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Majority of global insurers now considering ESG when investing, survey finds

Insurance asset managers across the globe are increasingly taking environmental, social and governance issues into account when making investment decisions, according to an industry survey.

The survey by Goldman Sachs Asset Management LP and KRC Research found that 57% of the total global respondents said ESG was "one of several considerations" during the investment process, with another 5% deeming it their primary consideration. Only 40% of global insurers reported in the 2018 survey that they were taking ESG into account when making investment decisions.

The survey comprised responses from 251 chief investment officers and senior investment professionals, 35 CFOs and senior finance managers and 21 individuals who are both chief investment officer and CFO. When combined, the global insurance companies included have over $13 trillion in balance sheet assets, which equates to half of the balance sheet assets for the sector.

In both Europe and Asia, more than 80% of respondents said they were taking ESG into account when making investment decisions, with 69% of the European cohort making it one of several considerations and a further 14% saying it was their primary consideration. Among Asia-Pacific participants, 79% said ESG was one of several factors, with 2% deeming it a primary consideration.

In the Americans, however, 57% of respondents said ESG was not a consideration at all, with 42% taking it into account and just 1% making it a primary consideration. That pattern was consistent with previous years, the survey's authors noted.

However, Mike Siegel, global head of insurance at GSAM, said that even since survey responses were tabulated, the proportion of insurers in the Americas not taking ESG into account at all is coming down.

"We are actually working with clients to help describe their portfolios in terms of ESG, and that level is only going up," Siegel said.

Siegel also said the push for greater prioritization of ESG in investments for Asia and the U.S. is largely driven by constituents and by questions from stakeholders, boards and shareholders. In Europe, however, it is regulators who are having the greatest impact on investment decisions.

European regulators are expected to finalize requirements for companies to report on sustainability risks and other ESG-related factors in their investment portfolio sometime this summer, Siegel said. These could include mandatory reporting on things such as the percentage of female and outside directors on boards, as well as companies' impact on and exposure to environmental risks.

The survey also found that very few global insurers make climate risk a primary consideration in the investment process. Property and casualty, reinsurance and health companies tended to care about it the least, even though they might be most exposed to climate risk in underwriting, the survey noted.

Divided over timing of an economic slowdown

The survey also highlighted that the potential for economic slowdown or a recession in the U.S. ranked as the greatest macroeconomic risk in 2019 to investment portfolios among respondents in the Americas and in Asia. In Europe, however, the top macroeconomic concern was political events, a likely reference to events such as Brexit.

The trade conflict between the U.S. and China was ranked by 53% of respondents as the top geopolitical risk to investment portfolios. The second-greatest risk was a general category simply called "U.S. politics."

Although a U.S. recession ranked highest in terms of portfolio risk, just 2% of respondents thought this would take place in 2019, with 41% opting for each of 2020 and 2021. The remaining 16% said no recession would occur in the next three years. The divide in potential recession timing was consistent throughout the regions sampled.

Roughly 85% of insurance investors said they feel the current moment falls in the late stage of the credit cycle, up from just 14% who felt the same way a year ago. Inflation expectations have also changed markedly over the past year: In 2018, nearly three-quarters of respondents said inflation would be a concern domestically within the next three years, but in the 2019 survey, that proportion had fallen to just 27%.