Regulators set to make an ESG offer insurers really can’t refuse

Channels: SAA/ALM, Risk, Systems/data

Companies: DWS, FactSet, ClimateWise, Swiss re, Allianz, Willis Towers Watson, Zurich, Aviva, Lloyd’s of London

People: Bronwyn Claire, Pat Reilly, Michael Lewis

The concept of ‘financial materiality’, and a concerted push by regulators, are the two drivers making environmental, social and governance (ESG) mainstream finance, according to speakers in a webinar by Factset and Insurance Asset Risk.

The webinar, Looking at the new frontier of ESG investing, explored the current trends, challenges and opportunities for insurers to take ESG into consideration.

The webinar is available for replay here.

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In setting out the status quo of ESG investing, Michael Lewis, managing director and head of ESG thematic research at DWS, said: “Regulation has become a powerful force moving from voluntary codes to mandatory obligations for institutional investors.”

Climate change has become the most important ESG factor, Lewis added.

He said the most compelling megatrend influencing ESG investing at present is the financial materiality of ESG, and the positive impact it can have on performance.

But managing ESG risk is only as good as the ESG data that we have, he warned arguing that while data has improved, developing it further will accelerate asset managers’ decision-making processes, so making their job more efficient.

Pat Reilly, vice president at FactSet, then set out why he believed ESG investing would endure, and become part of ‘mainstream’ finance.

Reilly said the mere fact the UN principles for responsible investment (PRI) had grown since 2006 from having just 100 signatories to 2,200 of them managing nearly $90tr of assets, signalled ESG was here to stay and that, at a high level, “is already mainstream finance”.

Finally, Bronwyn Claire, senior programme manager for ClimateWise at the Cambridge Institute for Sustainability Leadership gave specific examples of what insurers are doing in regards to ESG.

She drew on the work of insurance industry stakeholders such as Swiss re, Allianz, Willis Towers Watson, Zurich, Aviva, and Lloyd’s of London.

“Insurers are consistently looking for metrics and supporting research to develop better ESG data,” she said.  

Audience questions centred mostly on the quality and availability of data.

Asked about the likelihood of further mandatory obligations, Claire said: “In jurisdictions across the world we are seeing questions being asked by regulators with a very short turnaround. They are asking insurers what they are doing in this space, and to provide evidence. They are stepping up their knowledge and their expectations, so while it is not ‘hard law’ at the moment, that is coming.”

Lewis said a few ESG-sceptics remained, “but they can’t ignore regulation and it is going to be a powerful force”.

Regulation is a net positive, Reilly concluded. “Especially because it is framed in the perspective of doing good can also be good business.”

Vincent Huck