The looming climate crisis and the Covid-19 pandemic have highlighted environmental, social and governance (ESG) issues as never before. Across the financial industry, ESG has grown from a marginal trend to a central priority.
Given their long-term investment horizons and their focus on risk and regulation, insurance companies are highly exposed to ESG challenges. But they could also turn some of those challenges into opportunities.
In 2020, we commissioned in-depth research across Europe’s five largest insurance markets: the UK, Germany, France, Italy and Switzerland. Our aim was to investigate how insurance investors are responding to ESG challenges. The full report covers current practice, future objectives and the views of key decision-makers at 60 European insurance companies.
Our report paints a picture of an insurance landscape in which ESG is still seen as a risk factor rather than an opportunity. Risk management is by far the most important factor driving the adoption of ESG practices. But there are some signs of change, particularly among life insurers.
It’s clear, too, that insurers are on an ESG journey that is far from complete. While large insurance companies have led the way in adopting ESG, some are now being leapfrogged by smaller companies that are late adopters but keen innovators.
Another prominent theme is the dominance of the E in ESG. So far, environmental concerns have outweighed social and governmental issues. The Covid-19 pandemic has shone a spotlight on social concerns, however, so a more holistic approach to the topic may emerge. But there are many challenges here, as the impact of social and governance concerns is harder to quantify.
With regulators focusing on climate change, the insurance industry is adopting increasingly sophisticated tools and methodologies to address the issue. This capacity for innovation shows that there is real potential for insurers to address the rest of the United Nations’ Sustainable Development Goals in the same way.
Our survey also looks at the pivotal role asset managers have to play in helping the insurance industry adopt a sustainable investment model. Asset managers can provide tools, support and expertise to help insurers navigate the sustainable investment landscape. But this is a two-way relationship: insurance companies will subject asset managers to greater scrutiny over their ESG credentials.
To explore all of these issues in depth, access our full report here.