These Institutional Investors Are Already Paying For Climate Change. They’re Investing to Fix That.

Insurance companies have a front row seat to the destruction caused by an increase in the number and intensity of hurricanes, wildfires, and tornadoes. So it stands to reason that they would be ahead on environmental, social, and governance investing — at least when it comes to climate issues. 

In fact, asset manager Nuveen found that insurance companies are ahead of all other allocators in every aspect of ESG, including climate risks, social issues, diversity, and integrating these factors into their investing process. The conclusions are based on an analysis completed using Nuveen’s new institutional investor ESG Comparison tool. The firm developed the simple tool to help allocators compare their ESG efforts to those of peers after it surveyed 700 asset owners last fall about their investment strategies. Among other things, Nuveen concluded that the majority of allocators are rethinking their portfolios as a result of the pandemic, societal changes, climate risks, inflation, and central bank and government policy. 

Insurance companies are well ahead of other types of investors on climate risk. Ninety percent of insurers, compared to 79 percent of all asset owners, said they were specifically addressing climate risk in their portfolios or planned to do so within the next two years, according to Nuveen. Eighty-four percent of insurers in the Asia-Pacific region and 87 percent of insurers in Europe, the Middle East, and Africa have made Net Zero pledges or planned to do so in the next few years. 

“We’ve seen tremendous progress being made [by insurance companies] on the ‘E’ side of ESG through Europe, Asia, and the U.S.,” said Joseph Pursley, head of insurance distribution at Nuveen. Property and casualty insurers, for example, are assessing the long-term financial implications of the increasing occurrence of natural disasters, including hurricanes, tornadoes, heat waves, and wildfires, on their business models. “That means there are more claims that need to be paid out,” Pursley said. Unlike pension plans or sovereign wealth funds, insurance companies are already directly affected by changing climate conditions, which appears to have made them stronger proponents of sustainable investing. 

But what’s surprising is that insurance companies are also more committed than peers to other efforts that fall under ESG. Sixty-four percent of insurers, compared to only 49 percent of all asset owners, said they were committed to social investment or planned to do so in the next two years, according to the Nuveen analysis. They are also more inclined to think that investors could reduce social inequality through their investment decisions. Sixty-eight percent of insurers have included diversity, equity, and inclusion as a factor in their investment manager selection process, while only 54 percent of all asset owners have done so, according to the analysis. 

Pursley argues that one reason insurance companies are leading other investors on social issues is that they are more likely to have a global perspective. “Pension funds or other entities are slightly more concentrated around one region…but insurance companies tend to be very big and employ people either nationally or in multiple countries,” he said. “They have a much stronger behavioral bias to get involved and help with [social] change.” 

Beyond the risks, insurance companies, some of which have recently acquired managers themselves, have also benefitted from publicly addressing environmental and social issues and disclosing more data and sustainability reports, Pursley added.

“The positive component of ESG in the public domain is really important,” Pursley said.