AXA IM believes insurers would benefit from stronger inclusion of ESG considerations in their asset allocation


35% of insurers take responsible investment (RI) or ESG criteria into consideration when making asset allocation decisions for their portfolios1, according to a survey by AXA Investment Managers (AXA IM) of 122 insurance company CIOs and decision-makers in France, Germany and the UK.

Despite the longer term impact of ESG mega-trends becoming more recognised by the insurance business model, 53% of respondents noted that the driver behind greater RI/ESG implementation is simply tighter regulation. The link between RI/ESG and performance came out as the 2nd most important driver (40%) and for almost a third (31%) of respondents it was peer pressure – industry peers adopting RI/ESG – that was cited as a key driver for the implementation of their own RI policies.

Matt Christensen, Global Head of Responsible Investment at AXA IM said: “In an industry more highly regulated than most, it would be remiss of insurers to simply react to regulations as they come to pass. A proactive approach to RI considerations would position forward looking companies favourably to deal with inevitable change and ensure their future sustainability.

“Early movers can have the advantage of addressing the long term trends and also have a greater say in shaping the increasingly onerous regulations and reporting practices that are being implemented. We believe the results of the survey highlight the need for insurers to place greater emphasis on such an important topic.

Insurance captures the essence of sustainability in the way it shares risk and calculates premia; the contributions all stakeholders must make to ensure continuing stability and prosperity for all. With scientific evidence of critical climate change, loss of biodiversity and degradation of vital natural resources, the role of the insurance industry is increasingly important, while its work is ever more complex.”

The survey also found that 30% of insurers ask their asset managers to take an active stewardship approach when asked what they were doing in terms of RI. However, only 18% invest in funds or mandates that systematically exclude non-RI/ESG compliant instruments. 10% of respondents in the UK, 11% in France and 14% in Germany do not yet have any RI/ESG investments, but are considering implementing such strategies.

Marie Niemczyk, Director, Insurance Strategy and Development at AXA IM said: “Insurers are starting to pay more attention to RI and ESG factors – 38% of survey respondents say they plan to increase their allocations to RI/ESG strategies this year and we have noticed a significant increase in RFPs with RI requirements. Even though the primary focus for insurers remains investment returns2, we think that insurers are aware of the risk and return potential in a RI approach – however, many may not have taken action yet.

“Amongst larger3 insurers, where the reputational benefits of RI can be particularly important, the survey shows a slightly higher adoption rate: 52% invest in funds or mandates that take RI/ESG criteria in consideration and 40% have worked with their asset managers to build custom RI/ESG mandates. 39% of these larger insurers note that the impact of RI/ESG mega-trends on their business model is a key driver. We understand that the challenges to integrate ESG can be greater for mid-size or smaller insurers; the move towards ESG requires a change in culture, so it’s a major step organisationally. However, by understanding and managing the risks of today, insurers, in partnership with their asset manager, can be ready to seize the opportunities of tomorrow.”

The results show that allocating to RI/ESG strategies is on the agenda of insurers in all of the surveyed countries: France had the highest percentage of respondents (44%) expecting to increase their allocation to RI/ESG strategies, responding notably to regulatory requirements whereas in Germany, 39% of respondents said they are aiming to increase their allocation. In the UK, an encouraging 31% are expecting to allocate more to RI/ESG strategies, with none of the respondents (0%) planning to decrease any RI/ESG they may already have in their portfolios.

Mathilde Sauvé, Head of Institutional Solutions at AXA IM, comments: “RI decisions in the insurance segment throughout continental Europe are driven largely by regulatory requirements, but we are also seeing a growing recognition that ESG factors are not mutually exclusive to long-term investment risks. Part of the challenge for asset managers is integrating ESG into investment strategies in a way that doesn’t mean investors must accept giving up yield. Partnering with an asset manager that can design investment solutions that integrate ESG, take into account SCR budgets and accounting needs will be key to increasing insurers’ appetite for RI-related strategies.

“Aside from the push from regulatory bodies, some insurers are beginning to take a top down view of the impact that ESG considerations might have on their business models, examining demographic trends, health risks or corporate activity.

“RI opportunities in the alternatives space, popular with insurers3, have emerged mainly through green bonds, investments in real assets and infrastructure debt. We are also seeing a growing interest in impact investing, covering investments made into companies, organisations and funds, with the intention to generate measurable social and environmental impact alongside a financial return (usually into microfinance, healthcare or education thematics).”

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