The concept of ESG has evolved rapidly, leaving behind an uneven landscape of reporting standards and regulation. In the survey, insurers reveal a wide range of views on what they think regulation can achieve.
To report or not to report
Even before the recent public and media attention on sustainability, most insurers have been doing at least some reporting on their sustainability strategies, largely driven by reputational considerations.
Still, over a third of insurers are not producing a sustainability report, and many have no intention of doing so. Their reasons range from the lack of a commonly agreed upon way to report to too many frameworks for reporting. And some insurers are fearful of the scrutiny that comes with putting out information. For example, Asian CIOs fear their sustainability efforts will be unfairly compared to the more advanced ones of European peers.
Interestingly, nearly two-thirds of those surveyed would welcome regulators setting standards for disclosure, reflecting the idea that if regulators set up standards, including methodology and metrics, it would force all stakeholders to move at once and level the playing field.
Insurers are also more inclined to favour policy makers to set the standards, believing governments might be more principles-based and offer a framework into which firms can more easily fit their own approaches. Insurers are concerned that financial regulators will demand more stringent, burdensome and compliance-based ESG disclosure.
Can sustainability be regulated?
Insurers are quite split on the question of the role of regulation in sustainability. For example, when asked about the role of financial regulation in driving the response to climate change, most CIOs agreed it is a driver, but were divided as to whether it was really the main one. Yet whether they are in favor of it or not, many CIOs admitted that regulation has been a catalyst for action on their sustainability strategies.
In Europe, the European Insurance and Occupational Pensions Authority (EIOPA) has acknowledged the pressing need for insurers to identify and assess the impacts of risks related to climate change, though it does not believe a fundamental revamp of its Solvency II rules is necessary. This view is shared by many insurers, who believe that ESG risk should be captured within other risk categories of Solvency II, and that any incentive to invest in ESG-friendly assets could skew investment decisions without proper risk management.
At the same time, many CIOs recognise that using capital charges as a lever tied to the ESG characteristics of an asset would push firms to more forceful action, potentially helping achieve broader sustainability goals. Survey responses suggest that insurers are again divided: while two-thirds favour lower capital charges on green investments, just over half favour higher capital charges for brown investments. In reality, CIOs believe capital charges are the wrong tool for the job and would instead find adequately priced climate risk more valuable.
While insurers disagree about many regulatory concerns, there was unanimous agreement on one topic: greenwashing. All stakeholders would like regulators and policymakers to tackle greenwashing and felt that the taxonomy being developed by the European Union was a good first step on the road to standardizing ESG disclosures.