This insight interview, was conducted in advance of the Insurance Asset Management Summit to be held on the 15th November in London with Alan Sheppard, Head of Insurance Policy, at the Bank of England, parent of the UK's Prudential Regulatory Authority.
You were part of the Network for Greening the Financial System’s first gathering in April. Can you tell us what’s so important about leading decision makers from capital markets, central banks and regulators gathering together to debate the issue of financial stability through climate change?
The Amsterdam meeting was an inspiring conference which brought home that managing the financial and financial stability risks from climate change is a core part of central banks’ mission of promoting sustainable, long term prosperity. And we need to act now: the climate science indicates that urgent, decisive action is required over the next decade to achieve an orderly transition.
‘A sustainable future’: how would you describe its application to insurers investment portfolios?
Insurers are long term investors and are investing now in long term, often illiquid assets that carry climate risk. Firms need to examine the balance in their portfolios in the context of the low-carbon economy that is compatible with the goals agreed in Paris to limit global temperature rise to well below two degrees.
How do you rate insurers approach to ESG now and where do you see a shortfall in attention?
Some firms have been in the forefront of recognising and responding to climate risk, particularly on the liability side of their balance sheets. Generally across the financial sector, we need to see climate risk recognised as a core financial risk on both sides of the balance sheet and subject to the same rigorous risk management as other financial risks.
How can insurers and the third-party asset managers who serve them have the most productive and positive impact in ESG?
We think there are a range of things that will help, but disclosure is key here. We encourage firms to consider and adopt the recommendations on disclosure from the Taskforce on Climate-related Financial Disclosure (TCFD).
A growing number of life and multi-line insurers are seeking long-term investments to manage projected cashflow commitments at a time when many climate change related, private real estate projects are seeking long-term funding. The two naturally should go hand in hand, but does the Prudential Regulatory Authority hold any concern about insurers backing such immature categories of investment?
Policyholder protection is a primary objective – so as well as holding portfolios that properly recognize overarching risks like climate, firms still need to show that they can understand and manage the risks in the assets they hold – and hold sensible levels of capital against them.
What can attendees to the Insurance Asset Management Summit expect from your presentation on, ‘Promoting a Sustainable Future – how will the Prudential Regulatory Authority encourage positive investment’?
An insight into how regulators expect insurers to go about integrating climate risk into their risk management and investment strategies.
Registration to the Insurance Asset Management Summit on the 15th November at 200 Aldersgate, London, is open and available to register by clicking here. Only representatives of insurers and regulatory bodies are able to register for free. Should you not be an insurer but wish to be part of this event, then get in touch with Noel Hillmann at noelhillmann@clearpathanalysis.com or call +44 (0) 207 688 8511
