The interest of US insurance companies in incorporating Environmental, Social and Governance (“ESG”) factors into investment strategies has grown significantly in the past two years, a new survey finds.
The poll, conducted by global insurance asset management firm, Conning, took in the views of senior leaders and decision-makers in at US life and P&C insurers.
While US insurers have long considered ESG and climate-related risks in underwriting, many have only recently started to evaluate their investments using ESG criteria. The survey suggests their engagement with ESG investing factors is now accelerating, with 41% of respondents saying that they began incorporating ESG factors this past year, 79% the past two years, and only 12% more than two years ago.
Despite their extensive experience managing risk, particularly in the area of climate risk, insurers in the States have been slow in comparison to their counterparts in Europe and Asia with regards to 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 insurers in America 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.
Corporate reputation stands as a key driving force behind the trends, with 92% of those surveyed saying that their company name was either “important” or “very important” as an ESG investment factor.
Customer and employee concerns over sustainability, regulatory requirements, leadership concerns about social issues, and the potential for competitive advantage, were reported as other high-ranking motivators.
Woody Bradford, CEO and Chair of the Board, Conning, said:
“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.
Survey respondents indicated that the lack of ESG reporting standards outweighs their firms’ concern about the constraints ESG may impose on investments. The lack of standardised ESG reporting continues to be a concern for US insurers and, until uniform guidelines are put in place, they will need to manage the challenges of assessing ESG investment data based on different sets of criteria.
Matt Daly, Head of Corporate and Municipal Teams at Conning, said:
“Despite the many considerations, resources, and challenges involved with implementing ESG-focused investing, insurers seem to understand that, ultimately, the benefits outweigh the costs.
“Given the responses we saw in this survey, ESG is likely to become an even more central part of insurance asset management in the near future,” Daly added.