US insurance companies’ interest in incorporating Environmental, Social and Governance (ESG) factors into their investment strategies has had a significant growth within the last couple of years, according to a new survey by global insurance asset management firm, Conning.
The survey explained that whilst US insurers have considered ESG and climate-related risks in underwriting, many of them have only recently started to evaluate their investments using ESG criteria.
Its results have shown that the engagement with ESG investing factors may be accelerating, with 41% of respondents indicate that they began incorporating ESG factors this past year, 79% the past two years, and just 12% more than two years ago.
A total of 67% reported incorporating ESG factors into their investment considerations in 2021.
Conning explained that “despite their extensive experience managing risk, US insurers have been slow relative to their European counterparts in Europe and Asia in prioritising and implementing ESG investment guidelines.”
Concerns about return on ESG investment (particularly among life insurance respondents), disparate and unaligned ESG reporting standards, and a challenging market environment have likely slowed the commitment of US insurers to incorporate ESG factors into their investment guidelines.
The drivers were similar across firms of different sizes, but larger firms appear to have adopted ESG criteria somewhat sooner than smaller firms.
The leading driver influencing insurers’ commitment to incorporating ESG factors into their investment strategy is the potential impact on their corporate reputation.
Accordingly, 92% of respondents indicated that corporate reputation is either “important” or “very important” as a driver to incorporate ESG investment factors.
In terms of other drivers, corporate reputation was followed closely by customer and employee concerns, regulatory requirements, leadership concerns about social issues, and the potential for competitive advantage.
Woody Bradford, CEO and Chair of the Board, Conning commented: “ESG has been and will continue to be central in conversations with clients about investment strategies moving forward, especially given an increasing regulatory and social focus on a range of issues including global environmental risks, social justice, diversity, and proper governance.
“Those who don’t keep up or ensure thorough implementation will be left behind as ESG grows in importance to all stakeholders,” he noted