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Building out a sustainability framework for purpose-driven insurers

Insurers globally are facing increasing pressures and expectations around considering and integrating sustainability risks into their investment approaches and wider business models. Sustainability risks are especially important for the mutual sector given the typically longer term focus and desire to be purpose-driven rather than purely financial-driven organisations. However, there still remains material challenges around meeting these expectations across areas such as reporting, disclosure, climate stress testing and balancing sustainability integration with the continual need for higher investment returns.

This webinar, hosted by Andrew Epsom (Insurance Client Solutions Director) and Carlota Manas-Garcia (Head of Engagement) of Royal London Asset Management (RLAM); and Kaisie Rayner (Climate Change Lead) of Royal London Group provides: an update on the key global regulatory developments and other initiatives around sustainability; discusses the framework that RLAM has developed for integrating sustainability risks into different elements of the investment operating model; shares some quantitative and qualitative analysis around how the largest insurers globally have been evolving their sustainability approaches; and provides some practical examples of how the Royal London Group has been building out its sustainability framework.


  • Kaisie Rayner, Climate Change Lead, Royal London Group (UK)
  • Carlota Garcia-Manas, Head of Engagement – Responsible Investment Team, Royal London Asset Management (UK)
  • Andrew Epsom, Insurance Client Solutions Director, Royal London Asset Management (UK)


Shaun Tarbuck: 

Good morning, good afternoon, good evening, wherever you are in the world. My name’s Shaun Tarbuck and I’m your moderator for the day. I’m the CEO at ICMIF and I’m absolutely delighted to be bringing this webinar to you. It’s so timely with COP26 just around the corner and all of the discussions, hopefully, that our three panelists are going to bring together will be extremely relevant to that meeting. And to every mutual going forward. 

We’ve got a great line up of speakers and I’ll just quickly introduce them. Kaisie Rayner, who is the Climate Change Lead at Royal London. We’ve got Carlota Garcia-Manas, who is the Head of Engagement and Responsible Investment Team at Royal London Asset Management. And we’ve got Andrew Epsom, who is the Insurance Client Solutions Director at Royal London Asset Management. So, a great group of experts to take us through the next slides.  

Kaisie Rayner: 

Thank you so much, Shaun. Really happy to be with you today to talk about one of my favorite topics, which is climate change and sustainability. If we flick on to the next slide just as a recap of who’s speaking and what we’ll be talking about. You’ll have me for the first part, and I’m just going to whizz through the climate context and then focus on Royal London’s purpose and strategy. I’ll then hand over to Carlota, who’s going to talk about regulatory developments and sustainability frameworks. And then over to Andrew for industry perspectives and we’ve left enough time at the end for questions, so get your thinking caps on to ask us those difficult questions at the end. You’ll have a whistle stop tour through my slides because I’m taking it as read that for most of you, you’ll understand some of the climate context already. Without further ado, let’s launch into the climate context. Next slide please. 

As we head into COP26 in November in Glasgow this year, I thought it was worth revisiting what is driving lots of the conversation. And that was the agreement that we managed to secure in Paris and named the Paris Agreement for that reason back in 2015. Now, most people are well aware of the fact that the Paris Agreement has set in stone some very key climate warming targets about keeping the degree of warming below two degrees and aiming for one and a half degrees. What most people are not aware of was that was only part A of several objectives within the Paris Agreement. And so, it’s well worth looking at both part B and part C. 

Part B is looking at making sure that we are adapting and resilient to climate change. And part C is perhaps the most important, and one of the key focuses for the November COP discussions. And that is around making finance flows consistent with a pathway to achieve the limitation in warming. And it’s this key aspect of the Paris Agreement that has driven the regulatory agenda over the last five years. With the objective of aligning finance to deliver sustainable outcomes, and depending on which regulatory environment you’re in, you may have heard acronyms such as greening finance or financing green, and Carlota will talk about that in more detail in the regulatory section. 

But it’s well worth focusing on the fact that this year is the year for finance. The focus is very much on how are we going to create the finance plan to achieve our ambitions at COP. And there’s one key piece of homework that the negotiating parties have failed to address from the Paris Agreement. One page of text around how do we price carbon, so that’s contained within Article Six. So, look out for those discussions as we head into COP, which is from the first to the 12th of November, with the finance discussions happening on Wednesday the 3rd, that will have key ramifications for our industry and many of the industries in which we invest if carbon pricing is agreed.

Are we on track? For those of you who’ve been watching the press, the latest IPCC Emissions Gap Report came out today and the news is not great. It’s perhaps worth updating this slide. If we look to the left, you can see this is the trajectory we need to get on if we’re to limit warming and reduce the carbon emissions that our societies create. And you can see it’s a fairly steep decline and the actions that we take over the course of the next decade will really determine whether or not we’re able to achieve our goals or not. 

Now, where are we at the moment? If you look at the world Chief Risk Officer’s report, not in a great place. They said that they think there’s less than one percent chance that we’ll manage to maintain global warming to less than one point five degrees and only a five percent chance of limiting that to two degrees. That is not a great outcome and we’re really hopeful that as we head out of COP26 this year we will see an increase in the governments commitments to reduce their carbon emissions which will see us on a much more positive pathway. 

But let’s not underestimate the scale of the challenge facing us if we are to halve our carbon emissions by 2030. That means, if we were to think about the carbon emissions that were reduced as a result of COVID, which were around five to ten percent during that period, we need that kind of reduction every year, year on year, between now and 2050. That is a huge amount for us to think about and a huge amount of change that needs to happen. 

So, what does that change need to look like? Let’s go to the next slide please. As the momentum starts to build ahead of COP, we’re seeing governments take action related to some of the ambitions and importantly, some of the recommendations from institutes such as the International Energy Agency, who start to recommend actions to help get us onto a Paris aligned pathway. For example, looking at cutting domestic flights is one of the ways that we can limit carbon emissions and we’ve seen in France that they’re taking steps to tackle that. And the other one, as I mentioned, would be looking at a carbon border tax to help address carbon pricing and using the legislative framework to enshrine in law, carbon targets. The policy announcements that we see over the coming period in time will really start to shape the industries and sectors that we invest in. But it’s not all bad news…

It’s not all about risk. As much as it’s about stopping a lot of stuff, it’s also about starting a lot of stuff. And that’s where we come in. As very large investors and as a mutual, it’s in our interests and in our members interests to make sure that we create a future worth living in. And that means investing in the sectors and technologies that are going to help us get there. And nearly ever sector of our economy needs to transition and transform, and in that, there is an investment opportunity. One of the big challenges for us as a sector, is how do we get the capital that we have to the places that it’s needed? And that is the Capital Allocation Conundrum articulated on the right hand side. But really, it will just be a failure of imagination if we don’t manage to develop the products or financial instruments that help us to solve this problem. After all, the financial system is a man made system, or woman made, and we can intervene to make that better

So, one of the key questions that we’re faced with, and again, Carlota will talk about this in more detail and I’m sure it’s one that you’re all facing, is do we divest? Do we get rid of the carbon intense stuff in our portfolios and does that really make a difference? Well, for us at Royal London, we’re really focused on making real world change and real world impact because unfortunately, our customers don’t retire into their portfolio, they retire into the real world. And so, you can take all the action you like within your portfolio, but it’s not necessarily going to make the world a better place. Our first port of call needs to be interacting with the companies we invest in. Don’t mistake a reduction in portfolio emissions for a reduction in real world emissions because that doesn’t always hold true

So, if that’s the challenge, how are we going about thinking about this as a mutual? And where does sustainability and climate fit within our purpose and strategy? I’ll do a tiny recap on the Royal London purpose and strategy and then bring in a couple of frameworks that bring that to life. As a mutual, Royal London is very focused on our customers, our clients and our members. And our purpose as a financial provider is really to help our customers manage their life, build resilience and stop a crisis becoming a catastrophe. We help our customers protect today through investment products and insurance products, invest in tomorrow and fundamentally, we’re mutually responsible for helping them create that future by us providing the products and by our customers saving into them. 

Our broad strategy is to be insight led and to grow by deepening our relationships, and we have six key levers through which we do that. I’m not going to focus on that. I’m going to take us to the next slide, where we’ve built out those three objectives around protecting today, investing in tomorrow and focusing on mutual responsibility to say, well, what does that actually mean for our mutual? Because they’re all great slogans, but how do we turn that into things that we can measure and things that we can do? 

As a mutual, and one of the last big life and pension mutuals in the UK, we want to use our mutuality as a force for good, engaging with policy makers and industry to take forward the view that better customer outcomes rely on not just financial returns, but the world that our customers retire into. And also encompass their financial resilience and the society and the protections that society offers them as well. You can see that we’re doing that by helping build financial resilience for our customers, and stopping life shocks becoming a crisis. And we also do that through work with our foundation. But the key one to focus on when we’re looking at how do we bring climate into our purpose, is moving fairly to a sustainable world. 

For us, it’s key that as a responsible investor, we look to imagine, invest and engage in building this future world. Now, one of the ways that we’ve done that, and I’ll come onto that momentarily, is focusing on our core investment beliefs. But we’re also engaging with different industries that we invest in for a just transition. Not just, a just… Not just a Paris-aligned transition, but a Just Transition: which means that we want to achieve the goals of the Paris Agreement, but in a way that is fair and equitable to the communities and colleagues and customers who are affected by changes to companies. 

A little bit about our investment philosophy and beliefs on the next page, if we can move forward. In looking at what climate change means for us, we’ve really taken it to the core of how do we allocate capital? So, for us, we manage over a hundred billion in assets, and so in reviewing what does climate change mean for our investments, we’ve conducted scenario analysis and our findings show us that our customers are better off if we’re able to achieve the goals of the Paris Agreement. Both from an expected returns perspective, but also from an inflation and standard of living perspective. Even if we were able to make more money in a Paris non-aligned world, the fact that the prices of goods and services would go significantly up, would mean that actually, the benefits for our customers in retirement would be less. 

However, the returns profile in a carbon constrained, in a climate challenged world is worse than if we’re able to address climate change. So, on both counts, the financial returns and societal benefits are improved if we’re able to achieve the goals of the Paris Agreement. And so, we’ve incorporated that into our beliefs. 

One of the other beliefs that we’ve incorporated is that as we seek to transition, the risks and opportunities from climate are not being priced effectively in the market. And that means the prices that we see reflected in the market for companies, we don’t think incorporate all of the risks and opportunities. We used to allocate around 23 billion in investment on a market weight basis, and this year, we’ve taken the decision to stop doing that. And we have transitioned our market weight passive funds away from market weight and taken an active investment approach where we adopt a climate constraint and ESG characteristics. 

Now, this can be a really challenging conversation to have internally, for those of you that are investors, to stop selling one product and fundamentally change it to another, but in these times it’s really important that we ask these difficult questions around what are the fundamental beliefs that we have today and do they hold true? And if not, how do we change those? Fundamentally, we believe that if you call yourself a responsible investor, then you ought not to be allocating the bulk of your money on a market weight basis because it does not adequately incorporate climate and ESG risks. Not necessarily the same conclusion as many other investors at the moment

One of the other frameworks, and this is a really important point and I’m not going to go into all of the detail because Carlota will. And I think we’re missing two little tiny pictures, but that’s okay. As an asset owner and as an asset manager, we have now committed publicly to the achievement of our net zero goals, so that’s net zero by 2050 and a 50% reduction by 2030 across our group. So, that means it might vary by different products and as I’ve mentioned before, we have this third goal around supporting the just transition, which is very much aligned to our mutuality and ensuring that the social friction that we experience during this transition is really limited and that we try to protect the most vulnerable in society.

Just a final framework to land on as we are talking about frameworks to bring sustainability into businesses. This is a key framework launched by the Institutional Investors Group on Climate Change. And if you haven’t seen it before then, go to… Oh, I’m going to get this wrong. Paris Align Pathway. Google it, it will tell you the link and you can download the framework for free and it’s a really helpful way of starting to think about how do we align capital to achieve the goals of the Paris Agreement? And you’ll see at the very top on governance and strategy, the key things to start with, as I’ve just outlined, are setting your net zero commitment and then looking at your beliefs, strategy and mandates. 

Now, as Carlota goes through some more of the detail, I’m sure she’ll start to touch on some of the blue boxes around how do you implement this from a stewardship perspective or an asset allocation perspective, but I’ll stop here, I think, and pass on to my colleagues who’ll talk about some of this in more detail. And remember, if you’ve got any questions, drop them in the chat. Over to you, Carlota. 

Carlota Garcia-Manas: 

Thanks Kaisie. I am just going to talk a little bit in detail on how to implement some of the high level notions that Kaisie has shared with us. At RLAM, our response to responsible investment is driven, as Kaisie has said, on our beliefs, our clients requirements and the market and regulatory environment. The latter has become a much more complex and demanding proposition for our clients and ourselves. In this slide, we present a small sample of ESG or climate related events, initiatives and requirements. A common thread amongst all of them is pointing to a direction of more disclosure and more due diligence, including through the use of scenario analysis and stress testing of portfolios and assets. 

But today, I also wanted to bring to our attention, the focus on the recent government publication of Greening Finance Roadmap. There was a great deal of details and we’re still digesting them, but a few relevant takeaways are as follows. First, more disclosure, not only on climate but around other sustainability issues. Second, an upcoming taxonomy and labeling. And third, an emphasis on making the UK a hub and leader on green finance. This not dissimilar to the emphasis of the ABI Climate Change Roadmap, published in July 2021, of which I’m going to give you a little summary.

This is a useful reference for RLAM and its insurance clients, and focuses on unleashing the sectors investment capacity. An analysis of the three key stages of the net zero strategy that present an investment opportunity, namely innovate, build and consume. So, going to that yin and yang of the risk and opportunity, with a categorization of which of those areas are more suitable for insurers based on their risk and liquidity requirements. And for the investment side of the insurers book, focus on an innovation, for example, net zero, such as tilting funds, as Kaisie has mentioned. Impact investment or thematic funds, for example, we are focused on good performance sectors, company or projects.

The Roadmap then focuses on portfolio risk reduction mitigation, but importantly, impact on the real economy, as Kaisie has mentioned, through a focus on infrastructure and other finance. For example, through public and private partnership. Also, emissions reduction from own operations, including the thoughtful use of offsets, and more important, seek financed emissions. The ABI also looks at support of net zero 2050 strategy, with a touch point of 50% emissions reduction by 2030. 

And an emphasis on de-carbonization through a just transition, which as Kaisie has mentioned, is core to the way that we look at climate at Royal London. This looks through a lens of affordability and focus on the most vulnerable, which is very much in line with the leveling up program of the government. This Roadmap also looks very closely to the role of government and regulators to enable the actions of the industry, to accomplish its net zero strategy. 

Next, I would like to show you how we visualize the execution of sustainable frameworks in an insurance context. Next slide please. A sustainable framework hangs from the definition of the sustainability emphasis and the articulation of the entities beliefs. This can be described using the three R’s of risk, return and responsibility, and is underpinned by robust governance, risk management, strategy structures. Methodologies and data are being developed and continue being developed and integrate as we speak, to support the models and approaches, including stress testing and scenario analysis, to build a suitable portfolio aligned with the Paris goals. Through strategical asset allocation, stock selection and stewardship, as Kaisie’s shown. 

And in light with the regulatory context that I mentioned before, a strong emphasis on disclosure within the caveats of data coverage and modeling development and its limitations. We have very actively participated in all consultations relevant for our clients and ourselves, including the TCFD, FCA and also our collaboration with the Climate Financial Risk Forum, or CFRF, for convergence in metrics reach risk management and approaches to address climate risk and identify opportunities. 

Different approaches to sustainability and investment are shown on the next slide. An investor will choose the approach that suits this risk appetite, beliefs and fiduciary duty. An asset manager develops the products and services to satisfy those requirements. They are a translation of the investors beliefs and objectives, and reflect not only the approach to risk management, but the expectation on investors impact. The systematic nature of climate risk makes the application of the various shades of green useful. However, while ESG in general may have faced fiduciary scrutiny in the past, climate considerations and their integration in the investment process is becoming a more normalized or mainstream approach to investment. Having said that, the definition of responsible, sustainable ESG, are not clear cut and respect with the emergence and labels and increased offering of ESG products that regulators will further scrutinize the industry to screen out green-washing.

In practical attempts, how do we integrate climate considerations into the investment process? It all starts with the analysis of existing climate data, or the enhancements of those data cells through our proprietary methods. We have done this for years, particularly in fixed income, where we find off the shelf solutions are not fit for purpose. This helps us decide on the materiality of the potential risk and impact. We focus a large proportion of our efforts on the portion of our portfolios where ESG, and particularly climate, is material. And will determine whether an issuer has had potential ability and willingness to transition.

Let me give you an example. Early this year, we published our first TCFD report. In our disclosure of emissions and utilities, it’s among the top three emitters across portfolios. In order to de-risk our portfolios, from a climate point of view, we could just exit utilities altogether, as Kaisie mentioned, that’s just portfolio de-carbonization, or exit the higher emitters. Or, on the other hand, we could engage with a sector. We chose the latter for the utilities for two reasons. First, because this sector is one that has a pathway to de-carbonization through renewables. There are some transitional investments requirements in terms of balancing the energy makes, infrastructure and storage, but the building blocks are there. And the sector can be carbonized faster than the rest of the economy. As much as a decade ahead, based on projections by the International Energy Agency. 

The second reason is based on our beliefs that the whole economy’s de-carbonization will rely on the electrification for its de-carbonization. This includes transport and heavy industry, amongst others. Therefore, we see utilities more as an opportunity than a risk in the long run. And as investors, we want to remain sat at the table and contributing through engagement to this transition. This approach, the use of analytics and engagement rather than outright divestment is our preferred choice for climate integration. 

And finally, a summary of some of those metrics underpinning our investment process and portfolio reporting. Next slide please. Immediate approaches have also come up as a consequence of the regulatory dance of chairs that I have mentioned before. During the FCA and TCFD’s consultation, one of our emphases was on convergence and simplification of reporting. We’ve been vocal in the importance of real economy versus portfolio de-carbonization, as Kaisie pointed out. And a highlight of the complexities of some new approaches, such as the PCAF or Partnership for Carbon Accounting Finance, finance emissions attribution, now included also in the FCA recommendation and for climate disclosure, using enterprise value presents for portfolios with private and public market instruments. For now, we see these as teething issues and we expect more disclosure will smooth out these concerns. 

But one thing is clear, where a carbon footprint or when a carbon intensive to prevail, as core metrics, the idea that climate metrics need to look forward as much as backward is pivotal to supporting the de-carbonization effort. So, we will continue contributing to the data, particularly to make sure that the values as a class is including fixed income and private markets are duly considered. And I pass it to Andrew. 

Andrew Epsom: 

Thank you very much, Carlota. The last section I’m presenting is just to provide a broad industry perspective, in terms of how some of the larger insurance companies globally are approaching the disclosure of climate related risk and what those disclosures also reveal around the practices they’re adopting as well. In terms of the content of this, so to help understand what insurance companies globally have been doing, we’ve undertaken a benchmarking exercise in conjunction with another company, Solvency II Wire, to look at their disclosures. Both the public disclosures, in terms of reports and accounts, websites, other statements and so on, plus also, where relevant, the Solvency II disclosures as well, just to provide some insights into what emerging best practice has been. Or certainly, recent best practice has been for some of the largest global insurers. 

I think it’s really important and insightful to have this type of information, particularly for all but the largest insurance companies, where they are still struggling to get to grips with the various requirements, which continually evolve over time as well. We’ve set out some of the key challenges that insurance companies are facing around trying to introduce a type of climate risk frameworks that we’ve been talking through previously. In-house expertise, not all insurance companies can be fortunate enough to have people like Kaisie working for them. And so, having that specialist expertise to help define and drive the overall approach to climate risks. 

Data issues, which we’ll discuss a bit more later on in some of the slides there, to making sure you have robust data, timely data. The modeling requirements, as well around the scenario analysis and risk management, being able to report on new information and also importantly, being able to articulate credible objectives, what the overarching objectives are going to be. We’ve made a list below of the insurance companies that are included within the benchmarking exercise. There’s a broad mix between European insurance companies and UK insurance companies and the larger ones as well. We think this does provide quite useful information around possible direction of travel for how the industry is heading. 

The next page, we’ve got some excerpts over the next three pages of some of the analysis we’ve undertaken. This is only a very high level summary of this. There is a much wider and more detailed report that’s going to be issued in the next two to three weeks, and it’s going to have lots more data points on that. But we focus on three main areas. The first is looking at the overall objectives for some of these larger insurance companies. Again, UK and European focus there as well. It’s really important to set the objectives. That then flows through in terms of how the portfolio’s being set, to make sure you are aligning with that. 

We’ve discussed Royal London having the net zero target by 2050. And certainly, looking at the larger continental Europe and UK insurance companies that that seems to be very much the preferred approach to target that net zero in 2050 position. The one insurance company, as part of those, who was looking to do something different was Aviva, where they are looking to bring this forward to 2040. A pretty common approach being adopted there. That’s one of the challenges. I think the other aspect we’re seeing is an increasing use of having staging posts on the way as well. So, 2050 is clearly still some way away. Royal London and some of the other insurance companies are basically saying, “OK,, we want to have these different points along the way, just because it makes it easier for us to demonstrate, credibly, that we are going to get to this 2050 position as well.” 

In addition to the example that Kaisie shared earlier, we’ve also got the 2025 Allianz position where they’re looking to reduce the greenhouse gas emissions of equities and corporate bonds by 25% relative to 2019 as an example of these types of additional supplementary objectives. 

Assessing the target is just one aspect of that. I mean, the other aspect that’s really important is to have robust framework for assessing the actual consistency of the approach that’s been adopted with these targets, as well as being able to monitor that over time, being able to take corrective action as well. And again, that provides another challenge to insurance companies. There are various mechanisms that have been developed around that, various initiatives around that, but it is still another challenge for insurance companies to make sure they are demonstrating adherence to those objectives. 

As well as demonstrating and articulating that objective, there’s also the more granular management of those risks as well. We’re seeing most of the larger insurance companies explicitly look to split out physical risks and transitions risks when they’re looking at their business, when they’re looking at investment portfolio. The actual exposure of when insurance companies do those types of risk is they’re very much varied between them. But in general, life insurance companies writing longer term business, they’re probably going to have more transition risk in a portfolio from having longer duration bonds. Non-life companies are going to have more exposure for the underwriting side to physical risk. It’s important to understand the actual exposure between those, rather than just the big picture. And certainly, based on what we’ve seen, that is the approach that’s been adopted by the larger insurers as well. 

The second bit of information we’ve got here is… Hopefully going to move across. I jumped ahead two slides there. Is around the use of green investments as well. Kaisie mentioned the importance of making sure that we are diverting capital to these greener, more environmentally focused investments.  

We’ve already seen quite a big change coming through, in terms of ESG integration, used to be very much as an overlay. For most of the investors now, that’s now a fundamental part of the overall approach to their assets. They would integrate that as one of the risks. A further step on from that is to have a very explicit asset allocation to companies or projects that have a very environmentally focused strategy. And certainly, based on the survey we’ve undertaken of the larger insurance companies, that is all something they have been doing. Making these explicitly green investments. 

We’ve got some examples down, in terms of AXA committing to invest at least 24 billion euros in green investments by 2023. Similar trends coming through from CNP and Phoenix as well, so this is already happening for the larger insurance companies, where they’ve got the resources to govern the structures and facilitate that as well. I think the expectation is that we’re going to see that start filtering down to some of the small and medium size companies, where they are looking to allocate maybe 10% of their portfolio to have a more explicit focus that hopefully does make sure we are diverting capital in a way that does align with what we need as well. 

In addition to the asset allocation aspect, the other interesting dynamic is that some insurance companies are actually issuing debts that have sustainability linked objectives as well. So, making sure it’s actually being explicitly earmarked for certain projects as well, and making sure that’s also wrapped in there. We’ve got another couple examples there around CNP issuing a green bond in 2019, and also Just, the life insurance company UK, issued sustainability linked bonds in 2020 and 2021. As well as facilitating the allocation of assets to more green focused projects. This all has potential benefits for the insurers, as well in terms of just reflecting the demand we’re seeing for these types of investment, they can also reduce the cost of funding as well. So again, I think this is near where we are going to see increased traction coming through both in the investment side plus also issuing more green focused debt.

The last area in terms of the benchmarking, is looking at risk management and reporting. I mentioned in one of the previous slides around data being a key problem for insurance companies, in terms of making sure that they can credibly define their objectives, report on their objectives. We looked at, again, continental European insurance companies, UK insurance companies, see broadly on the charts on the left what level of data coverage they would have to be able to report back on the type of climate metrics that Carlota talked through earlier. And you see that in general, the majority of them will be able to report on at least 70% of their assets in their portfolio. That does go up to close to 100% for people at Allianz and Tryg as well, but it is something that continues to present challenges for insurance companies. It’s not just the data coverage that’s a challenge, it’s also the accuracy of that data, and also the timeliness of being able to receive that as well. It needs to be able to inform investment decisions. It needs to be able to flow into the reporting frameworks that are in place as well. 

For the larger insurance companies that are part of the survey, you would expect that naturally to be easier to achieve, just because for many of them, they would have their own internal asset management functions. AXA clearly have a very close relationship with AXA Investment Management. You would expect the data flow between them to be smooth and more robust. For the small, medium size insurance companies, where they would use external managers and potentially be using a number of different managers as well, again, that presents another difficulty just to add to that as well. Again, solutions are coming through but it’s pretty slow process. 

The other aspect on this page is just looking at the use of climate VaR, scenario analysis and stress testing. It is something that things like the TCFD, European Commission, is basically saying that European insurance companies should undertake this longer term stress scenario analysis as well. And it’s something that the majority of larger insurance companies are doing. Having said that, it’s something that is very much a work in progress, in being able to define those objectives. Again, there are resources coming through. We talked about the Climate Risk Forum in the UK is providing information to insurance companies to support the process. But, I mean, in general, insurance companies really do need to lean on their asset managers quite heavily to be able to support this as well as the provision of data as well.

That’s the end of the three different sections there. Just in terms of the Royal London insights, Carlota talking through the broader frameworks and broad industry trends and me providing that information around the benchmarking approach being adopted there. Just some of the key points from that. Insurance companies and mutual insurers have a really key role to play in terms of facilitating the transfer of capital to these more environmentally sustainable investments. And just for the ongoing stewardship of the assets as well, just trying to promote that degree of change, as well as influencing for the underwriting behavior and the operational processes as well. And I’m sure we’re all aware that regulations and incentives are coming out on a very, very frequent basis to be able to achieve that and insurance companies need to get to grips with that quickly to make sure they are aligning with that. 

Key to this is going to make sure that there is this robust sustainability framework. Carlota provided that example of how that framework could look. Clearly that needs to be contextualized for each different insurance company, but hopefully that gives an illustration of the type of framework that could be used to at least define those objectives. 

We think the largest insurance companies, looking at what they’re doing for the public disclosures, provides some useful insights in terms of possible direction of travel, as well as the report that we produced on that is going to be available quite soon and I encourage you all to read that. And we think just trying to break down climate risk management into these simple steps is going to be a really good place for most insurance companies to start and continue the journey they need to go through as they evolve their overall approach. 

I am going to pass back to Shaun now, to ask the questions. 

Shaun Tarbuck: 

Thank you team, that was absolutely brilliant presentations, each one. I’ve got quite a few questions that have come through, so I might start with you, Andrew, as you were just speaking and you have the microphone, so to say. Some interesting analysis there and I really look forward to that report that’s coming through, as you said, about the benchmarking. 

But one of the questions was around the net zero commitments that are being made. I’m aware that you’re obviously involved in the IICG and there is the [Net Zero] Asset Owner Alliance, so the two very similar things doing the same thing. And then Mark Carney has pulled that all into what he’s calling the GFANZ. So, there’s some hopeful standardization that’s coming through and the discussions that will happen through the Glasgow Finance Accord for Net Zero (GFANZ). Those ones that you mentioned on the commitments that are being made by the large organizations at the moment, they all seem to be a little bit in different spaces. Do you think there will be some consistency bought, so that we can all compare and contrast what the commitments are being made by those large organizations? Because they’re the ones that are going to drive the agenda. That was the first part of the question and the second part was, can we do something on the mutual side for that as well? Which there are many organizations in the mutual sector, like yourselves, that are leading the way. 

Andrew Epsom: 

I agree. From having being going through the process of collating all the information we need for a report, the comparability of data was a major challenge there in terms of there’s lots and lots of broken information that’s been reported around climate risk and so on. In terms of being able to have that in a fairly simple framework to basically say, “Okay, X, Y, Z insurance company’s doing this. A, B, C is doing this.” And having a direct comparison. It is difficult. I mean clearly, having a more consistent framework is what largely the TCFD’s doing. What regulations is looking to get to, but certainly at the moment, in terms of the comparability, it is very challenging to make sure you are comparing like with like. And I think there’s probably lots of practices that are being adopted, particularly by the larger insurance companies, that they aren’t actually disclosing there as well. I think there’s the comparability in actually just improving the level of disclosures over time as well, which will actually make sure that basically, people are doing what they’re saying as well to demonstrate that. 

And the other point is around the mutual aspects. Yeah, I mean, as you saw, we focus on the largest ones, the largest multinational insurance companies within Europe and the UK. I think it would be interesting to have a more mutual focused version of this, just reflecting the importance of climate risk, sustainability, for the mutual sector. It’s definitely something we’re very happy to explore doing that as well. 

Shaun Tarbuck: 

That’s brilliant, because I did notice on one of the slides you had AXA had invested USD 24 billion in green bonds, which as a percentage of their total assets, is virtually zero. Whereas we’ve got one of our members, Lansforsikringar, that are over USD 20 billion already, which as a percentage of their assets is about 11 or 12%. If you put it in terms of percentage of assets, it makes quite a significant difference. 

Andrew Epsom: 


Shaun Tarbuck: 

Lovely. Carlota, a question for you. You had a great slide on sustainability spectrum. Responsibility, which is the [SGE 00:41:14], sustainability with the investment choice and impact. Where do you think Royal London is on that framework? In terms of all the assets under management or maybe specifically certain parts of the assets spectrum. And then secondly, where do you think we are as an insurance industry? Where’s the norm, if you like? Where’s the average? 

Carlota Garcia-Manas: 

I think it’s different lenses to look at that. One is the approach you take to analysis and ESG integration, and then from an asset manager point of view, it’s kind of the products and services that you provide. We have very distinct funds that are classifying one of those pillars very distinctively. I think, for example, the SFDR is now classifying certain funds as Article 8, Article 9, Article 6. It’s very clear distinct intentionality, use of ESG, the how you integrate and all the analysis that you do on the stock selection et cetera. I think that it’s much more complex now than when I joined this industry almost 20 years ago, where it’s sad to say because it makes me look very old, but basically it was ethical investment back then. And ESG was not even crafted back then. We used to talk about social, ethical and environmental investment and it was very clearly distinct investors and ethical investors and the rest. 

And I think at the moment, what I see now, it’s much more diversity of approaches that you may decide to take certain things on a pure risk mitigation point of view and some more on an impact point of view. On that front, and that’s what I think is called now double materiality, where you look at the risk but you are also looking at the impact of your investment. And I believe the realness of the moment in the transition, to looking at things not just from a risk mitigation point of view, but also on the impact that we can have in the real world, as Kaisie mentioned. I think we are in the transition as well. 

Shaun Tarbuck: 

Okay, excellent. And where do you think the whole of the industry is? The insurance industry. Or is that an unfair question on you? For those that are just starting this journey, I think the message there is it’s good to start but there are people at the beginning and there are people who are at the impact and the sustainable side of the criteria that you suggested. 

Carlota Garcia-Manas: 

Well, for certain, the regulatory context is bringing it to the attention. I speak with Andrew on many, many occasions with some insurance clients and other members of the industry. And one of the things that I’m seeing, not just in the UK, but globally, this impact of regulatory interest and how the PRA is requesting insurers to stress test or the Bank of England provides a framework, again, for scenario analysis and stress testing. Whether you have registered that in your radar screen as a risk or an opportunity, the regulatory context is making it top of the agenda. 

Andrew Epsom: 

Yeah, I mean, if I could just add to that. The interesting dynamic coming through is from the European Commission tasking to look at whether there should be differentiation, in terms of level of capital that needs to be held, depending on the environmental profile of an asset. That’s as close as we’ve got so far to having a direct financial incentive to allocate capital to more green investments. That’s not something they’ll introduce now, but it’s certainly something that need to report back in the next couple of years and has a potential to flow through. And that, again, could ramp up the pressure to have these more explicitly green investments. 

Shaun Tarbuck: 

I think you’re right. I think certainly the CEO’s I’ve been speaking with recently, some of them are already doing this but some of them are seeing it coming down the regulatory pipe. It’s unusual. The regulators are actually aligned with the rest of the industry, rather than behind, so it’s quite good. Mark Carney, I think, has benefited us all here when he was Governor of the Bank of England, didn’t he? But this is definitely his back. 

Just another question for you, Carlota. Can you share some thoughts and insights into Royal London’s approach to engaging versus dis-investing from certain industries? And how long do you stay as an investor to try and influence and enact change, rather than divesting completely? 

Carlota Garcia-Manas: 

It’s a very interesting dynamic that I have been seeing. And we have been seeing also with our colleagues in the voting desks, where the unintended consequences of speedily or disorderly transition is resulting in certain core production and dynamics that I don’t think are conducive to what Kaisie and I have said about real economy impact. 

One thing that we are seeing through the pressures of divestment and the pressures of blacklisting particular insurers, is that they are spinning off dirty assets. They’re basically selling mines, they are selling oil and gas rigs. And unfortunately, I think we need to really focus our engagement is on the demand side of things because at the moment, there’s an imbalance between supply and demand. And all of those assets just end up going into private hands or less responsible managers. So, at the moment, what we are focusing our engagement is evaluating that ability and willingness to transition. Making sure that the holdings that we have in our portfolios have understood the pressures of the policy, the pressures of the technology, the need for them to invest and de-carbonize their own businesses, rather than go crazy selling assets. 

Which we always look at the carbon molecule. If you sell an asset and the carbon molecule ends up in the atmosphere, we haven’t done our job. And we find, at the moment, engagement is a much more powerful mechanism to constrain the emissions within the carbon budget. 

Shaun Tarbuck: 

Would you normally engage for about three years? And if you’re not seeing any change, then divest? 

Carlota Garcia-Manas: 

That is the ultimate… I mean, the things are not as simple as you engage and you divest. You have engagement, you have a lot of tools in your toolkit. You have resolutions, you have public opinion, you have escalation, you have collaborative engagement. So yes, you will end up doing a test of the suitability for a particular business to be suitable in the long term, based on your fiduciary duties and their risk appetite and other requirements of your investments. 

Shaun Tarbuck: 

Excellent. Don’t worry, Kaisie, I’ve got a couple for you as well to bring us home. But I’ve got this one, I’m not sure who best taking it, actually, but as mutuals, how do we differentiate our responsible investing approaches when so many other organizations are green washing? And it was exactly this question we had at the ICMIF Board yesterday, so it’s… When most of the mutuals are doing things based on trust, there are lots of companies out there just signing commitments with no intention of keeping them because it’s 2050. 

Kaisie Rayner: 

I think if I jump in there. I think when we think about the mutuals and the aspect of mutuals, I think there is the moral high ground that we fortunately sit upon, which is we’re engaging with companies that are obliged through law to prioritize the profits of the company above all over interests. And I think it gives us a differentiating point when we’re talking about engagement because we can really apply pressure for companies to take into account their broader stakeholders. 

I think it is a really interesting point. Ultimately, if we, as mutuals, think the mutual legislative framework is better and gives us a better chance of delivering a sustainable future for our members, ought we to be engaging with legislators instead to change the legislative framework and make all companies mutuals? Maybe that would deliver us a better future. 

They wouldn’t then be prioritizing profit over planet. I think there’s one element of we’ve got that authentic voice, we really do care about members and it is actually written in to our articles of association to prioritize them. I think the other thing that we can do is really just give weight to that argument by engaging with our members and asking them. I thought it was really interesting when I first joined Royal London, we did a piece of customer research, member research, to understand their views on responsible investment. And they came out and we did the research and then compared the findings versus the average UK customer compared to a Royal London customer. 

The preference for responsible investment, their views of climate change, their views on sustainability were almost twice as strong across all measures for customers of Royal London. And I think what that tells us is we have a mandate to go further than our peers because our members are coming to us because they believe we already have that moral compass. And so, I think then it becomes incumbent upon us as mutuals to step into that leadership space and to try and lead from the front rather than follow some of our limited company competitors. And I think the other thing that’s really key, and this is what we found in our conversations internally, with mutuals, there’s this kind of core concept of community and solidarity. And when we’re talking about climate change and net zero ambitions by 2050 and systemic changes, it’s just so hard for real people to engage with. 

Fundamentally, when we think about it, the impacts of climate change are going to be felt by people and people live in places. One of the things that’s going to help us adapt to this is building place based resilience. And I think that’s another area where mutuals can connect with members, understand their actual real life concerns. What is it about the places that they are that they’re worried about it? And then how can we help those people and those places during that transition? And make it really real and tangible, rather than something that’s 30 years away. 

Shaun Tarbuck: 

Yeah, that’s excellent and you do definitely have that mandate from the customers and that’s a big difference, isn’t it? 

Kaisie Rayner: 

Huge, and don’t need to make the business case for doing the right thing. That is why we- 

Shaun Tarbuck: 

Not anymore, no. Another question for you, actually. You had a great slide on the capital allocation conundrum. The question to you there is, is there a sufficient pipeline of investible opportunities there? And if there isn’t, how are we going to get them? And where are we on that particular capital conundrum? Where do you think we’re sitting at the moment? 

Kaisie Rayner: 

Yeah, so I think we’re sitting, I’m going to use a terrible analogy here. I think we’re sitting and we’ve been to IKEA and we’ve unloaded all the boxes and unpacked them all, and then put all the bits on the ground and the dog has eaten the instructions. We have all of the pieces but we’re not entirely sure how to put them together and we’re definitely going to end up with a couple of extra pieces. 

I think step one is we’re going to have to get those instructions back. And I think that’s what I mean by the capital allocation conundrum, is we’re pretty sure these are the sectors that need to grow. And we’re pretty sure we’ve got some money over here, and we don’t really know how to get them from one place to the other. To your question on do we know all the projects, no, we don’t. And part of the money needs to be in that assessment, bringing all of those projects together to put them into an investible proposition. And we’ve got a couple of different NGO’s that are working on that. There is, I’m going to forget the name of them, they’ve got an event at COP about climate cities, investment, something or other. There’s quite a few different outfits around Europe. 

Yeah, exactly. So, I think there’s that bit of we need to do our job as investors, and instead of asking the question how do we maximize returns over the allowable asset classes? Which is the boring question. The actual question we need to ask is, where does society need capital, in order for us to realize the outcomes that we want? And then how do we get it there? And then it’s our job, as the financial sector, to innovate and create the products and the pipeline and the startups to help get that money there. We’re not there yet. The cities aren’t there yet and the regions aren’t there yet, but I think if we start being willing to question the processes that we use today, the purpose of finance today and start asking different questions then we’re at least on the right pathway. 

Shaun Tarbuck: 

Great answer. One of our Canadian members is working on this with The Resilient Cities group, for the city of Edmonton, actually. So, we’ve got money, we know where the risks are, you just need to get going on the project and they’ve got several ready projects there. It is starting to happen but no one else is doing this, other than the mutual sector, that we know of. 

Kaisie Rayner: 

Yeah, and I think it gets to the heart of what mutuality is about. I think yeah, we should be seen as the leaders of the future. 

Shaun Tarbuck: 

We are. And just a last one for you before we wrap up. COP26, you said at the beginning, it’s not looking good. Even Boris Johnson has said it’s probably not going to succeed. We’re sitting on a 2.7 degrees at the moment. Can you give us some faith that the nations might ratchet up and how much of a role do you think business can weigh in on this to really, basically, kick government’s backsides and get them to do something? 

Kaisie Rayner: 

I had this question this morning. They were like, “Are you hopeful?” And I was like, “Well, I oscillate between hope and despair.” On the one hand, five years ago if someone had asked me to talk about climate change, it would have been my mom and I would have been talking to her and her alone. And this year, I’m talking to everybody about climate change. Lots of people are talking about it, that’s a great start, that gives me hope. We have got the Paris Agreement. We have got a set of nationally determined contributions. We are starting to take, quite seriously, the things that need to change, but the pace is problematic. We’re not going fast enough. 

I guess the silver lining, for me, and this is going to be an odd one. The silver lining is COVID. I mean, what it’s shown for us, I guess, as a species, is that we are all incredibly interconnected. That things that happen on one side of the planet affect the other side of the planet. And I think the other thing that it’s shown us is that really big change can happen and it can happen overnight. And the way that it happens is not through any one actor. It’s through multiple actors, bringing their voices together and echoing back to each other. 

So, for example, we saw some political leaders in the UK talk about the need to just transition the oil and gas sector as soon as possible through a fair, just, equitable transition. Now, when politicians say something good, we need to echo back to them and support them and say, “That’s great.” And when they say something stupid, we need to echo back to them and say, “Don’t say that.” It requires us all, I think, to step up, be in the room and allow our voice to be heard. But I’m afraid I can’t give you the gold, silver lining. I think I’m still in oscillation mode between hopeful and despairing. We’ll see how we go in a couple of weeks. 

Shaun Tarbuck: 

So, the answer really is, SDG partnerships. 

Kaisie Rayner: 

Yeah, and I think it’s sustainability 2.0. It’s recognizing that we live on one planet, we can’t keep optimizing for risk and return. We need to recognize that we all have to live on the planet. And yeah, don’t get me started on an economic system that prioritizes planetary health, but I think we’re well placed to lead that and I think this is just the start of the 21st century, so we’ve got a long way to go. A little while ago we had people driving around in horses and carts saying that cars would never take off, so big change can happen. 

Shaun Tarbuck: 

A quick plug for you, Kaisie. You’re hosting at COP26, an event on the 8th November in the evening in the Adam Smith Business School on how Adam Smith was misinterpreted. 

Kaisie Rayner: 

Please come along. 

Shaun Tarbuck: 

If you want to send a link through, we’ll share it. 

Kaisie Rayner: 

Yes, thank you. 

Shaun Tarbuck: 

Okay. Thank you very much for an absolutely fantastic panel. And I hope everyone appreciated that it was online. Some great questions as well. I’ll just wrap up now.

ICMIF are not sitting on our backsides either. Whilst we know Royal London’s CEO is going to be at COP26 and we know one of our other members, African Risk Capacity, is also going to be there. It is a very tight school that are allowed inside, so we are doing our own bits around sustainable leaders in the virtual events we’re putting on over the next couple of weeks. The aim of these webinars and the workshops is really to strengthen the progression of the climate change agenda and help our members achieve their sustainability and disaster risk reduction goals. I hope you’ll see today was very much about that as well. 

So, there we go. Thank you very much and thankfully we finished just on time, so thank you everybody for giving your expertise to all of us and we’ll see you all soon. Thank you. 


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