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Research - 12.07.2019 - 00:00

European insurance companies pursue climate-friendly investment policy

A study by the University of St.Gallen (HSG) has shown that the majority of European insurance companies are no longer investing in CO2-emitting industries. Swiss institutions too have made their investment portfolios greener overall during the last few years. The authors of the study are calling for greater transparency with regard to climate-damaging insurance portfolios and for consideration of environmental risks in financial key figures.

12 July 2019. At the beginning of this week, a number of climate activists blocked the entrances of major banks in Zurich and Basel. The accusation levied at these financial institutions? Too much investment in climate-damaging companies. The environmental commission of the Council of States is also currently discussing future climate measures for the finance industry within the context of the CO2 legislation.

Swiss insurers switch to green investments

Alongside banks, the capital assets of insurance companies also represent a major lever for the energy transition, one that has a financial impact of 25 billion dollars worldwide. In line with the societal trend towards greater sustainability, the majority of European insurers are now barely investing in climate-damaging industries at all. This was revealed in a study carried out by Alexander Braun from the Institute of Insurance Economics (HSG), Sebastian Utz from the Institute for Operations Research and Computational Finance (HSG) and Jiahua Xu from the EPFL. In their research, they studied the capital assets of 35 European insurance companies between 2008 and 2018. Viewed across this time frame, the majority of these companies realigned their holdings to be considerably greener. "You can see that towards the end of this period in particular, a great many more insurers jumped aboard the climate train. Over the last year, for example, around half of them have improved considerably in that regard," explained Sebastian Utz, one of the authors of the HSG study. The five Swiss insurance companies examined as part of the study had also become noticeably more climate-neutral across the entire time frame of their portfolio.

Price of CO2 impacts on share prices

For their review of capital assets, the researchers examined how the value increases in the CO2 certificates traded impacted on the share price of an insurance company. If a company has a lot of holdings in climate-damaging industries, an increase in the CO2 price should have a correspondingly negative impact on the share price and vice versa. Based on this link, the researchers developed a key figure that can provide information on how strongly a portfolio is characterised by climate-damaging investments.

Ways of speeding up the shift away from CO2

"It’s clear that there has been progress in the shift away from CO2 in the last few years among European insurers in particular, but this really needs to be accelerated on a global level," noted Sebastian Utz from the HSG. To this end, the team of researchers has proposed three possible ways of speeding up the transition to a climate-neutral insurance industry.

On the one hand, a label denoting a sustainably-oriented insurer could be created, like the one that already exists for investment funds. On the other, the regulatory authorities need to play a more active role. One idea, for example, is for insurance companies to have to publish the key figure developed by the team of researchers in addition to the information they have been obliged to disclose thus far. "Transparency for stakeholders is currently lacking and could be increased with these measures," according to Sebastian Utz.

As a third measure, the team of researchers proposes a potential increase in the prescribed equity capital requirements for climate-damaging investments.

Researchers win two awards

The three researchers have been presented with the Impact Award from the LIFE Climate Foundation Liechtenstein and the Shin Research Excellence Award for their work. The study will be published in October 2019.

Image: Adobe Stock / marcin jucha

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