Pandemic causing insurers to sharpen their focus on ESG investing issues

The COVID-19 pandemic is accelerating insurers' moves toward adopting stricter and more defined environmental, social and governance policies.

Although ESG and carbon intensity have been a major focus in Europe for several years, the trend has been a bit slower to catch on in the U.S. But COVID-19 is bringing the theme back into sharper focus among North American insurers.

BlackRock's ninth annual global insurance survey, which gathered the opinions of 360 insurance executives in June and July, revealed that 69% of North American insurers said COVID-19 is causing them to increase their focus on ESG and emphasize their focus on the "S" and "G" in particular.

"That dialogue is gaining intensity," said Daniel Dunay, managing director and head of the financial institutions group in the Americas at BlackRock in New York.

Alexandra Mihailescu Cichon, Zurich-based executive vice president, sales and marketing, at RepRisk AG, an ESG data science and ratings firm, noted that COVID-19 has led people to see how interconnected everything is, like how the environment impacts the economy.

"You can't move one (lever) without affecting the other," said Ms. Cichon, adding that she has "seen a lot of growth coming from the U.S., including asset owners, banks and insurance managers. They're looking to catch up quickly."

"In the last 18 to 24 months, ESG has gone from a potential fad to something nice to have. Now, it's moved to a 'must-have' category," she added. "Most of that's driven by asset owners."

Insurance companies with whom P&I spoke said they are upping their commitment to ESG and addressing climate change within their portfolios.

"ESG is definitely starting to impact allocations of capital," said John Bender, Chicago-based chief investment officer of fixed income and co-head of global fixed income at Legal & General Investment Management America Inc. He added the company no longer invests in power companies where more than 30% of their revenue is generated from coal. "We're also looking to reduce the carbon in our portfolio."

"We're being more selective of the bonds that we buy," Mr. Bender added. "We're making a bigger move toward a cleaner environment and less fuel sources."

Todd Hedtke, senior vice president and CIO of Allianz Life Insurance Co. of North America, said that although COVID-19 has "dramatically" sped up the importance of ESG in the eyes of insurers, it's been an important topic "for Allianz for a long time."

Allianz is a founding member of the Net-Zero Asset Owner Alliance, a coalition of roughly 30 institutional investors overseeing a total of $5 trillion in assets pledging to facilitate the decarbonization of the world economy, starting with making their own portfolios carbon-neutral by 2050.

In October, the alliance set its first defined target for members: a 16% to 29% reduction in greenhouse gas emissions contained in their member portfolios until 2025.

"Our focus is heavy on the climate side," Mr. Hedtke said.