6 April: What’s going on in ESG and insurance?
April 6, 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: Key players withdraw from the NZIA
Read our summary and analysis below.
Analysis
Key players withdraw from the NZIA
With Zurich joining Munich Re in departing from the Net-Zero insurance alliance, all eyes will be on its remaining members and in particular on Swiss Re, SCOR, Hannover Re, Allianz and AXA. If another one of the “big players” also leaves, it creates a real threat to the alliance as a whole.
In a piece for The Insurer (What does Munich Re’s NZIA exit mean for the industry’s net-zero future?) focussed on Munich Re’s exit, I highlighted how they were still part of other collaborative initiatives (e.g. UN’s Principles for Sustainable Insurance, the UN Global Compact, the Geneva Association and the CRO Forum), and had pledged to continue their industry-leading work in tackling the climate crisis. I also noted how the underlying rationale driving the need to act on climate change remained the same. As such, I concluded: “The future of net-zero and collaborative efforts to tackle climate change may have taken a hit – but in my view, the future remains green.”
With Zurich’s departure, I think the argument still holds. But…
We cannot get away from the fact that there is an increased risk of the NZIA not being the vehicle and the Target-Setting Protocol not being the mechanism through which the insurance industry collaborates to transition its operations, its investment portfolios and its underwriting portfolios to net-zero. And that net-zero in insurance may (as a result) not get the traction outside the NZIA’s remaining (28 for now!) members.
Some big (re)insurers and most smaller (re)insurers had chosen not to join for a variety of reasons – it seems difficult to see how that will change any time.
That’s not to say that a growing number of (re)insurers won’t set decarbonisation targets across their operations, investment and underwriting….or that the Target Setting Protocol won’t be used (even by those not in the NZIA). But it does mean that this direction will be slower and there will be many bumps on the road.
All we can do is watch this space…
Summary
The future of net-zero within the insurance industry
What does Munich Re’s NZIA exit mean for the industry’s net-zero future? (ESG Insurer – subscription required)
Last Friday saw the news that Munich Re were pulling out of the Net-Zero Insurance Alliance (NZIA), sending shock waves throughout the insurance industry. This is especially as Munich Re is one of the founding members of the Alliance which is widely seen as the most effective way of bringing insurers together on the net-zero journey. The stated rationale for their departure is “material antitrust risks” despite the Competition and Market Authority (CMA)’s plan to ease restrictions on collaboration when it comes to environmental sustainability, and the European Commission’s guidelines on antitrust issues.
A positive reading is that Munich Re’s ambitious climate targets on its investment portfolio, fossil fuels and net-zero remain. A less positive reading is that this is part of a broader trend of Munich Re pulling out of collaborative initiatives to tackle climate change, such as the Climate Wise initiative as well.
In the article, I argue that Munich Re’s approach does not put wider collaborative initiative to tackle climate change at risk. Munich Re remains a part of many collaborative and “peer-to-peer” initiatives, is at the front of the industry when it comes to climate initiatives and regulations continue to develop as shareholders and governments demand more supported by public activist pressure.
Zurich joins Munich Re in withdrawing from Net-Zero Insurance Alliance (Reinsurance News)
Zurich has confirmed its withdrawal from the Net-Zero Insurance Alliance (NZIA), citing a desire to focus its resources to support its customers with their transition. “After establishing a standardized methodology for measuring and disclosing greenhouse gas (GHG) emissions associated to insurance and reinsurance underwriting portfolios, we want to focus our resources to support our customers with their transition,” reads the statement from Zurich on its decision to withdraw. “We continue to remain fully committed to our sustainability ambitions and to supporting the net-zero transition,” the firm added. This comes just days after Munich Re, one for the world’s largest reinsurance companies, revealed its discontinuation of its membership in the NZIA.
Mobilising green investment: 2023 green finance strategy (UK Government)
The Mobilising Green Investment: 2023 Green Finance Strategy aims to strengthen the UK’s position at the forefront of the rapidly growing global green finance market, while driving private investment to deliver our energy security, net zero and environmental objectives.
It sets out the Government’s framework for the UK to become the world’s first Net Zero Aligned Financial Centre, outlining how they will ensure market participants have the information and tools they need to align to the UK’s climate and nature goals.
The strategy shows how the UK is building on the legacy of COP26 by accelerating global growth in green finance, including to emerging markets and developing economies
Increasing action on sustainability
Oxbow Partners certifies as a B Corporation (Oxbow Partners)
Oxbow Partners has been certified as a B Corp – an accreditation for companies that balance purpose and profit. They are only the second leading UK management consultancy, according to the Financial Times list of leading UK management consultancies, to be certified.
As a certified B Corp, Oxbow Partners meets rigorous social and environmental standards representing their commitment to people before profit. They are especially proud to have secured accreditation on first attempt, and it did not require major changes to their business model, governance or employee offering.
We see the B Corp principles as ‘table stakes’ in the modern corporate world. As ESG becomes an increasingly hot topic, we are being asked by our clients how we incorporate these principles in our business, and if we can help them with their topic. We feel that if you don’t walk the walk, you can’t talk the talk.
Chubb announces climate-focused underwriting standards for oil and gas extraction (Insurance Journal)
Chubb Ltd. announced new underwriting criteria for oil and gas extraction projects that will require clients to reduce methane emissions, a by-product of oil and gas production that among the most severe greenhouse gases. It also announced it will not provide insurance coverage for oil and gas projects in government-protected conservation areas in the World Database on Protected Areas. The methane criteria are a first of their kind in the industry according to Evan G. Greenberg, chairman and CEO of Chubb.
Ardonagh publishes its inaugural sustainability report | Insurance Business UK (Insurance Business)
The Ardonagh Group has published its first-ever sustainability report. Last year Ardonagh also became a signatory to the UN Principles of Sustainable Insurance. Chair John Tiner said the group is in the process of adopting the principles into Ardonagh’s governance framework to not only help shape its sustainability programme but also provide a means for recording progress.
Tiner asserted that Ardonagh’s commitment to sustainability is steadfast and that its approach will evolve as the insurance group continues to make progress. Meanwhile chief executive David Ross said they don’t take lightly the responsibility to provoke thought and lead action in support of environmental and community initiatives.
Marsh McLennan released ESG numbers (Insurance Business)
Marsh McLennan released a report on its ESG activities. The report, titled Succeeding Together, included:
- Global female and US ethnically and racially diverse representation data for each of the last three years
- Marsh McLennan’s series of programs aimed at creating a diverse talent pipeline, including the Racial Inclusion and Social Equity (RISE) program, which welcomed Black fellows from more than 30 colleges and universities in the US, the UK and Canada, and the Black Leadership Program and Accelerated Leadership Program for current employees
- The statistical results of the company’s annual pay equity study
- Current progress in setting low-carbon transition strategies that will help the company achieve net-zero emissions across its operations by 2050, including sourcing 100% renewable electricity for its largest offices in the UK and Ireland
It also included highlights and contributions to a wide array of ESG issues on behalf of clients and communities in 2022 across its four global businesses.
Ramping up regulation and activist pressure
‘Green Day’: Treasury launches consultation on ESG ratings providers (Investment Week)
The government has launched a consultation on ESG ratings providers as part of its Green Finance Strategy. The proposals were announced as part of the revamped Net Zero Strategy. This would involve new regulatory oversight of ESG ratings providers to achieve globally consistent regulation to improve market confidence and support the net zero transition.
Baroness Penn, Treasury minister, noted that with a projected ‘$33.9 trillion of global assets under management considering ESG within three years, the importance of reliable ESG information is critical and growing. ESG ratings are a key element of this.’ The Treasury noted that while it would set any new legislation, it would be regulated by the FCA and PRA.
Who Does Regulating ESG Help? (Forbes)
Peter Krull is highly critical of efforts to create regulations that ban the consideration of ESG criteria in investment and insurance decision-making. He argues that they are hypocritical, for the proponents of such regulations are those that typically argue for small government and against regulation.
He further suggests that the campaign against ESG is pandering to create an effective “us versus them” narrative to win votes. Ironically adding more metrics to the investment research process would likely benefit constituents. According to Jim Jones, Chief Justice of the Utah Supreme Court, anti-ESG bills pending in the Idaho senate are ‘fighting a losing rear-guard action for the fossil fuel industry.’
Integrating ESG data into investment analysis actually helps to maximise returns and minimise risks, as stated in a pro-ESG bill in Illinois. It is not a zero-sum game of climate action versus investment return. There is never enough data for making securities selections. The more information, the better. While there are issues with ESG rating consistency, Kroll says that anti-ESG regulation is protectionism at its worst to protect the old economy.
Hundreds of funds to be stripped of ESG rating (Financial Times)
Hundreds of funds are to be stripped of their ESG ratings and thousands more will be downgraded in a shake-up being pushed through by index provider MSCI. The impact could be particularly acute in Europe where a growing number of institution will only invest in funds that are deemed to be compliant with ESG-investing principles.
The changes are part of a push by index providers to tighten up the criteria for what qualifies as an ESG-compliant fund amid pressure from regulators concerned about the prevalence of so-called “greenwashing” as the sustainable finance industry expands rapidly. According to iShares research in Europe alone 1,476 ETFs will have a lower rating, 905 will be unchanged and 78 will have a higher rating.
TNFD publish final beta framework for nature-related risk and opportunity management (TNFD)
The Taskforce on Nature-related Financial Disclosures (TNFD)’s full and final beta framework for nature-related risk and opportunity management and disclosure is now available.
For the first time, the market can view the entire framework and draft recommendations in full ahead of the v1.0 recommendation launching September 2023.
All three core components of the framework have been updated and supporting guidance released, including:
- Greater clarity on core concepts and definitions
- An updated LEAP approach for assessment and management of nature-related risks and opportunities
- 14 draft core global recommended disclosures and supporting metrics
- Cross-sector guidance on approaches to scenarios analysis, target setting, and more
- Guidance on risk assessment methods
- Additional sector and biome guidance provided on the Framework site
- Additional guidance on engagement with affected stakeholders
Stop insuring carbon projects ‘immediately’, activists tell bosses (Reuters)
A group of climate activists has called on 30 insurance company bosses to “immediately” stop underwriting new fossil fuel projects in the wake of a stark climate warning from UN scientists, a letter seen by Reuters showed.
Insure our Future, a global consortium of activists, said it sent the letter to companies including Munich Re, Zurich Insurance and AXA. Signed by 23 climate groups, including NGOs, it said the insurance industry had failed to do enough to meet the world’s climate goal of limiting warming to 1.5 degrees Celsius. Other demands included stopping insurance for new fossil fuel customers not aligned with the goal, and adopting binding targets to reduce insured emissions by July 2023.
ESG a ‘make or break’ factor in M&A in 2023 (Intelligent Insurer)
An Intelligent Insurer panel argued regulation will play a big role in (re)insurance M&A activity this year as (re)insurers and investors look for accelerated growth. Eva-Maria Barbosa, partner at law firm Clyde & Co, said ESG regulation will be able to make or break a deal. She warned that failure to take the importance of ESG regulations into account in any M&A deals ‘could damage your business tremendously going forward’. To have scale and to stomach changes in ESG regulation is very valuable.
About the author
Miqdaad Versi is a Partner and Head of Sustainability at Oxbow Partners. He leads engagements on sustainability strategy and delivery for some of the world’s largest (re)insurers. He has a wide network spanning the executive and sustainability leaders teams of large (re)insurers, industry bodies, and other organisations such as the United Nations Environmental Programme and the Insurance Development Forum.
