Insurers are climate risk investment laggards - FREE

Insurers are climate risk investment laggards - FREE

Just one in eight insurers (12%) is taking tangible action to mitigate climate risk and the threat of stranded assets, according to a report from the Asset Owners Disclosure Project (AODP).

The AODP’s “Global Climate 500 Index 2016: Insurance Sector Analysis” found that insurers – of the life and non-life variety – are among the worst performers for managing risks from high-carbon assets, lagging way behind pension funds, for example.

Among a few rare positive performers were the UK’s Aviva, followed by France’s Axa, and then German insurer Allianz (see top table below).

Europe was credited with being “way ahead”, with only two US insurers seen to be taking tangible action: Hartford Financial Services Group and Prudential Insurance.

“Laggards include two US giants, New York Life and Mass Mutual,” said the report (see bottom table below).

Asia Pacific was also way behind, with People’s Insurance Company of China as the only Asian insurer seen to be taking tangible action.  

Insurers are relying almost exclusively on rating agencies to do their due diligence for them, for their heavily fixed income bond orientated asset books, according to the study of the world’s 500 biggest asset owners.

Chairman of the international Financial Stability Board (FSB) Mark Carney has already warned about the risk posed by stranded assets, as the global economy moves away from fossil fuels.

The FSB has a task force working on recommending how asset owners, intermediaries and the companies they invest in should report the impact of climate change within their results.

The AODP noted that insurers manage a third of the world’s investment capital with around $30trn in assets. The study focused on 116 insurers with $15.3trn under management, comparing them with 324 pension funds with $15.9trn of investments.

Of the insurers looked at, just 0.2% of investments – some $30bn – is invested in low-carbon assets.

The AODP said just 1% of insurers are assessing the risk of stranded assets in their investments compared with 6% of pension funds, and 45% of global “leaders,” those asset owners doing most to protect their portfolios.

Only 5% of insurers are measuring portfolio carbon emissions, compared with 13% of pension funds and 74% of leaders, noted the study.

Some 8% have staff dedicated to integrating climate risk into the investment process compared with 16% of pension funds and 97% of leaders, said the report.

Only 3% have a policy setting out how they engage with their investee companies on climate risk compared with 15% of pension funds, noted the paper.

On average just 0.2% of insurers’ assets are invested in low-carbon, compared with 0.6% of pension assets, according to the study.

“Insurers are specialists in risk management, but while they may understand the implications of climate change in their underwriting they are failing to join the dots on the investment side. It is extra-ordinary that the left hand doesn’t seem to know what the right hand is doing,” said Julian Poulter, CEO of AODP.

“By failing to protect their portfolios they are threatening their long-term capacity to cover future claims, putting clients’ policies in jeopardy, and risking a systemic failure that could have catastrophic effects on the wider economy. When pension funds are starting to act there can be no excuse for insurers to lag behind,” he added.

The FSB’s Carney said in a recent speech that: “Financing the decarbonisation of our economy is a major opportunity for insurers as long-term investors.

“It implies a sweeping reallocation of resources and a technological revolution, with investment in long-term infrastructure assets at roughly quadruple the present rate,” added Carney.

climate investment table

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