Analysts at DBRS Morningstar have pointed to the “growing momentum of sustainable investment among insurers” which it says should support a transition towards a low-carbon economy globally, and help to mitigate the effects of climate change.
With Environment, Social, and Governance (ESG) awareness on the rise, the firm noted that many re/insurers are now setting ambitious emissions targets for themselves and restricting cover for some industries like high polluters in the energy and oil and gas sectors.
Many of the largest re/insurance providers have also signed up to comply with climate friendly frameworks for sustainable insurance and are investing with the support of the United Nations, and these trends are only expected to accelerate in the near term.
Re/insurers in general have started placing restrictions on their exposure to the oil and gas sector, with AXA, AXIS Capital, Generali, Munich Re, Swiss Re, The Hartford, and Zurich limiting their coverage for the Canadian oil sands projects in particular.
One framework driving change is the Principles for Responsible Investment (PRI), developed by a United Nations-supported international network of investors (including insurers) that have set six aspirational principles, DBRS Morningstar notes.
The intention is to incorporate these principles when making investment decisions, and, by adhering to the PRI, an organization demonstrates its commitment to responsible investment.
BlackRock’s 2018 Global Insurance Survey indicated that 59% of North American insurers have implemented sustainability investment policies.
The survey also determined that the percentage of North American insurers that consider climate to be the most serious macro risk to their investment strategy over the next 12 to 24 months, increased to 21% from 9% in one year.
However the report found that European insurers are still in the forefront when it comes to ESG integration.
“With the continued interest in the adverse effects of climate change and the need for concrete action, investors, regulators, and customers are beginning to appreciate the relevance of ESG factors in fostering a sustainable global financial system,” DBSR Morningstar stated.
“Insurance companies are major investors, with estimated total global assets of about $36.3 trillion dollars in 2019. This gives the industry significant influence in the movement toward encouraging the adoption of PRI and sustainable investment in general. In the near term, more insurance companies will adapt the PRI as way to incorporate ESG into their investment portfolios.”
