Stepping Stone 09 Investment Strategy
Introduction
Principle 1 of the UNEP FI Principles for Sustainable Insurance (PSI) states that “we will embed in our decision-making environmental, social and governance issues relevant to our insurance business.” PSI provides further guidance under principle one to “Integrate ESG issues into investment decision-making and ownership practices (eg by implementing the Principles for Responsible Investment)”.
Principles for Responsible Investment (PRI) are as following:
- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes
- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices
- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest
- Principle 4: We will promote acceptance and implementation of the principles within the investment industry
- Principle 5: We will work together to enhance our effectiveness in implementing the principles
- Principle 6: We will each report on our activities and progress towards implementing the principles
Possible actions for members:
- Ask investment service providers (such as pension providers, analysts, consultants, research firms, or rating companies) to integrate ESG factors into their services
- Pension: according to the 2021 research by Aviva with data analytics company, Route2, in association with Make My Money Matter and as part of Aviva’s partnership with WWF-UK, switching the average UK pension to a sustainable fund reduces around 19 tonnes of GHG emissions (CO2 equivalent/CO2e) per year. The study further says that this is 21 times more effective than the combined annual carbon savings from moving to a renewable electricity provider, substituting all air travel with train and switching to a vegetarian diet. Vetting pension providers on ESG credentials is beyond the scope of this guide, but members are recommended to enquire about ESG integration of their existing and other pension funds available to them. A guide such as this, lists names and credentials of ESG aligned pension funds in the UK, for members to make contact and assess fit for their needs.
- Green loans/working capital: for your own working capital needs, members may explore options linked to their ESG performance. Some of these loan products come at a cheaper borrowing cost and are offered by a number of banks in the UK.
Case study
EY secures revolving credit facility (RCF) linked to its ESG performance
Ernst & Young (EY) received a dynamic Revolving Credit Facility (RCF) from HSBC which is linked to three ESG targets of EY. “EY’s performance against these metrics will be verified annually by external auditors and will determine the interest rate applicable under the RCF – which can go both up or down”. The agreed ESG targets are:
- 36% reduction in EY’s air travel emissions by 2025
- Grow the number of EY volunteers in the EY CSR programme by 75% to 2025
- New partner admissions to be 40% female and 20% underrepresented minorities by July 2025
- Advocate ESG training for investment and insurance professionals
- Ask for information from corporate partners regarding adoption of/adherence to relevant ESG norms, disclosure standards such as GRI/TCFD, codes of conduct or signatory to the international initiatives such as the UN Global Compact
Further reading and reference
- bbc.com/future/article/20220218-how-i-made-my-pension-sustainable
- barclayscorporate.com/solutions/green-solutions/
- gov.uk/government/publications/uk-government-green-financing
- unpri.org/governance-issues/the-investor-case-for-responsible-political-engagement/9366.article