16 October 2023

Insurance Asset Risk's Responsible Investing for Insurers conference round up

If sustainability can sometimes be a consensual topic, it wasn't so at Insurance Asset Risk's Responsible Investing for Insurers 2023 conference.

The annual event kicked off with a panel session that revealed how even if as citizens and individuals we may be concerned about sustainability related issues, as investors the integration of such considerations may not be 'natural'.

Foresters Friendly Society chief investment officer Corrado Pistarino kicked off a debate arguing that it was a "delusion" for asset owners to think they can "have a massive role to play".

Shipra Gupta, investments stewardship lead at Scottish Widows, and Anand Rajagopal, private markets sustainability lead at Phoenix Group argued fiduciary duty warranted insurers and asset managers to take action in this area.

If the rest of the day's panellists and presenters showed more consensus in their deliberations, questions from the audience revealed some sarcasm towards the topic. An audience member for example referred to the LDI crisis of last year saying it "lost investors more money than the climate crisis will in 30 years".

Bianca Hanscombe, head of sustainability investments at Aviva Life UK, noted that she wasn't sure how one could measure investment losses from climate for the next 30 years.

Eoin Murray, head of investment at Federated Hermes, added that the LDI crisis had only been detrimental to the UK government in a short time period, whereas the climate crisis would impact everyone over a very long time.

Although there is a lot of talks and pledges around reaching a net-zero economy by 2050, there is no clear definition as to what that means, according to Erik Vynckier, board member at Foresters Friendly Society.

Vynckier said there was an implicit understanding that reaching net-zero meant stopping all carbon emissions, but he added that this is unnecessary and could even be "harmful" as carbon is part of nature and serves a purpose.

Looking at renewable energy and particularly wind energy, Vynckier said: "We are investing in a dead-end alley when it comes to wind."

At a more practical level, insurers noted the need for a regulatory framework supportive of their investments in this space, in particular around transparency and data.

This is particularly true of fixed income instruments such as green bonds and sustainability linked bonds. Nimisha Sodha, responsible investment lead at Just Group, said reporting needs to improve "to show that their aims are actually being achieved".

Although climate and transition occupied a lot of the conversations, conference speakers were keen to highlight how work on biodiversity and social considerations is already underway.

To that effect, Zurich UK's chief investment officer David Thompson highlighted how "lessons from climate' can inform work on other sustainability issues". In particular, he said work on climate had shown that one shouldn't fear taking a stand and being wrong, or that sustainability issues went against financial return considerations.

When it comes to social considerations in investing decisions an audience poll revealed that 82% of delegates think of social as a whole in their sustainable investment strategy, rather than dividing it up between sub-topics such as diversity, equality and inclusion (DEI), workers rights and human rights.

However, Abigail Hall, responsible investment manager at Scottish Widows, explained that UK insurers do prioritise their efforts on DEI and human rights.

Panellists highlighted how the maturity achieved on the climate topic had not reached social considerations yet.

A sentiment echoed by panellists on a session on impact investing, where it was said that impact is not as easy to achieve on social issues than it is on environmental considerations. Mostly because it is currently easier to measure progress on environmental considerations.

Last but not least, the conference wrapped up on the topic of data. Simon Atherton, senior climate investment risk manager at Phoenix Group, said that using third-party data providers bring some challenges as one doesn't have the full completeness of data and have to find ways to fill in the gap.

"Over the last few years, we have discovered that there are some public sources of data that are quite useful," he said. "It is an iterative process, you try to improve each time."

There are some things you can do to address the lack of data, he concluded. "But you also have to be cognisant of the quality of the data you get."