 2023. It comes against a backdrop of Lloyd’s of London marketplace policy that, as of 1 January 2022, asks syndicates not to take on new thermal coal risks. 45 major insurance companies, including 28 that manage Lloyd’s syndicates, have ruled out any underwriting for the Adani Carmichael coal project. This includes nine of the ten biggest syndicates at Lloyd’s.
Data and Disclosures
ISSB to Add Biodiversity, Just Transition Disclosures to Climate Reporting Standard (ESG Today)
Sustainability disclosure systems based on the emerging climate reporting standard under development by the International Sustainability Standards Board (ISSB) of the IFRS Foundation may soon require companies to provide additional transparency on impacts and risks related to natural ecosystems and the just transition, according ISSB Chair Emmanuel Faber.
ISSB Gives Companies an Extra Year to Disclose Scope 3 Emissions (ESG Today)
Companies reporting under the new climate disclosure standards being developed by the International Sustainability Standards Board (ISSB) of the IFRS Foundation will be given an additional year to report on Scope 3 emissions, or those originating in a company’s value chain and beyond its direct control, according to an announcement by the ISSB following its December meeting. Launched last year at COP26 the ISSB is developing its first two proposed standards for sustainability and climate disclosures – aiming to release early 2023. Scope 3 reporting is among the most controversial aspects of disclosure, given the difficultly to track, calculate, and influence. The ISSB said scope 3 would be included but will provide “relief provisions” in order to help companies apply requirements.
