Press release

31 Mar 2021 London, GB

EY Sustainable Finance Index: UK insurance market leads global competitors on governance structures, but lags on environmental and social factors

UK insurers rank within the top ten global markets (7th) to report on ESG activity

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Related topics Financial Services
  • UK insurers rank within the top ten global markets (7th) to report on ESG activity
  • UK insurers are global leaders on governance metrics such as board independence and shareholder protection, but rank within the top 25 countries globally for environmental and social metrics
  • UK insurers lag Western European peers on incorporating key environmental factors into their operations, but considerably outstrip US firms 

According to the EY Sustainable Finance Index, which ranks financial services firms across the globe on key sustainability and disclosure metrics, UK insurers - across life and non-life firms - have world-leading governance systems in place, but have work to do to compete on environmental and social factors.

The EY Sustainable Finance Index is a global benchmark comparing over 1,100 financial services firms worldwide on ESG metrics and disclosure rates, which act as a key indicator of activity and commitment to improve. The Index collates reported data from financial services firms across a wide range of topics that make up a firm’s sustainability metrics. This data is compiled into a scoring system which ranks countries as they progress their sustainability goals, creating a score out of ten, as well as measuring the extent of disclosure on activity, expressed as a percentage.

In reported 2020/21 data, the UK insurance market scored 6.6 out of a possible ten for the ESG activity it is currently carrying out and reporting on. This compares to the global average of 5.8, and while comparatively progressive, it demonstrates the extent of work still to be done across the world on sustainability. Against over 200 parameters tracked by the Index UK insurers’ rate of disclosing ESG data is 63%, which is higher than the global benchmark of 55%, and places the UK market in the top ten countries globally to report on ESG. The parameters are wide-ranging across the ESG spectrum, capturing data such as CO2 emissions and environmental policies all the way through to a firm’s HR policies and board-level independence and governance structures.

Gill Lofts, UK Sustainable Finance Leader at EY, comments: “The UK has long been recognised as one of the best places in the world to do business, which is partly due to its heritage of strong corporate governance, reinforced by industry codes and regulation. While the insurance industry should be commended for its exemplary governance structures, this Index demonstrates that there is still a long way to go to fulfil any ambitions to lead on environmental and social practices.

“The Bank of England’s emphasis on supporting the transition to a carbon neutral economy and last year’s Government announcements calling for the City to become a leader in green finance highlight that the motivation is there. In addition, the UK’s ongoing strong supervisory framework should accelerate insurers’ focus on environmental factors, but firms need to continue going beyond regulation if they are to break into the ranks of the top global performers on social and environmental measures.”

Karl Meekings, Global Financial Services Analyst at EY, adds: “Disclosure is a strong indicator of progress on sustainable finance. It suggests that firms are acting to meet ESG goals, are willing for their efforts to be scrutinised, and are committed to making further improvements – good signs for the future. However, what is clear from the Index is that ‘good’ is still a low benchmark, and there is an enormous amount of progress to be made for any insurance market to truly claim triumph, especially by the smaller firms who have catching up to do with their larger peers.”

UK insurers are global leaders on governance 

The Index finds that the UK and Belgian insurance markets are unparalleled in the rigour they place on good governance, with strong disclosure rates across the majority of insurers tracked. The UK sector scored 7.7 out of a possible ten for the level and strength of governance in place, compared to the 6.4 global average, which within it includes the US scoring 6.7 and France scoring 6.6.

Where the UK insurance sector does particularly well is on board effectiveness, scoring highly due to the focus placed on board members having deep industry knowledge and ensuring appropriate independence, as well as maintaining high standards of conduct and transparency. Insurance boards also scored relatively well on diversity, although the benchmark is low, with firms averaging around 30% for female representation. In addition, board meeting attendance - a key indicator of good conduct - for UK insurers is 97%, compared to the global average of 87%.

UK insurers also lead by example on transparency and receive high scores for having robust checks and controls in place, which contribute to strong shareholder protection and positions the UK insurance market as a global leader on data protection and privacy.

UK insurers have more work to do on environmental policies 

Multiple challenges remain to be addressed on the environmental front for UK insurers, who received a score of 4.5 out of 10, and a disclosure rate of 37% against the 200 parameters of the Index. This compares to France’s environmental score of 7.5 and a 61% rate of disclosing against the Index’s parameters and Switzerland’s 8.0 score and 62% disclosure rate – although it should be noted that the sample sizes are smaller for both markets. Conversely however, the UK outstrips US market competitors who scored just 1.3 on environmental activities and are found to be disclosing against just 13% of the Index’s environmental parameters – amongst the lowest of the world’s major insurance markets.

In terms of physical footprint, just four of the 11 UK insurers included in the Index report having environmentally friendly or green offices, and only one firm reports its expenditures around environmental practices and initiatives. UK insurers also scored particularly poorly on waste and water management parameters, with just two out of 11 disclosing their water usage and waste output, and none report any recycling initiatives. UK insurers should however be commended on their CO2 emissions disclosure, with 10 out of 11 firms reporting this data.

On the business side, only four UK insurers claim to have products and services that are designed to have positive environment effects.

On a relative scale, the UK is underperforming many of its European peers on environmental processes and reporting across a number of areas. The French insurance market – although operating through a smaller number of firms - has approaching double the disclosure rate on ESG activity, and three out of the four French insurers tracked by the Index report to having environmentally friendly offices and all claim to have eco-friendly products and services. Swiss insurers’ environmental scores and 62% disclosure rate are bolstered by all six firms tracked reporting specifically on their total waste and energy outputs and CO2 emissions.

To achieve higher scores on the green agenda, UK insurers need to further incorporate environmental processes into their corporate strategies and should also consider developing more green-focused policies and products, as well as improving their reporting.

UK ranks 8th in Europe on diversity and inclusion in the workplace

Progressive policies to encourage a more diverse and inclusive (D&I) insurance sector are paying off, and the UK ranks as the 8th best market in Europe for diverse and inclusive hiring and progression. The rankings are based on factors such as the policies and targets (if any) in place on diversity and opportunity within the workplace, and the gender balance of managerial roles. However, even the leaders on this agenda sit at a relatively low bar, and there remains significant work to be done. When looking across European insurers, Poland was the highest scorer, achieving 5.7 out of a possible 10 for its D&I activity, which compares to the UK’s 3.2 score.

In particular, UK insurers need to act on enhancing board diversity; while many firms have strong policies on board gender diversity, women currently make up just 31% of board members. This compares to 50% in Norway, 47% in France and 43% in Denmark.

Stuart Wilson, UK Insurance Partner at EY, comments: “D&I within the workplace is something that all UK firms are working to move the dial on, and the insurers are no exception. It is well acknowledged that diverse teams drive stronger performance, and that it is not only the right thing to do, but it makes commercial sense. However, the speed of change remains slow. It is not new news to say that more needs to be done in this space and, while it is positive that UK insurers are outperforming many other markets across the world, this is not an area where anyone can claim ‘victory’.”

Rodney Bonnard, UK Insurance Leader at EY, concludes: “Although UK insurers have more to do to compete on environmental activity and reporting at a global level, there is a lot of positive work being done across the industry. The UK Government has made it clear that the future of UK financial services is green, which is an exciting ambition and one which many firms are already committed to. At a national level, the UK is on the brink of launching its first green sovereign bond and a green gilts programme, but we shouldn’t forget the change that can be made at a firm level, where the sum of many small changes for the good can result in large scale positive progress.

“Innovation will be key as we transition to a lower carbon future, and insurers will play a crucial role by creating more sustainable financial products and services that underpin the businesses that drive the economy. Developing green strategies is not only the right thing to do for the environment and for society but should also increase and diversify revenue streams and reduce risks. The overarching message is clear, while the UK insurance market is making strides in the right direction and demonstrating the power of strong governance, there remains a chasm to be crossed before it can claim a perfect ten on ESG.”

Notes to Editors

  • The EY Sustainable Finance Index includes data from 1,100 financial services firms from around the world, including 806 banks. The data comes from third party aggregators.
  • Data compiled as of November 2020
  • The UK insurance market covered in the Index collates data from 11 insurer, including 9 firms with gross premium above $1bn. Within the 11 firms, the breakdown per sub-sector is as follows: 4 life firms and 7 general insurance firms.