24 February: What’s going on in ESG and insurance?
February 24, 2023
Welcome to our ESG roundup, keeping you up to date on the insurance industry’s most significant ESG-related news. The week’s topic: Evolution in how activists target insurers
Read our summary and analysis below.
Analysis
Evolution in how activists target insurers
In the coming year, we expect to see activist groups continue employ unorthodox measures to raise the profile of climate change given the scale of danger it poses. There are a range of approaches taken.
On the one hand, there have been a range of physical protests. For example, any will remember how activists dumped fake coal or more recently, conducted a Mary Poppins themed climate change protest outside Lloyd’s of London, and otherwise protested against “insurance laggards”; Greenpeace activists protested outside Baden-Baden; and activists even protesting outside a Chubb CEO’s home.
On the other hand, we have seen other approaches such as open letters, or that of Insure Our Future who created a scorecard assessing approaches of (re)insurers in insurance and investment. We also see shareholder activism with activist investors taking aim at the insurance industry.
What we are now also seeing, is activists considering litigation as a means of ensuring that public statements on climate change are being enacted and are not merely greenwashing. Such approaches are still in their early stages with limited success but are becoming a concern for more and more (re)insurers.
In the end, whilst it is important that (re)insurers keep a close eye on this trend, their actions should not drive strategy. Progress and issuing public disclosures and positions on climate change, should be done because it is what (re)insurers want to do themselves, and care should be taken to avoid greenwashing. This is just the right thing to do.
Summary
Litigation
Shell directors personally sued over ‘flawed’ climate strategy (The Guardian)
The directors of oil major Shell are being personally sued over their climate strategy, which the claimants say is inadequate to meet climate targets and puts the company at risk as the world switches to clean energy. Environmental lawyers ClientEarth have filed the lawsuit against the 11 directors at the high court in England. It is the first case in the world seeking to hold corporate directors liable for failing to properly prepare their company for the net zero transition, ClientEarth said. ClientEarth are supported by a group of large pension funds and other institutional investors.
Nest, the UK’s largest workplace pension scheme with 10 million members, has backed the lawsuit. “Investors want to see action in line with the risk climate change presents and will challenge those who aren’t doing enough to transition their business,” said Mark Fawcett, Nest’s chief investment officer. “We hope the whole energy industry sits up and takes notice.”
The backlash to the ESG backlash is here (Semafor)
Last year, Republican-controlled legislatures began passing laws blacklisting state investment funds from doing business with money managers that pushed what they deemed to be liberal agendas, like boycotting gun manufacturers and mining companies. BlackRock, run by Larry Fink, an outspoken supporter of so-called ESG principles, has taken the brunt of the pressure, with at least 10 states pulling their money from his firm or threatening to.
Is climate litigation driving the energy transition? (Norton Rose Fulbright)
Throughout 2022, we continued to see legal action addressing issues of climate change – so-called “climate litigation” – used against governments and businesses as a tool to accelerate the energy transition. As the climate crisis remains firmly on the political and economic agenda, both real and threatened claims can influence, or even compel, entities to clarify, reform or repeal their sustainability policies.
The most common litigation is against governments for inaction on their climate policies, but we are increasingly seeing action against private entities. In 2022, only 54% of filed cases had a “favourable” outcome for climate action. However, the time, cost, and adverse PR associated with a failed lawsuit are often enough to prompt behaviour change.
This is a trend we can expect to continue, and one that climate laggards will increasingly struggle with.
Regulation
Finance for positive, sustainable change (FCA)
The FCA have published a discussion paper on sustainability for the financial services industry, including insurers. The paper includes 10 commissioned articles from international thought leaders on different aspects of governance, remuneration, incentives, training, and stewardship – complementing the FCAs own opinions and analysis. Objectives of the paper include 1. Understanding where the market is moving, and 2. To highlight best practice areas to guide the industry. The FCA want to see and support investor stewardship that supports a market-lead transition towards a sustainable future.
The paper is released against he broader ESG backdrop the FCA has set to date, including their own ESG strategy, greenwashing clampdown proposals, a code of conduct for ESG data, and review of climate disclosures by listed companies.
ISSB ramps up activities to support global implementation ahead of issuing inaugural standards end Q2 2023 (IFRS)
The International Sustainability Standards Board, ISSB, has finalised the technical content of its initial standards which it will issue at the end of Q2 this year, before becoming effective January 2024. These reporting standards will set a baseline disclosure level that the market needs to meet, individual countries standards boards and regulators can then adjust them to fit their own jurisdictions requirements.
The confirmation comes following a review of the draft standards dating back to November 2021. In an attempt to reassure companies, the ISSB said that it understands that the sustainability disclosures are new for many companies, so it will therefore introduce programs to support those applying its standards.
Insurer action on ESG
Chaucer unveils update to its ESG sustainability strategy (Reinsurance News)
Specialty re/insurance group Chaucer has unveiled an update to its ESG sustainability strategy, outlining how it will decarbonise its business and embed ESG into the underwriting decision-making process. Chaucer states that its ESG strategy will be applied across all six of its defined core functions – Investments, Marketing, Underwriting, Operations, Risk and Governance. The firm adds that each core function has its own unique sustainability purpose, focus and objectives for the coming year.
AXIS Capital Commits to Science-Based Aligned Scope 1 and 2 Greenhouse Gas Reduction Goals to Support Transition to Low-Carbon Economy (AXIS)
AXIS, the speciality insurer and reinsurer, announced this week a commitment to a 50% reduction of Scope 1 and 2 greenhouse gas (GHG) emissions by 2030 across its operations. The move is the latest step in AXIS’s broader climate strategy and Corporate Citizenship program to reduce GHG in its ambition to transition to a low carbon economy. The program also includes initiatives across underwriting, investment, employee computer, R&D, disclosures and partnerships.
Impact of climate change
Climate change to prolong reinsurance hard market: Goldman Sachs (Artemis)
Equity analysts at Goldman Sachs see climate change both as a driver of increasing underwriting opportunities for the global insurance and reinsurance market, as well as a key factor that can prolong the current hard market pricing environment.
Analysts note that (Re)insurers are “critical enablers within the financial system for climate adaptation, helping underwrite the costs for the recovery from climate-related disasters, while also benefiting from opportunities to increase their addressable market”.
There are also opportunities to underwrite new climate-related risks, for example through initiatives such as the Loss and Damage Fund, and Global Shield initiative. As well as positive opportunity analysts also believe climate change will be a structural driver for both demand and pricing of reinsurance and will prolong the current hard market.
CDP: Only fraction of firms worldwide have credible climate plans in place (Business Green)
According to a report released by the non-profit leading environmental disclosure platform CDP, fewer than one in 200 companies who submit climate change-related data to their platform have a credible climate transition plan. This highlights the scale of the gap between the targets being announced by companies every day and the detailed plans and activities those companies have to meet their targets.
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