4 May: What’s going on in ESG and insurance?
May 4, 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: New offerings, regulatory changes, and how (re)insurers respond
Read our summary and analysis below.
Analysis
New offerings, regulatory changes, and how (re)insurers respond
We have seen significant announcements in recent weeks from large global players demonstrating their commitment to ESG goals and their belief that there is long-term competitive advantage to be gained from expansion of offerings, despite challenges.
- Munich Re has launched a “green solutions” proposition focusing on commercial specialty and primary insurance risks – a clear reaffirmation of their commitment to broad climate goals despite their exit from the NZIA.
- Aviva has launched its first long-term assets fund which will specifically consider carbon emissions of buildings in their risk evaluations – stating “real estate assets incorporating sustainability considerations will materially outperform those that do not adequately price-in material risks from sustainability-related obsolescence”.
- Allianz has turned down 33 insurance customers over the course of 2022 due to their sustainability risks.
There are significant potential regulatory changes in the pipeline that will no doubt intensify focus on ESG topics and have the potential to polarise approaches of (re)insurers in the EU and US. We are seeing US Republicans continue to push “anti-ESG” legislation in the US – though not without challenge from major institutions (e.g. Blackrock). EU legislators are taking a different approach, with the potential introduction of legislation that ties executive pay to ESG performance outraging some in the finance industry who believe ESG regulations are going too far.
These challenges are further complicated by opinions held by other key players in the (re)insurance ecosystem. The Insurance Post recently reported that “brokers in the UK can’t name the insurers leading the way with environmental, social, and governance work”.
Finding a balanced approach in this fragmented and contentious landscape of opinions will be a challenge – those who succeed will balance reactive responses to challenges with strategies that account for the long-term direction of travel.
Summary
Positive Steps
Munich Re launches green solutions after NZIA exit to target ‘E’ in ESG (Intelligent Insurer)
Munich Re Specialty Group, the parent of Munich Re Syndicate, has launched Green Solutions and an ambitious goal to become a major player in the market for green commercial specialty and primary insurance risks by 2030. The move follows the company’s decision to leave the Net-Zero Insurance Alliance (NZIA) at the end of March.
Talanx adds underwriting restrictions for new oil and gas projects (Insurance Insider – Subscription required)
Talanx, the parent company of Hannover Re and HDI, will expand its underwriting exclusions restricting insurance for new oil and gas projects on an individual risk basis from 1 July, according to its eighth sustainability report.
AXA Climate enhances platform to fill ESG risk data gaps for investors (Insurance Business)
AXA climate has introduced a new functionality on its platform for asset managers to help investors clarify their understanding of their portfolio and future acquisition targets. The update allows users to obtain a consolidated view of ESG exposures at both the fund and portfolio level, helping them meet key reporting requirements from regulators and institutional investors.
There is little market data available to inform private investor’s due diligence on ESG risks, this is the gap AXA is aiming to fill. AXA Climate’s platform, called Altitude, contains algorithm and scientific databases that can identify all risks related to climate change, carbon emissions and biodiversity loss for businesses – the update builds on this capability.
WTW introduces ESG initiative to help clients manage climate risks (Reinsurance News)
Global brokerage WTW has expanded its predictive climate analytics capabilities with the introduction of a new Environmental, Social, and Governance (ESG) initiative. WTW’s Climate Risk Solutions for Corporate Risk & Broking (CRB) North America, is a fully integrated strategy combining the breadth of the broker’s ESG resources to help its clients better manage their climate-related risks. The tool will support clients in analysing and quantifying their climate related exposures as well as developing guidance to mitigate and transfer these risks.
Aviva touts ESG focus as its launches first long-term assets fund (Proactive)
The investment arm of Aviva PLC (LSE:AV.) has launched its first fund under the UK’s new long term asset fund (LTAF) format, seeded with £1bn of real estate assets.
It is the biggest LTAF to launch since the new regime was introduced in the wake of the troubles endured for funds investing in illiquid assets in recent decades.
The company, which is one of the largest investors in UK real estate, said the fund will review carbon emissions generated by buildings in the portfolio and conduct audits of net zero alignment and social value to “help inform asset allocation decisions and drive investment performance”, as it believes that “real estate assets incorporating sustainability considerations will materially outperform those that do not adequately price-in material risks from sustainability-related obsolescence”.
Regulatory
DeSantis signs sweeping anti-ESG legislation in Florida (Business Insurance)
Florida Gov. Ron DeSantis signed into law Tuesday a bill barring state officials from investing public money to promote environmental, social and governance goals, and prohibiting ESG bond sales.
Lawyers and credit analysts said the new law could deny municipalities access to large pools of ESG-mandated capital. A further issue is how officials interpret the terms, said Thomas Torgerson, co-head of global sovereign ratings at DBRS Morningstar, which rates debt.
Executive Bonuses in Crosshairs in New CO2 Proposal: ESG Regulation (Insurance Journal)
Executives will face bonus cuts if the companies they run fail to hit climate transition targets, under a new European Union proposal that greatly expands the range of levers regulators can draw on to meet terms of the Paris Agreement.
C-suite managers at companies with more than 1,000 employees will be held personally responsible if trajectories for emissions cuts don’t align with the objective of limiting global warming to 1.5C, according to the current text of the Corporate Sustainability Due Diligence Directive.
Industry opposition to key parts of the bill is so intense that lawyers monitoring its progress say the EU faces a bumpy process.
CSDDD has the potential to be one of the EU’s most far-reaching pieces of environmental, social and governance regulations. While ESG rules enforced to date impose disclosure requirements on companies, the due diligence directive would force them to act on the information they’re disclosing.
Reports
Brokers don’t care about insurers’ ESG work, reports suggest (Insurance Post – Subscription required)
Insurance brokers in the UK can’t name the insurers leading the way with ESG work according to a survey. While ESG is top of the government and regulatory agenda with providers such as Aviva and RSA shouting about their net zero ambitions, brokers do not seem so clued in.
CPIC Announces Sustainability Report: Take Social Responsibility and Be a New Leader in ESG (PR Newswire)
China Pacific Insurance Group Co. announced its 2022 Sustainability Report which is a second of its kind after CPIC has released corporate social responsibility reports for 13 consecutive years. The Board of Directors has sought to sharpen its sustainable development capabilities and improve ESG performance.
Central bank challenges
ESG Watch: Is it curtains for Mark Carney’s green alliance, or just teething problems? (Reuters)
The Glasgow Financial Alliance for Net Zero (GFANZ) was announced with great fanfare by former Bank of England governor Mark Carney in the run-up to COP26 in 2021 and seen as a major breakthrough in engaging the financial sector in the fight against climate change. But GFANZ has faced a number of recent challenges, most recently the withdrawal of Munich Re and Zurich, two of the world’s biggest insurance firms, from the Net-Zero Insurance Alliance (NZIA).
It is notable that Munich Re has withdrawn only from the insurers’ alliance, not the asset owners alliance. Joachim Wenning, Munich Re’s chief executive, said for insurance companies, “opportunities to pursue decarbonisation goals in a collective approach without exposing ourselves to material antitrust risks are so limited that it is more effective to pursue our climate ambitions individually.”
While there is a view that the finance sector could be moving faster, steps are being taken in the right direction. Whether these commitments turn into meaningful long term action remains to be seen.
Central Banks And ESG Investing: A Fatal Combination Of Incompetence And Overreach (Forbes)
With British inflation at 10.1 percent, criticisms of the central bank’s remit to support “net zero” climate goals have been coming in thick and fast.
One of the key architects of UK central bank independence, Ed Balls said it “doesn’t make any sense” to give the BOE a role for which it has no tools. “It concerns me, the idea that you start to throw into the mix objectives which aren’t really affected sensibly by the instrument the bank has – which is interest rates. George Osborne agreed, both were of the view the BoE should focus on inflation and financial stability.
Historically, central banks operated under narrow mandates to safeguard financial stability. In recent years, however, central banks as well as multilateral financial institutions such as the World Bank and the IMF are increasingly involved in efforts to enhance the role of “stakeholder capitalism” in capital markets.
The article argues that climate policy is beyond the scope of financial regulators, and instead should be decided by elected leaders who would enact policies through a consultative legislative process after having engaged with specialized environmental and scientific agencies.
