‘Concerning for shareholders’: World’s biggest insurers failing to tackle ESG risks

American and Chinese firms fared worse than their European counterparts

Complied by ShareAction, the analysis assigns each of the companies a grade from ‘AAA’ to ‘E’ on the climate change impacts, biodiversity impacts, human rights implications and governance structures of their portfolios. Across all topics, almost half (47%) of the firms received an average of an ‘E’ grade – the lowest possible.

Performance, generally, was found to be weaker from firms in the US and Asia than those in Europe – a trend ShareAction attributes to “strong policy signals from the EU”, such as the introduction of the Sustainable Finance Disclosures Regulation (SFDR). Firms to have received an ‘E’ overall include China Pacific Insurance Company, Allstate, Chubb, China Life Insurance and New China Life Insurance.

However, all assessed companies received a bottom grade (‘D’ or ‘E’) in at least one area. Only AXA, Allianz and Aviva Investors received an ‘A’ overall, and no companies received an ‘AAA’ or ‘AA’ in any areas. Some European firms, including Nationwide and R+V Versicherung, lagged behind competitors.

ShareAction noted that most investors are generally acting more rapidly on coal divestment and engagement than other climate issues. No firms listed, for example, were willing to provide insurance for the controversial Adani coal mine in Australia. Many have specific net-zero financed emissions targets and pledges to phase out coal. Yet the average score on climate action stands at just 11%.

Even then, climate issues were better managed by most firms than issues relating to nature and human rights. None of the firms have any exclusions policies relating to biodiversity targets, leaving them open to continue underwriting for and investing in companies with lings to deforestation and water pollution. Moreover, only 13% of firms had exclusions policies targeted at firms with known human rights breaches in their operations or supply chain.

Broadly, ShareAction found that less than one-fifth of the companies assessed have any sustainability-related KPIs for any members of the board. Even fewer had a board member with some sustainability-related expertise. Also, targets and strategies relating to underwriting activities were generally weaker than for insurance.

ShareaAction has said that it will write to all named companies with targeted recommendations in the near future. “Ongoing engagement” will then continue, the organisation said in a statement.

 “Insurers are better placed than any other type of financial institution to exert pressure on unsustainable companies, as firms cannot operate without insurance. But they are largely failing to use this influence,” report author Felix Nagrawala said. “Despite the sector’s supposed expertise in managing risk, insurers continue to ignore the systemic risks of climate change and biodiversity loss.”

“While we are proud to be recognised for our firm commitment to cross-industry collaboration, effective active ownership, and leadership on biodiversity-related issues, ShareAction’s ranking shows that there is still a long way to go for the sector at large,” an AXA spokesperson added. “We welcome the publication of this ambitious global assessment and hope that it propels the industry into action to meet the era-defining challenges of climate change and biodiversity loss.”

Growing criticism

The publication of the report comes in the same week that a separate study, by Greenpeace UK and WWF, revealed that UK insurers and banks are collectively financing projects that emitted 805 million tonnes of greenhouse gases in 2019 – around twice the UK’s annual national carbon footprint.

This trend, the NGOs claim, prove that voluntary long-term targets are not enough. They are calling for new legal requirements on divestment, engagement and disclosure in the short and mid-term.

This week’s studies are the latest in a string of exposés on the detrimental environmental impact of the financial sector. CDP recently revealed that three-quarters of finance firms are not disclosing their financed emissions, while separate reports have exposed the sector’s contribution to biodiversity loss and plastic pollution.

And, on human rights, the Corporate Human Rights Benchmark from the World Benchmarking Alliance revealed that around half of the world’s largest end-user businesses are unable to prove they are protecting human rights in line with the UN’s requirements – with more than one-third scoring zero on due diligence. Such firms are broadly continuing to secure investment and insurance.

Sarah George