Fast reading
- Insurance companies are broadly positioned as ‘responsible investors.’
- Some firms are deploying capital intentionally to generate measurable impact.
- Underwriting and investment strategies, developed in isolation, are beginning to converge into organisation-wide climate approaches.
UK insurers are increasingly embedding sustainability across their business and are now building out their strategies to finance the climate transition.
Federated Hermes has co-sponsored pioneering research with Pensions for Purpose that explores how insurers in UK are integrating sustainability across investments and underwriting. The new consulting paper – Navigating sustainability integration across the insurance sector – details where insurers currently stand on their sustainability journey.
A combination of drivers, including commitment on the part of insurance leaders and regulatory requirements, have helped insurers establish themselves as ‘responsible investors.’ The report takes a forward-looking approach to how the industry can build on this progress and accelerate the climate transition.
The report takes a forward-looking approach to how the industry can build on this progress and accelerate the climate transition.
One example concerns the finding that firms have tended to apply exclusions and to screen out companies with poor governance as part of a responsible investment strategy. This, on its own, is an insufficient driver of the climate transition but is the most common industry-wide approach.
Encouragingly, the report finds that some insurers are now starting to allocate capital to transition assets and Article 8/9 funds1, with the explicit goal of generating positive social or environmental impact alongside financial returns. Strong engagement plays a critical role in this process, across both equity and fixed income investments.
Companies reported difficulty in ensuring consistent integration across different parts of the business. However, underwriting and investment strategies, developed in isolation, are beginning to converge into organisation-wide climate approaches designed to ensure coherence across scenarios, frameworks and language.
Insurers apply Environmental, Social and Governance (ESG) principles consistently across portfolios but are learning how to adapt them to each asset class, which requires different methods of analysis and risk assessment.
Read the full report here
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1 Article 8 funds promote environmental or social characteristics. Article 9 funds have an explicit sustainable-investment objective.
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