9 February: What’s going on in ESG and insurance?
February 9, 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: The push on target setting and planning
Read our summary and analysis below.
Analysis
The push on target setting and planning
Net-zero is a topic of growing interest for more and more (re)insurers across the globe, especially those who want to make a strong stance on the “E” of their ESG.
The Net-Zero Insurance Alliance launched their first target setting protocol in January with requirements placed on (re)insurers to release interim targets within 6 months on their journey to becoming net-zero by 2050. The long-term goal is that this will lead to (re)insurers being able to measure their baseline emissions, as well as then being able to assess whether they are transitioning at the required pace.
There has been some criticism from some (re)insurers themselves and activists that the proposal does not go far enough. In particular, concerns include: there is no requirement for the initial interim targets to include a decarbonisation target; scope 3 emissions are not mandatory as part of the target; and treaty reinsurance is out of scope. With these concerns, some have raised the potential that it might be “greenwashing” to call yourself aligned to net-zero if you only commit to the very minimum requirements of the NZIA.
However, another perspective on these criticisms, is that the NZIA has bent over backwards to try and bring a wider cohort of perhaps more sceptical (re)insurers onto the net-zero bus, and that many of the concerns that the NZIA requirements might be too stringent and cumbersome, no longer apply.
Whatever your view on its choices, the NZIA’s approach to targets and the usage of the PCAF attribution factor, are the industry standard and will be the approach that those who are targeting net-zero, will likely need to align to.
What’s not clear though, is how many more will want to make a public (even caveated) commitment to net-zero by 2050 without greater comfort that the real economy is transitioning to net-zero at the required rate.
In any case, it is clear that net-zero is going to remain a hot topic for (re)insurers for the foreseeable future.
Summary
Net Zero
Re/insurers can help accelerate net zero by facilitating capital: Aon’s Dudley (Reinsurance News)
Aon’s Global Head of Climate Strategy believes that, re/insurers the industry now has a chance to transform volatility into opportunity and do more in improving resilience as the economy evolves.
In Aon’s recent annual catastrophe insight report, Dudley shared three primary ways the industry can help accelerate the journey to net zero emissions, which in turn can encourage faster and more meaningful investment.
- Instead of quickly moving away from carbon-intensive or high-emission industries reinsurers should be enabling and supporting these industries in their transitions
- The (re)insurance industry should consider the need for longer policy terms than the usual annual review cycle, e.g. cleantech energy solutions are not investible at scale yet – long term reinsurance coverage could free up capital flows
- The (re)insurance industry must collaborate and innovate with stakeholders – including alternative capital sources, green tech stat-ups. Risk mitigation firms and the public sector
Moody’s Net Zero Underwriting Module (Moody’s Analytics)
Moody’s have released a net zero UW module as an extension of their ESG UW solution, providing (re)insurers with a detailed understanding of the GHG emissions associated with their UW portfolios. The solution is designed to assist customers in their efforts to meet the demands of the Partnership For Carbon Accounting Financials (PCAF) reporting stand and Net Zero insurance Alliance (NZIA) target setting protocols. The solution combines Moody’s datasets, name matching, PCAF accounting calculations, and portfolio analytics.
Target Setting
AOA Target Setting Protocol 3rd Edition (unepfi.org)
The Asset Owners Alliance has released the third edition of it’s target setting protocol. This version covers Just Transition, Carbon Removal, IPCC Sixth Assessment Report updates, Sovereign Bond accounting, private assets, and Commercial Real Estate Lending.
The first edition focussed on outcomes 2020-2025, the second to 2030. This edition reflects the latest available scientific information and expands the methodological conversation across asset classes and provides further detail against all target types.
Aviva Investors Asks Portfolio Companies for Climate Transition Plans, Nature-Related Reporting (ESG Today)
Aviva Investors outlined a series of sustainability-focused expectations for its portfolio companies, including publication of decarbonization-aligned climate transition plans and preparation to disclose on nature-related risks and opportunities.
The three priorities outlined in the letter that will shape Aviva Investors’ stewardship activities, according to the letter, include:
- Tackling the cost-of-living crisis – “explore all opportunities to deliver cost efficiencies, delay non-essential spending, and leverage their pricing power where appropriate”
- Transitioning to a low-carbon economy – “robust and financially viable climate transition plans that will support the decarbonisation of economies in a socially just and inclusive manner”
- Reversing nature loss – “how they are aligning their internal policies and practices with a nature-positive ambition and quantify the financial risks and opportunities associated with their dependencies and impact on nature”
Aspen signs up to UN-supported Principles for Responsible Investment (Insurance Business Mag)
Aspen Insurance Holdings has announced that it has become a signatory of the Principles for Responsible Investment (PRI).
The PRI is a global network of over 5,000 organisations that are committed to integrating environmental, social, and governance (ESG) considerations into their investment decision-making and ownership policies. The PRI is also supported by the United Nations.
Sustainability at AXA XL (AXA XL)
AXA XL have released their sustainability strategy, entitled “roots of resilience”. The strategy comprises 23 goals across “valuing nature”, “addressing climate change”, and “integrating ESG”.
ESG Data
Study reveals lack of understanding over re/insurers’ ESG data use (Reinsurance News)
According to a recent report from Better Insurance Network and Oxbow Partners, brokers are hoping to get more consistency and transparency from insurers on how client environmental, social and governance (ESG) data is being used. The report found there is a general lack of understanding among brokers over how their clients’ ESG data is being used by (re)insurers, and that there is also a growing frustration over the lack of consistency in the way it is captured. Further findings of the report also highlighted a series of challenges that (re)insurers face in capturing reliable ESG data, as well as the wide spectrum of maturity and a significant degree of uncertainty among (re)insurers over how to implement within underwriting decisions.
Investors want more ESG information from companies (Insurance News Net)
The results of Nuveen’s 7th Responsible Investing Survey has found more than 80% of U.S. investors say that companies need to more openly communicate the risks and opportunities that shape their standing as “responsible investments” – and 73% also say they are more likely to invest in a company that shares with investors its plans for effectively managing those factors. Market volatility has increased interest in risk mitigation in the last year – 80% of respondents say they are more likely to invest in responsible investments if they see information on how it can help mitigate risk in their portfolios.
Two-thirds of investors (67%) agree that recent climate-related natural disasters have made them more interested in responsible investment. The same percentage (67%) agree that responsible investing can lessen the impact of business risks associated with climate change.
Regulatory
25 states sue to stop DOL’s ESG rule (Pensions and Investments)
A group of 25 states is seeking to halt the Department of Labor’s new ESG rule from taking effect.
Republican attorneys general from the 25 states filed a lawsuit Thursday in U.S. District Court in Amarillo, Texas, arguing that the Labor Department’s rule undermines key protections for retirement savers, oversteps the department’s authority under the Employment Retirement Income Security Act, and is arbitrary and capricious. The rule stands to impact over half the GDP of the United States.
The rule, which will go into effect Jan. 30, allows ERISA fiduciaries to consider environmental, social and governance factors. It also maintains the department’s position that fiduciaries may not sacrifice investment returns or assume greater investment risks as a means of promoting collateral social policy goals.
UK regulator to test asset manager’s ESG claims for greenwashing (ESG Today)
The Financial Conduct Authority (FCA), the conduct regulator for financial services firms and financial markets in the UK, has informed asset managers that it will be testing the ESG and sustainable investing claims made in their communications with investors, as part of its efforts to reduce greenwashing risk.
Noting an increasing prominence of ESG and sustainable investing products over the past few years, the FCA letter highlights the risks that “some claims about ESG and sustainable investing are misleading or inaccurate,” and notes that this could negatively impact the confidence of consumers to invest, as well as undermining the allocation of capital aimed at delivering environmental and social outcomes.
As well as testing claims, the FCA intends to ensure that asset manager’s governance bodies are structured to oversee and manage ESG information on products going forward.
Wall Street regulator may ease climate costs rule, WSJ reports (Reuters)
The U.S. Securities and Exchange Commission may soften a proposed rule governing corporate disclosure of climate-related costs as a result of industry push-back, the Wall Street Journal reported on Friday.
The top U.S. financial regulator last year proposed rules that would require publicly traded companies to inform investors of risks tied to the warming climate and report carbon emissions from their own operations as well as from elsewhere in the value chain. The final rule is expected later this year.
The SEC is considering raising a threshold at which companies would have to disclose climate-related costs, according to the WSJ report, which cited unnamed sources familiar with the matter.
