The insurance industry plays a vital role in fostering sustainable economic and social development as risk managers, risk carriers, and investors. The issue of sustainability can be viewed via a myriad of lenses drawn from environmental, social, and governance (ESG) factors, with notable balance sheet risks impacting both assets and liabilities for insurers who fail to address these factors at the core of their business models. With ESG issues needing widespread and long-term action across society, many insurance companies are beginning to look more closely at the role they can play, in particular, in the transition to a low-carbon economy.
The head of social responsibility at this large insurance company brought together a number of groups concerned about ESG issues to discuss possible action plans. This included colleagues in the investment, underwriting, and innovation groups.
Pain Points
The head of social responsibility had taken charge of numerous internal initiatives in support of a greener economy. Investing and underwriting had also been active, having recognized that companies that performed well on ESG metrics typically had fewer claims. The company wanted to escalate its activities, however, and even involve the innovation group to consider ways to mesh ESG data with other internal information for easy access to insightful findings. Collectively, the groups wanted to:
- Understand the company’s current carbon footprint and which industries and firms are on the right path to meet the goals of the Paris Agreement to limit global warming to well below 2°C from pre-industrial levels.
- Assess the potential physical risks (e.g. from severe weather conditions) facing companies in its investment portfolio.
- Score the company on its ESG stance and benchmark that against its peer group.
This information would help the company understand its current ESG state and establish targets for improvement over time. The company was already a client of S&P Global Market Intelligence ("Market Intelligence"), and asked to learn more about relevant capabilities that could support this undertaking.
Groups across the insurance company were looking to enhance their ESG capabilities to help make the right underwriting and portfolio management choices that could help the company play a leading role in the transition to a green economy.
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The Solution
Market Intelligence discussed a range of capabilities, including offerings by S&P Global Trucost to assess risks relating to climate change, natural resource constraints, and broader environmental, social, and governance factors. These capabilities would enable the company to:
Better understand its carbon footprint
Trucost Environmental Data measures environmental impacts across key dimensions for over 15,000 companies around the world.1 Metrics are standardized and presented through a financial lens using proprietary modelling. The data incudes: greenhouse gas (GHG) emissions for Scope 1, 2, and 3; natural resource use; land, water, and air pollutants; water use and intensity; waste disposal and intensity; revenue generated from each sector of a company's operations; and, fossil fuel reserves, power generation capacity, and associated carbon for approximately 1,200 companies.
Assess physical risks for portfolios
Physical Risk analytics offers an asset-level approach to the assessment of physical risk at the company and portfolio level. This include data that provides detailed information to help understand the exposure of company-owned facilities and capital assets to seven climate-related physical impacts (i.e., flood, water stress, heatwave, cold wave, hurricanes, sea level rise, and wildfire) under different climate change scenarios. Scores at an asset level can then be aggregated to a company.
Track a company's progress on the Paris Agreement goals
The Paris Alignment Dataset assesses company-level alignment with the Paris Agreement goal. This enables investors to track their portfolios and benchmarks against the goal of limiting global warming to 1.5°C and 2°C climate change scenarios.
Score ongoing ESG efforts
S&P Global ESG Scores is an environmental, social, and governance data set that provides scores at: (1) a company level (one overall ESG score), (2) for each of the three dimensions (environmental, social, and governance scores), and (3) 23 criteria (e.g., biodiversity, environmental policy and management systems, packaging, and raw material sourcing), with additional breakdowns below each criterion. Scores are prepared for 61 industries and are based on the S&P Global Corporate Sustainability Assessment (CSA) process, which is an annual evaluation of companies' sustainability practices. Benchmarking capabilities enable users to evaluate their scores relative to others to identify areas of strength, as well as areas for further improvement.
Access data via multiple routes
The S&P Capital IQ Pro platform provides web-based access to ESG information, along with a wide range of analytical tools. Complementing this are other delivery options, including data feeds, APIs, and cloud-based services.
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Key Benefits
Each of the groups felt this wide range of capabilities could meet their specific needs and also position the company well for any new regulations that could take hold. They especially saw value in having:
- Ready access to one source of comprehensive and standardized environmental data that continues to be enhanced.
- An understanding of the company’s current carbon footprint and which industries and companies should be considered for future investments and new business opportunities.
- An easy-to-use screening tool to exclude companies that are not sustainable.
- A detailed look at the geographic location and sensitivity of assets within their portfolios and the potential physical risks that could arise from adverse weather conditions.
- An evaluation of how portfolio companies are aligned with the Paris Agreement and progress/deterioration over time.
- Company-level "E", "S", and "G" scoresand the ability to benchmark these relative to a peer group.
- Multiple data delivery optionsto create an internal database to drive a set of custom applications for viewing and analysis.
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1Data as of January 2021.