Posted on: 12/03/2019
Billions of pounds of new investment could be ploughed into renewable energy projects if a number of obstacles could be overcome, according to a report by the insurance industry.
The UK’s big insurance firms hold over £1.8 trillion in investments in assets. But only around 1.2% of all assets under management in the UK are held in green projects such as renewable energy, collectively known as Environmental, Social and Governance (ESG) investments.
According to the Association of British Insurers (ABI) a number of issues prevent insurers and other asset managers from increasing this proportion.
Shortage of quality data
They argue there is a shortage of high-quality and consistent ESG data throughout the financial system, making it difficult for investors to either manage their exposure or identify the best opportunities for green investment.
The ABI also believes current solvency rules effectively disincentivise insurers from investing in the kind of long-term, sustainable projects that could help mitigate the impacts of climate change.
The ABI is proposing ways to address these issues in a consultation response to the Prudential Regulation Authority, while also supporting proposed Financial Conduct Authority guidance to increase the consistency and comparability of climate change related financial disclosures.
On data availability, some insurers are developing their own approaches but the ABI said it feared a piecemeal approach will take an unnecessarily long time.
Instead, it argues there is a role for the regulators to play across the full breadth of the financial sector to help improve the availability and consistency of data relating to the firms and initiatives insurers may want to invest in.
Regarding the regulatory regime, the ABI is proposing more is done to take sustainability factors into account when considering assets, particularly given the good match between longer-term investments and insurers long-term liabilities.
Steven Findlay, Head of Prudential Regulation at the ABI, said “Insurers are more aware than most of the increasing threat posed by climate change, given they are in the business of identifying future risks and working out how best to mitigate them. When extreme weather events happen, they are at the forefront of picking up the pieces. As a sector which holds over £1.8 trillion in invested assets, they are also in a unique position to be able to seriously boost new, greener technologies and energies. They want to be able to do more of this, and it is very encouraging that the PRA shares these goals."
“Moving our world towards a lower carbon economy is in the interests of everyone, which is why we are setting out some steps to help unlock billions of pounds of investment for innovative, greener projects. But we have to be practical about what will make a difference. Those responsible for managing assets need to be able to demonstrate to their boards and their shareholders that greener investments are good for their balance sheet, not only the planet.”