Insurers are setting increasingly ambitious ESG goals. But time is running out to avoid the worst impacts of climate change and biodiversity collapse. Add declining global health and other social crises, and it’s clear the majority of insurers’ policies are not yet strong enough.
Insurers matter for a sustainable future.
Global insurers are at a crossroads. With trillions under management, as well as the task of assessing, managing and reducing risk, they have a unique role to make the financial system work for people and planet.
To do this, they need the right policies in place. But ShareAction’s recent snapshot survey shows that this isn’t happening quickly enough.
Our snapshot survey.
Our 2021 benchmarking, Insuring Disaster, found that the majority of the world’s largest insurers were not adequately addressing systemic threats, including the climate crisis. Most were also ill-equipped to deal with connected risks, like biodiversity and human and labour rights.
We wanted to see how insurers have progressed since then, so we ran a brief snapshot survey of the insurers that took part in the previous benchmarking. Of these, 28 responded.
So what did they tell us?
Insurers reported that they have boosted their climate targets, but many are yet to put in place the policies needed to achieve these ambitions.
Insurers are getting more serious about net-zero targets.
Our previous benchmarking found that only 11 insurers had net-zero commitments, largely covering investments.
According to our sample this time around, 11 have set net-zero targets, and a further 8 plan to set one soon. As the sample size was smaller, this is proportionally a far higher number, and a trend we hope to see reflected in the full 2023 survey.
But in order to reach these targets, insurers must put in place robust policies and governance. Our snapshot suggests this this happening quickly enough.
Not enough insurers link pay to reducing carbon emissions.
Our last benchmarking found that only 10 insurers had linked net-zero related KPIs to renumeration.
The latest sample suggests the same story; 6 respondents have implemented executive pay linked to sustainability goals. Unfortunately, the majority of these did not contain enough detail or focused mainly on direct emissions, and only 2 insurers specifically reported to have linked pay to Net Zero goals.
Leading practice shows that it can be done. For example, one insurer reported including pay specifically linked to the insurer’s decarbonisation goal, which also covered the emissions generated by that insurer’s underwriting and investing activities.
Right now, oil, gas and coal policies lack the ambition needed.
Our last benchmarking found that the majority of the world’s 70 largest insurance companies had no formal restrictions on investments in thermal coal mining or energy production.
Again, we saw progress on this. 15 insurers in our sample, just over half, told us they have net-zero aligned policies on thermal coal and/or oil and gas. However, the majority of these lacked ambition – containing exceptions that allow them to continue funding certain types of thermal coal companies, or not applying the policy to their entire portfolios.
Again, we did see leadership in this area. For example, one insurer excludes all support for coal expansion in both own fund investment and underwriting.
Climate change is not the only crisis.
There’s still time for insurers to address the climate crisis with decisive, robust policies. But in an age of interlinked crisis, it is also important that any policies consider the insurance industry’s social and biodiversity impacts.
Social issues remain an area of weakness.
In 2021, ShareAction found that social issues were a major gap for insurers, with only 19 reporting an investment policy covering human and labour rights. The previous survey also found these policies were mainly controversial weapons exclusions.
Based on our snapshot survey, little has changed.
Only 5 insurers in our sample reported an investment policy on social issues. This is proportionally less than in 2021, and a major concern. Again, the content of these policies were largely single-issue exclusions, mainly of controversial weapons.
Against a backdrop of COVID-19, rising inequality and a cost-of-living crisis, the social impacts of investments and underwriting has never been more urgent. While this is only a sample, it paints a concerning picture. Insurers cannot continue treat social factors as an afterthought - it’s time to put the ‘S’ back into ESG.
We saw more engagement on biodiversity, but not enough targets.
Our previous benchmark found that insurers were lagging far behind on biodiversity. Only 23 reported to be engaging with portfolio companies on biodiversity, and none had published biodiversity strategies or targets.
This new snapshot shows progress on this – but not enough.
This time around, 12 of the 28 sampled insurers reported to be engaging with portfolio companies. We are glad to see more insurers pushing biodiversity up their agendas, but this leaves many insurers who are not engaging on biodiversity at all.
Similarly, on biodiversity goals, 2 insurers reported that they had set targets, with another 4 in the process of developing them.
This still means the vast majority of respondents have no clear targets, and no plans to set any.
With 1 million species at risk of extinction in the coming years, this moment demands more. And leading practice shows action is possible. For example, one insurer has calculated the biodiversity footprint of nearly two thirds of their investment portfolio and has set biodiversity targets for all asset classes.
These are the clear, integrated policies that insurers desperately need to adopt to protect our planet. We have 8 years left to limit mass extinction. Insurance companies must act now, before time runs out.
Now is the time for action
The insurance industry is built on assessing and managing risk. But by ignoring the impacts of their investment and underwriting activities, they’re sleep-walking into disaster.
ShareAction will be running our next global benchmark in 2023, providing more detailed analysis of the insurance industry. Until then, here’s how insurers can up their game:
- Set net-zero commitments with robust 5-year targets
- Align investment and underwriting activities with the goal of limiting global temperature rises to 1.5C
- Ensure climate commitments are linked to robust biodiversity and social policies, with robust targets.