26 October: What’s going on in ESG and insurance?
October 25, 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: No insurance, no sustainable future
Read our summary and analysis below
Analysis
No insurance, no sustainable future
The successful development of green projects demands large amounts of financial backing. Global investment into clean energy projects and resources is estimated to top $1.7 trillion in 2023 according to the International Energy Agency. The inflation reduction act alone includes a green energy package worth $369bn.
Insurance has a vital role to play in the transition to net-zero. Across the lifecycle of any of the new green solutions we need to transition, we need insurance. But nobody seems to realise how important insurance is.
We have worked with LMG to lay this all out in a report, with case studies of great work already underway. LMG Chair, and AXA XL CEO Sean McGovern said:
“To keep global warming to no more than 1.5°C – as called for in the Paris Agreement – global emissions need to be reduced by 45% by 2030 and reach net zero by 2050. Central to this vision is the growth of green projects – initiatives, technologies, and infrastructures that reduce carbon emissions and promote renewable energy.
While people often talk about green finance as the main driver of these projects, insurance is a crucial but often overlooked partner.
In this report, we showcase how insurance – and the London Market in particular, is a key partner in unlocking, promoting, and facilitating the transition to net zero, both in the UK and across the globe”
The real question is what insurers are doing to play to this huge opportunity.
Download the report HERE.
Summary
Metrics and reporting
Transition Plan Taskforce Disclosure Framework (TPT)
The transition plan taskforce (TPT) has released its final disclosure framework and implementation guidance for UK businesses. The taskforce was launched by HM treasury to develop a best practice standard for climate transition plans.
The recommendations centre 5 key disclosure elements:
- Foundations (ambition, op model, and assumptions)
- Implementation strategy (operations, products, and planning)
- Engagement strategy (across value chain, industry, and government)
- Metrics & targets (operational, financial, and GHG/carbon credits)
- Governance (oversight, reporting, culture, incentives)
(Re)insurer action
AXA Inclusive business: Reaching the world’s uninsured majority (AXA Emerging customers)
In an article about AXA’s Emerging customers business Garance Wattez-Richard (CEO AXA Emerging Customers) discusses the assumptions around who the underinsured are – and that when looking at the data AXA found insurance fails to significantly penetrate groups below the upper-middle class.
Wattez-Richard highlights that while these groups do manage risk, insurance cover would likely be a cheaper option in the long term. Going on, that these customers are not just a group to be helped but also represent a significant business opportunity. The biggest challenge was distribution, with a customer group broadly “new” to insurance traditional channels were unlikely to be effective. Instead, they focussed on distribution networks these customers already knew and trusted.
AXA’s inclusive insurance offering is a strong example of the industry effecting social change and making a profit, proving that it doesn’t have to be a “one or the other” decision.
Howden launches Climate Parametrics unit, co-led by Douglas and Kusche (Artemis.bm)
Howden, the global insurance and reinsurance broking and underwriting group, has launched a new Howden Climate Parametrics unit. Bringing together parametric risk transfer, climate risk, capital markets, and insurance linked securities capabilities.
The unit will focus on narrowing the protection gap in underinsured areas around the world as well as creating new products for risks that currently are not insured.
Ping An uses insurance as catalyst for conservation, ESG investment (Reinsurance News)
Ping An Insurance Group, the largest insurance company in China, has established a “Biodiversity and Environmental Conversation Charitable Trust” – the first in China devoted to the preservation of mangrove ecosystems and the promotion of sustainable development.
This follows the recent “Carbon Neutral Green Finance Development” trust which aims to support green and low-carbon projects.
Climate activism
Climate activists occupy City offices over EACOP and West Cumbria mine stance (ESG Insurer)
Environmental activist group Extinction Rebellion today staged protests outside nine (re)insurers’ offices in the City of London, calling for an end to the industry’s alleged involvement in fossil fuel pipeline and mining projects.
ICMR calls for holistic approach to ESG at Lloyd’s (Reinsurance News)
Analysis by Insurance Capital Markets Research (ICMR) has found that much of the ESG focus in Lloyd’s has been on inwards business placed in the market – with little emphasis on the operations of MGAs themselves.
The article notes that owners of most MGAs are publicly listed and therefore have their own ESG scores, however this rarely seems to form part of the discussion.
The research found that the ESG standing of the parent companies had little bearing on authorisation to grow syndicates.
They argue in conclusion that a holistic approach accounting for both inward placement and parental ESG ratings would help to alleviate greenwashing concerns.
Announcements
No Insurance, No Sustainable Future (Oxbow Partners)
Oxbow Partners have launched a report covering the role that insurance plays in helping to unlock the potential of net zero projects. Aimed at parliamentarians and other influencers, it aims to showcase the role of the London Market in unlocking, promoting, and facilitating the transition to net zero.
The report was written by Oxbow Partners, drawing on interviews with a broad representative group within the London Market – including brokers, syndicates and company market insurers – to gain their insights, perspectives, and case studies of how insurance has supported projects across each stage of the lifecycle. Whether through specialised versions of traditional insurance products or innovative solutions to tackle new complex risks, the London Market has shown it can use its scale, expertise, and history of innovation to help unlock the vision for a sustainable future.
Beazley receives in principle approval to launch Lloyd’s first ESG syndicate (Reinsurance News)
Specialist insurer Beazley has received in principle approval from Lloyd’s to establish Syndicate 4321 from the start of next year. The syndicate will focus exclusively on offering capacity to businesses who perform well on ESG metrics. Further, all premiums received by the syndicate will be invested in line with Beazley’s Responsible Investment Strategy.
Pushback, or not?
Texas Takes Aim at Net-Zero Groups in ESG Probe (Energy Intelligence)
Texas is Attorney General Ken Paxton’s office is reviewing “whether companies or any affiliates that are members of a net-zero alliance are companies that boycott energy companies”. The letter names the UN backed NZBA, NZIA, and NZAOA.
The NZIA lost over a third of its membership earlier this year following threats of similar anti-trust action.
Paxton and others argue that targets place conditions on the terms of contracts which violates US prohibitions on competitor agreements.
UK competition watchdog green lights rules for climate collaboration (Financial Times)
The UK’s Competition and Markets Authority (CMA) has said it “does not expect to take enforcement action” against sustainability agreements that are in the public interest. The decision is aimed at addressing the disadvantage companies face in addressing their supply chain impacts before competitors do (due to the cost).
The move is in direct contradiction to action taken by republican lawmakers (see above article) who are weaponising antitrust regulation to target those companies who, for example, exclude fossil fuel investment that is not line with their climate pledges.
Little impact on investing from anti-ESG backlash – Cerulli (Pensions & Investments)
A report from Cerulli Associates based on a survey of 200 asset owners has found that “none are planning to stop incorporating ESG considerations in investment decisions or stop offering sustainable products, however 30% said they will be more cautious around messaging…”
The group were also broadly supportive of regulations developed by the Securities and Exchange Commission to improve transparency and consistency, with 65% of asset managers and 56% of investors saying “it will improve transparency into how managers apply ESG considerations”.
