- European insurers are ahead of global counterparts in banking and asset management
- Italian insurers lead globally on environmental and social activity; UK leads globally on governance
The EY Sustainable Finance Index is a global benchmark comparing over 1,100 financial services firms [banks, insurers, wealth and asset managers] worldwide on ESG parameters and disclosure rates, which act as a key indicator of activity and commitment to improve. The Index ranks countries as they progress on their sustainability journey, creating a score out of ten, as well as measuring the extent of disclosure on ESG-related activity, expressed as a percentage of the parameters included in EY’s Index.
In 2020, the European insurance market scored 6.6 for ESG activity. This compares to the global average of 5.8. European insurers are disclosing an average of 64% of ESG parameters, and although they are disclosing more information than the global average (55%), the results confirm that European insurers can further maximize their ESG disclosure and progress.
The Index reveals that, overall, Dutch insurers are leading the pack in terms of disclosing data about ESG activity, disclosing against 72% of the Index’ parameters, while Italian and French insurers follow closely (with 71% and 70% respectively). Conversely, UK insurers, who have the largest sample size, have the lowest disclosure rate across European markets – disclosing against just 63% of parameters.
Insurers lead their financial services counterparts in ESG disclosure and performance
As well as being ahead of their global insurance counterparts in terms of ESG disclosure and performance, European insurers are also ahead of their European financial services sector counterparts in banking and asset management. This reflects the identification of the insurance industry with environmental and social themes and their leadership responsibility in responding to these issues.
With a consolidated disclosure of 64%, European insurers are disclosing more ESG data than their financial services counterparts in banking (59%) or wealth and asset management (53%). With a consolidated score of 6.6, they are also scoring higher across ESG activity when compared with Banking and WAM (6.3 and 5.9 respectively). Banks, however, do lead Insurers and WAM in terms of their Social activity, with a score of 6.6.
Gill Lofts, Global Sustainable Finance Leader at EY, comments: “Like other finance providers, insurers have a critical role to play in driving sustainability. As well as enhancing their own sustainability profile and developing more sustainable products for their customers, they can also incentivize the integration of environmental, social and governance factors into business decision-making, influencing the shape and pace of global corporate sustainability.”
Karl Meekings, Global Financial Services Analyst at EY, adds: “EY’s Sustainable Finance Index aims to accelerate improvements in sustainability across financial services, by tracing institutions’ progress over time against a broad set of sustainability parameters. Transparent, measurable benchmarking allows comparisons at the company, sector and country levels and helps to identify examples of best practice, areas for improvement and where reporting is particularly low.”
Environment: Italian insurers lead Environment activity followed by Switzerland
Italian insurers lead the way in terms of activity intended to limit or reduce their environmental impact. With a score of 8.4, they are some way ahead of Switzerland (8.0) and France (7.5) driving environmental initiatives, including developing more sustainable products and services. Italian firms also perform strongly on energy management and climate change activity.
In contrast, with a score of 4.5, UK insurers have the lowest Environment score across key European markets. However, this masks a wide divergence between UK insurers’ Governance disclosure scores, which are the strongest in Europe at 80%, and their Environmental disclosures – among the region’s lowest at just 37%. UK firms score poorly on waste and water management parameters, with just 18% of firms disclosing the total waste produced and the water usage. No UK firms reported having recycling initiatives.
While pan-European focus on developing environmentally focussed products is picking up speed, this remains low in the UK. Just 36% of the UK insurers report developing new sustainable products, compared to 70% in other European markets. This potentially can be linked to the lack of environmental management teams at UK insurers or a need to provide greater transparency on specific actions insurers are taking on product development.
Gill Lofts comments: “Reporting on green products remains a challenging area, and insurers need to be cautious of greenwashing existing products and services as part of nothing more than a rebranding exercise. A strategic response from a business in terms of driving an environmental agenda requires embedding sustainability across its products and services. This includes incentivising customers to shift to green lifestyles by offering, for example, pay-as-you-drive vehicle insurance, special rates for more environmentally efficient buildings, or reduced travel insurance quotes where part of the proceeds are used to offset carbon.”
Like their banking peers, European insurers make limited disclosures about the environmental profile of their extended ecosystem and there is a wide discrepancy of scores across countries ranging from a high of 7.5 in France to a low of 2.7 in the UK.
European insurers lead on Social activity; but greater D&I activity required
Italian insurers are also leading in terms of pursuing their Social agenda. High scores on data protection and whistle-blower protection help drive Italian insurers’ social score up to 7.1. Their Social score is further supported on a community development front, with many Italian insurers reporting policies to improve good corporate citizenship and foster employee engagement in voluntary work. While French firms perform well on the social front with a score of 7.0, challenges remain to be addressed in the space including, weak data protection and remuneration practices and low reporting around safe workplace parameters.
The UK is the lowest performer in terms of Social activity reported. 36% of UK insurance firms covered report having no whistle-blower protection framework in place, while another four do not disclose on the parameter. While just one firm reports on applying Six Sigma, Lean Sigma, TQM or any other similar quality principles, none of the firms report on having ISO 9000 certification or any industry-specific certification. Further areas for improvement include safety of workplace, as firms have low disclosures around parameters like contractor fatalities or workplace injuries. However, UK insurers performed well on the data protection parameters, having robust policies and frameworks around the issue.
While overall disclosure on Social parameters by European insurers is higher than their global peers (67% versus 57% globally), one key area where European insurers need to enhance is D&I. This is a consistent lower performing activity category across the European insurance landscape. Few insurers in Europe report diversity targets across a range of D&I parameters.
The percentage of female executives on European boards is higher than compared to other regions (18% in APAC and 21% in North America), though at just 33% in Europe it is still extremely low. EY’s research confirms that some insurers are taking progressive steps to provide a more inclusive work environment. Thirty-four percent of European insurers confirm that they provide day-care facilities for their employees, compared to just 15% of their North American peers and 14% of Middle Eastern insurers, a trend that, if it continues, has the potential to improve female board representation.
There is also strong disclosure on the salary gap across key markets and the gap itself is lower across European insurers than their peers in other markets. The difference between the highest paid and the lowest paid is approximately 150 times in Europe as compared to over 460 time in APAC and over 500 times in North America.
Governance: UK insurers lead Governance activity
With a score of 7.7, UK insurers are leading the pack in terms of their Governance disclosure, followed by Switzerland (7.1). UK insurance firms’ robust ESG reporting framework helps them score well on governance parameters. UK insurers have highly competitive compensation policies, with a focus on rewarding performance. Ninety-one percent of UK insurers have policies in place regarding compensation to attract and retain executives. UK insurers also perform well on the board effectiveness front and shareholder rights and transparency parameters.
However, like their European peers, UK firms perform lower in terms of board diversity, with firms averaging approximately 30% female representation on their boards collectively.
German insurers disclose less information about their Governance parameters than either their European or global peers. Insurers also perform poorly on-board independence and effectiveness parameters, with none of the firms reporting on having a policy for maintaining effective board functions. Further, none of the firms disclose the percentage of strictly independent board members. Four out of five German insurers report on not having a staggered board structure, an effective tool to prevent hostile takeovers.
Gill Lofts comments: “Driven by a strong culture of governance, many European insurers – led by the UK – do have some formal sustainability reporting in place, including via dedicated corporate social responsibility (CSR) committees. However, ESG disclosure and oversight are still very much a work in progress, with much development needed. There is a clear opportunity for firms to achieve more by adopting more rigorous oversight of their ESG disclosures and activity”.
Notes to editors
The EY Sustainable Finance Index includes data from 1,100 financial services firms from around the world, including 806 banks, 217 insurers and reinsurers and more than 140 wealth and asset management firms
The insurance firms are further spread in terms of their gross premiums (below US$1b, US$1b to US$100b and US$100b to US$500b) and business model (Life & health, Multiline insurers & brokers, Property & casualty insurance and Reinsurers)
Data compiled as of November 2020
This insurance focus follows the Sustainable Finance Index for banking, which was published in November 2020. The Index collates reported data from financial services businesses across a wide range of topics that make up a business’s ESG metrics.
The EMEIA insurance market covered in the Index collates data from 47 insurers
About the EY Sustainable Finance Index
The Index monitors more than 200 ESG-related disclosures for more than 1,100 financial services firms worldwide. It reviews the breadth and depth of each institution’s disclosure against these individual parameters, which have been grouped into 25 categories under the three environmental, social and governance components. This data is compiled into a scoring system, which ranks countries as they progress on their sustainability journey, creating a score out of ten (the ESG score), as well as measuring the extent of disclosure on activity (the disclosure rate), expressed as a percentage. The Index will introduce new parameters over time, allowing it to adapt to the industry’s evolving thinking on sustainable finance.
The Index is aligned with the Stakeholder Capitalism Metrics set out by the World Economic Forum (WEF) and International Business Council (IBC). It is not yet possible to directly map the Index’s 229 individual parameters with WEF-IBC’s 21 core themes, since many of WEF-IBC’s themes do not yet have specific metrics. However, as WEF-IBC’s work continues, our parameters will evolve with it, ensuring that the Index remains aligned with the Sustainable Development Goals and that it tracks developments by the Global Reporting Initiative, the Sustainability Accounting Standards Board (SASB) and the Taskforce on Climate-Related Financial Disclosures (TCFD).
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