The ability to channel investment into sustainable projects is viewed as a sizeable growth opportunity for the insurance sector
A report from Fitch Ratings has found that insurers will be the driving force for change as sustainability becomes a more important part of businesses’ operational risks.
It described insurers as “green economy enablers”, adding that as investors, insurers are demanding more environmental, social and governance (ESG) transparency from investee companies, as well as encouraging them to adopt strategies that support the net zero carbon targets defined in the Paris Agreement.
The Paris Agreement, which was signed in 2016, sits within the United Nations Framework Convention on Climate Change and discusses climate change mitigation, adaptation and finance.
“A long-term investment focus means insurers are particularly well placed to channel investment into infrastructure projects, notably in the area of renewable energy,” added Fitch.
“Insurers can design products to reduce some of the risks inherent in infrastructure projects and therefore increase their attraction to investors.
“The ability to help channel investment into sustainable projects is viewed as a sizeable growth opportunity for the insurance sector.”
ESG is good for business
Fitch said that companies that already integrate ESG principles into their strategies are better placed to attract investment.
Insurers, for example, are increasingly integrating ESG factors into their underwriting and investment criteria, as well as implementing a number of screening and exclusion policies and due diligence processes focused on sustainability objectives.
Most businesses recognise the limitations of relying on external ESG ratings and products and have instead built up strong in-house ESG analytical teams to assess investment opportunities.
The rating agency noted that disclosure requirements are becoming tougher and minimum investment criteria thresholds often require investee companies to provide measurable data relating to carbon footprints, pathways for reducing these and strategies for promoting sustainability.