The weight of ESG (environmental, social, and governance) in the investment choices of insurance companies is growing. The “Ready, Set, Reset” report published by Goldman Sachs Asset Management (Gsam), the asset management division of the Goldman Sachs Group with $1.6 trillion in assets under management, confirmed the trend.
The results of the ninth annual report on the global insurance industry showed continued growth in the importance of ESG factors for companies globally. In 2017, the majority of respondents (68 percent) did not believe that sustainability factors should be taken into account in their investment decisions or, in any case, did not think they were applicable to their investment processes. However, in 2020, the proportion of those who considered ESG parameters to be “lateral” decreased to 21 percent. Another interesting result concerns the gaps in ESG data, detected by 95% of insurers who indicate, in this sense, the presence of “obstacles to overcome.”
Gsam interviewed 273 Chief Investment Officers (CIO) and Chief Financial Officers (CFO) representing more than $13 trillion of assets, about half of the global insurance industry.
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EMEA and Asia-Pacific lead the ESG in insurance
In line with previous years, the weight of ESG factors in investment decisions continues to be more evident in the EMEA region (Europe, Middle East and Africa) Europe and the Asia-Pacific region, but there is also a steady increase in the Americas. Throughout the world, Gsam pointed out that the most widespread implementation still concerns negative screening.
At the regional level, however, the motivations related to the use of ESG, change. While portfolio risk mitigation occupies a prominent position in the investment decisions of insurance companies in the Americas and the EMEA region, it takes a secondary position in Asia-Pacific, where insurers give greater weight to shareholder and creditor considerations.
Although a minority of respondents indicate climate risk as a “primary consideration,” it is present in the investment process in 73% of cases in the EMEA region (followed by 72% in Asia-Pacific and 53% in the Americas). In addition, the vast majority of global respondents expressed interest in using climate stress testing and scenario analysis to measure their portfolio’s exposure to future climate risks. In Europe, about a quarter of all respondents would use this analysis as their primary assessment tool.
The pandemic accelerated the trends towards ESG inclusion in the strategy of insurance companies
Other conclusions from this year’s survey include how insurers have made minimal long-term changes to their investment strategies, many of which have reduced portfolio risks related to high valuations and credit cycle concerns. “Before the COVID-19 pandemic, many insurers were aware that the business cycle was too long and, as a result, they were preparing to manage volatility,” said Michael Siegel, Global Head of Insurance Asset Management at Gsam. “This year’s events have accelerated the already established investment trends we have observed throughout the market.”
In the months leading up to the “revolution imposed by COVID-19”, the IACs had reported the continuity of growth trends in the private equity, private credit and securitized assets segments at the expense of reduced exposure to cash, government bonds and hedge funds. The Gsam survey showed that not only should these trends continue, but they could even accelerate. Interest in the private market is increasing, while 60% of the respondents stated that they invest in the insurtech sector, an increase of 14% compared to the previous year.
Finally, among other noteworthy results, there was an increase in investment in ETF (58%) led by European insurers.
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