20 August 2020
The USA may bear a huge responsibility in the collective failure in tackling climate change, according to Michele Lacroix, head of group investment risk & sustainability at Scor.
Lacroix spoke with Insurance Asset Risk ahead of the magazine's annual Americas event – this year held virtually.
"My message will be to encourage USA investors to on-board sustainability considerations in investment decisions as quickly as possible," she said. "And in a way go against the new regulations that are coming into place in the USA, which tend to diminish the role of non-financial considerations in investment decisions."
Lacroix believes the main hurdle for sustainability to grow in the investment community in the USA is that there is currently no incentive to integrate non-financial information in investment processes.
"It is ironic in a way, because SASB [The Sustainability Accounting Standards Board]– which is really a USA initiative – is trying to establish itself as the non-financial accounting standard setter," she said. "And that's coming from a country which doesn't really recognise the benefits of the integrating these kinds of information in investment decisions."
Culturally, in the USA, investments' purpose is solely to make money, Lacroix argued. However, investors don't even consider the resilience of their portfolio to non-financial risks factors which are also drivers of financial performance. And those who consider sustainability tend to look only at the resilience of their portfolios without considering the impact of their investments.
"Their ultimate objective is to save the financial performance of the portfolio," she said, adding that they are not following the logic through to the end. "If we don't invest to protect the planet, we will naturally increase the risk on our portfolios on a longer-term horizon."
To be impactful means, by definition, that investors are working on "[their] own resilience but on a 10 to 20 years horizon and not on the time horizon of the performance of a fund vis a vis a benchmark".
This idea that it is not a one-dimensional issue but a multidimensional one is what Lacroix would want to see pushed more forcefully in the USA. "When you invest to favour the transition to a lower carbon economy, indirectly and in the long run you are working on the performance of your portfolios."
For her, USA investors are lagging by seeing durability as a constraint on their investment rather than a long-term performance driver.
"They are in the theory of the free-rider problem," she said. "If they can make money on the back of European investors retracting from some sectors they will."
But climate change knows no borders, and if we are to reach net-zero greenhouse gas emissions by 2050, everyone including the USA will need to be on board.
Lacroix concluded: "We can be 'tolerant' towards some countries in Asia and Africa who need to develop their economy, but Europe and the USA need to do more."
Insurance Asset Risk Americas will be held as a virtual conference this year due to COVID-19. The conference will take place on 22 and 23 of September, more details can be found here.