Michèle Lacroix, Head of SCOR’s Group Investment Office:
How to include sustainability in investment decisions?
Financial markets are leading the way in the sustainability journey. Stringent regulation over the last five years has meant that CSR and ESG are now common acronyms, with Environmental, Social and Governance being the three topics that underpin sustainability. Climate change is just one part of sustainability.
Sustainability in asset allocation is clearly linked to its double materiality: the “outside-in” effect and the “inside-out” effect. The first involves managing risks that may have a negative impact on the expected income or value of the assets on the portfolio, considering non-financial criteria – climate change, loss of biodiversity, social or governance issues - in addition to the usual financial risks. The second, “inside-out” effect has been strengthened by the European Commission’s “do no significant harm” concept, which makes us consider the way our portfolio impacts its ecosystem, the environment and social issues.
To put this into practice at SCOR, we have started for example to consider carbon footprints and global warming in the portfolio. Beginning with the outside-in effect, we concentrated on transition risk by building a heat map to identify the riskiest assets on our portfolio, based on the type of asset, the sector and level of carbon-intensity involved, and the asset maturity. Since then, we have progressed to scenario analysis, using our carbon footprint to measure the impact of our portfolio on the environment. To limit global warming to 2 degrees or less, we really need to become carbon neutral by 2050, and this weighs on our portfolio. We can see that 10% of the portfolio contributes to 70% of emissions intensity, and we have room to maneuver on that 10% by supporting the best in class, those companies that are able to provide business and utilities in sectors that are carbon-heavy in a less harmful way.
Laurent Rousseau, Deputy CEO of SCOR Global P&C:
What gets measured gets managed
The first consideration when it comes to underwriting and CSR at SCOR Global P&C is: are we direct underwriters? Are we underwriting risk on a single basis, risk by risk, or do we underwrite more of a portfolio? On the Specialty Insurance side, we have access to granular information, and we can control our exposure more, but we are still reliant on brokers and it can be costly in terms of data quality. On the Reinsurance side, with our treaty business representing just over 75% of written premiums, we are not primary underwriters, so we have varying degrees of access to information.
Reinsurance and Specialty Insurance are different businesses, but we have a unified approach, with guidelines to frame our underwriting and manage exposure according to CSR and climate impact requirements. Initially, there was a strong temptation to focus solely on the underwriting side of the business, where we have more control. But we realized very quickly that on the Reinsurance side, even if we do not have a direct underwriting path, we have a wealth of information on natural catastrophes, and this is where reinsurers have a real role to play: providing society with data that is global and structured in historical series, to contribute to the understanding of natural perils.
For Specialty Insurance, the initial focus has been very much on exclusions. A few years ago, we excluded tobacco risks from our underwriting, and we have more recently excluded the construction of new coal plants.
We really want this approach to have an impact: insurance is the promotion of healthy practices and standards, and the incentive to practice better risk management. We have to be proactive in this regard, and we have taken a number of measures in this direction – such as the preservation of World Heritage sites, giving a global remit to the environmental liability Specialty that we write out of Lloyd’s, and our promotion of renewable energy.
SCOR is very much focused on client needs, and this is important when it comes to CSR. Should you get out of the market when your policy is fundamentally different to those of some of your clients? It’s not an easy question, but we lean towards no. Should we walk away from certain markets or from certain countries? No. Our target is to design solutions that very much accompany our clients through their transition, while reducing risk.