ESG criteria and the insurance market to mitigate risks

In recent years, sustainable finance has become an essential element in economic relations and investments. It has influenced the way companies operate and how investors evaluate opportunities. The sustainable finance approach takes into account economic/financial as well as environmental and social aspects. It plays a crucial role in creating long-term investments, managing risks and promoting a positive impact on society and the environment by implementing ESG criteria.

Despite its growing popularity, sustainable finance faces an increasing number of critical situations, especially with regard to environmental, social and governance (ESG) factors. It is essential to emphasise that pursuing sustainable finance does not imply a departure from free-market principles, but emphasises the need to integrate sustainability into financial decisions, promotes a holistic approach to long-term investment, and contributes to general welfare. ESG criteria are widely included in the Italian insurance sector and there has been an improvement over the previous year. This is what emerges from the survey conducted by the Forum for Sustainable Finance and the ANIA, presented in Rome during the SRI Weeks.

The survey, launched in 2022, reached its second edition this year, involving a 76% share of the Italian insurance market. This represents an increase over the previous year, when participating companies accounted for a 73% share. The research was carried out with the support of Etica SGR, Generali Italia, Reale Mutua and Unipol Gruppo. The survey showed that around 90% of the companies surveyed have established a specific function or committee to manage sustainability issues, often directly linked to the company's board of directors or top management positions. As far as remuneration policies are concerned, about 90% of the companies consider the achievement of ESG targets in the variable part of remuneration. Of these, 83% use quantitative indicators (often accompanied by qualitative objectives).

The survey also examined the inclusion of the gender equality objective in human resources management policies and the roles to which it applies. It emerged that 98% of companies consider this objective, in most cases (96%) using quantitative indicators (often accompanied by qualitative indicators in 75% of cases). The gender equality objective applies to all employees in 50% of cases and to all employees and board members in 41% of cases. To promote the dissemination of sustainability issues within the governance of insurance companies, training plays a key role. In fact, all companies involved have already implemented training programmes on sustainability issues. These programmes are primarily aimed at all staff and board members.

The survey shows that practically all insurance companies surveyed (99.98%) include ESG criteria in their investment decisions, especially with regard to direct and proxy portfolios. This becomes even more significant considering that 93% of SRI strategies are adopted on a significant part of the portfolio (75% to 100%). The main motivation for insurance companies to make sustainable investments is the possibility of combining a positive socio-environmental impact with an adequate financial return.

Socially Responsible Investment (SRI) strategies are approaches that incorporate sustainability criteria, including environmental, social and governance (ESG) aspects, enabling investors to operate in a sustainable and responsible manner. These strategies apply to different financial asset classes and are not mutually exclusive. Each strategy has specific objectives and methodologies and offer investors the opportunity to align their financial objectives with sustainability considerations, enabling them to contribute to a more sustainable economy. Indeed, companies that consider it a competitive advantage to achieve ESG goals include sustainability policies and plans in their business strategies. In this context, 3Bee supports companies in achieving ESG goals through biodiversity regeneration projects that return clear and quantifiable KPIs thanks to technology.

The most common SRI strategies in the Italian market are six: exclusions (implies the exclusion of certain sectors or activities that are considered to be non-compliant with ethical or sustainable principles); international conventions (relies on compliance with international agreements and conventions, such as the United Nations Principles for Responsible Investment - PRI; best in class (aims to select companies that stand out as leaders in terms of ESG criteria within a given sector); thematic investing (focuses on specific themes or sectors deemed relevant from a social or environmental perspective); engagement (involves active engagement of investors with the companies they invest in to encourage improved ESG policies and transparent reporting); impact investing (focuses on investments that aim to generate a positive social or environmental impact, in addition to a financial return).

Insurance companies play a crucial role in achieving ESG goals. The survey conducted by the Forum for Sustainable Sustainable Finance and the'ANIA, shows an increase in awareness on this issue: some 95% measure the carbon footprint of their portfolio and use the results to identify actions to be integrated to reduce emissions associated with investments and mitigate risks. Furthermore, some 71% include the climate neutrality objective in their investment choices through internationally recognised standards.

The survey shows that in the context of risk underwriting, most insurance companies have already included ESG criteria in their insurance product offerings. The inclusion of sustainability factors takes place mainly through the restriction of insurance product offerings for high ESG risk activities, the offering of insurance products to cover climate risks, as well as the offering of specific products to promote insurance inclusion. In the latter area, particular reference is made to insurance coverage dedicated to Third Sector entities and/or non-profit organisations, as well as products that promote the reconciliation of life, work and parenthood. 3Bee supports companies in achieving ESG objectives through biodiversity regeneration projects, which return clear and quantifiable KPIs thanks to technology.

Article by Angelina Tortora