Europe’s big insurers enter 2021 with a major opportunity to strengthen their commitment to sustainability.
By carefully deploying their extensive financial assets and real estate portfolios they can substantially increase their support for environmental, social and governance (ESG) initiatives. This will earn insurance providers greater trust and support among consumers who are increasingly looking to big businesses to demonstrate their commitment to building a sustainable future. Demands on corporations to be forces for the “social good” are escalating in the wake of the COVID-19 pandemic.
Our global consumer research shows that 66 percent of retail purchasers believe the COVID-19 pandemic has increased the need for businesses to help improve social and environmental conditions. A similar proportion of consumers want companies to “build back better” through long-term, sustainable, and fair investments.
With assets under management totalling around €10 trillion, insurers in Europe have plenty of financial muscle to drive changes that will promote sustainability. Allianz, Aviva, AXA, and Zurich Insurance, for instance, are already using their investment capital allocation as a lever to promote sustainability. They’re curtailing investments in organizations such as coal miners that cause substantial damage to the environment. Some of these carriers are also increasing their funding of environmentally-friendly green-energy companies. Such funding will surge during the next few years.
“Few strategic decisions are more important than where to allocate capital.”
Sustainable insurers, as I mentioned earlier in this blog series, put sustainability at the core of their business strategies. It guides all important decisions. And few strategic decisions are more important than where to allocate capital. Progressive carriers, eager to become sustainable insurers, are increasingly considering sustainability when making investment decisions.
Sustainable insurers will not only switch investments away from companies that damage the environment to put capital into greener alternatives. They’ll also steer funding out of companies that have poor social responsibility or governance records towards firms that are better corporate citizens. Our research with the United Nations Global Compact found that companies that meet widely-accepted ESG standards enjoy much bigger operating margins than their counterparts that were slow to support sustainability. What’s more, mutual funds that invest in ESG-compliant companies are beginning to outperform their traditional peers. As ESG investments continue to climb, and the cost of capital becomes more attractive, returns are likely to rise. This will both further increase the attractiveness of ESG investing among fund managers and drive broader indirect impact on investment decisions.
Insurers can also increase their commitment to sustainability by managing their real estate assets more effectively. Buildings account for as much as 40 percent of the European Union’s annual energy consumption and 36 percent of its CO2 emissions; even more than the transport sector. By investing in energy-efficient buildings, refurbishing their extensive office and housing assets, reducing power consumption and using environmentally-friendly sources of electricity, insurers can make big strides towards their sustainability goals. Using advanced digital technologies to gather and analyze vast volumes of critical from multiple sources, they can dramatically improve their energy management. We helped a European retailer, for example, reduce its total energy costs by 50 percent.
“Less than a third of consumers trust insurers to take care of their personal data.”
Greater support for sustainability will help insurers earn greater confidence among their customers. Consumer trust in insurers has declined in recent years. Less than a third of consumers trust insurers to take care of their personal data, for example. This was a key finding of our 2020 Global Financial Services Consumer Study. In the previous year, 40 percent of consumers expressed confidence in their insurer’s ability to look after their personal data.
The COVID-19 pandemic appears to have especially weakened trust among consumers in Europe. Only half the insurance customers we canvassed in Europe for our Consumer Pulse Survey believe their provider gave them the support they needed to cope with the consequences of the pandemic. In North America, the figure was nearly 70 percent. Communication, however, is an area that most insurers need to improve. Only one in five insurance customers believe their provider communicated with them clearly and effectively when responding to the pandemic.
Insurers that adjust their assets under management to support ESG initiatives will undoubtedly bolster their sustainability credentials. To foster greater trust among their customers, however, they’ll also need to communicate better with their policyholders. Sharing their sustainability goals and achievements with consumers who are increasingly concerned about the wellbeing of their communities and their natural environment would be a welcome move. Sustainability is an issue that affects us all.
Source: Accenture
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