Schroders expert urges reinsurers to integrate ESG into risk management

Regulations that will push reinsurers to integrate environmental, social and governance (ESG) and climate measures into risk management frameworks and investment are on their way, Ghislain Perisse, head of insurance strategy for Europe at Schroders, told Monte Carlo Today.

Across Europe EIOPA, the European Commission’s insurance and pensions regulator, is pushing in all countries to make this happen, he said.

“It’s a top-down approach, so it takes time. What people are doing across Europe is very different because ESG is something that is linked to the culture of all countries,” he explained.

For example, in France this shift started three years ago with a kind of reporting, meaning all insurers need to report what they do in terms of analysing ESG and climate risk.

“Investors can see what the environmental impacts of their investments would be. With climate change, there are more storms and more floods and droughts and that is impacting the value of the company.

“It is the same for social, which could be Brexit in the UK, or the ‘yellow vests’ in France, or what is happening in Hong Kong. It takes in what is happening politically because it has an impact on the investment.

“It is the same for governance, for example if the company was not transparent, such as in the case of the Volkswagen emissions ‘Dieselgate’ scandal, or if a company is corrupt, it has some risk.

“There is regulation coming to push everybody to be more conscious. There is a change in the mindset.”

In 2015, the Paris Agreement said that global temperature rises need to be limited to a maximum of 2 degrees Celsius to prevent catastrophic warming.

Perisse said that this prompted some French companies to report what the top temperature of their portfolio is. “Some were 4 degrees, some were 5 degrees. They said that they needed to reduce the temperature of their portfolios.”

One way to do that is to invest only in companies that raise the global temperature by 2 degrees Celsius, but that means you stop investing in industry and countries where there is coal, such as Germany and Poland.

“You can’t do that straight away,” he added.
Another way is for shareholders to engage with companies to change its practices to be greener.