CII: Our profession can set the standard internationally

By Matthew Connell, policy and public affairs director, CII

Across the waters and on the continent, we see new regulatory levers being pulled, capturing not just the climate disclosure framework being set up internationally (which the UK government has accepted and even pushed beyond), but new mandatory ESG options to be given to would be investors at all levels of conversation.

This has also sparked a renewed focus on ratings systems and pushed financial advisers and wealth managers to really understand what lies behind a rating, whether they can really trust the green veneer, and how best they can advise their clients going forward.

For UK professionals, this rich context, supported by the government’s own plans and ambitions on net zero seem to support the same conclusions around the growth of importance of ESG.

However, what lies ahead for our regulatory system is less clear. For those operating outside the UK it may be a case of applying the same requirements across business classes whether domestic or not, as whether the explicit rule is there from the Financial Conduct Authority or not, it is without a doubt going to be the expectation that ESG is addressed in some shape of form with customers.

The UK government’s own plans for mass rollout of climate disclosure rules will come into force in 2023, so really there is little time until that certainty becomes a reality for financial services business great and small.

Where the profession stands

The Chartered Insurance Institute (CII) itself has long been part of the discussion around the importance of tackling climate change and the risks it brings in its wake, indeed we have been a signatory to the ClimateWise principles since its creation in the early noughties and continue to be proud of our early commitment.

We have seen the movement in our sector already – with the launch of Lloyd’s Environmental, Social and Governance Report 2020 back in January. Building on the existing strategies that align with the UN’s Sustainable Development Goals and the principles set out in the COP21 Paris Agreement, it sets out fully how they plan to integrate sustainability into all their business activities as well as across the insurance and reinsurance marketplace.

The ABI have similarly looked at the insurance and pensions landscape and have noted not only is there billions in existing capital to be redirected into sustainable investment pathways, but the government review of Solvency II could unlock and addition £100bn in new sustainable ventures and help speed up our climate response.

Change can of course be disruptive, but there are some great rewards to reap from this action. First, the public are very keen on greener, more ethical investing. In fact, a government report from 2019 showed most people wanted to make a sustainable investment, yet when asked, only 13% had acted on that desire. If we make the process easier or even automatic, it would certainly be an easily achievable metric for that part of consumer satisfaction.

Second, ESG investing has paid off more than traditional forms as of late. Figures from Fidelity’s Putting Sustainability to the Test report (2020) showed stocks with the highest ESG rating outperformed lower rated stocks in nearly every single month last year. During a global economic and health related pandemic, this shows promising signs for future investment potential.

Finally, leadership sometimes involves risk but also setting the benchmarks and best practice others will have to follow eventually. Many insurers, pension funds and investors have within their grasp large pools of world-changing capital. Meaning in effect our profession, with the support of our clients, can help steer the direction of travel for our nation and set the standard internationally. The image of our innovative marketplace of professionals investing, advising, and leading the ESG charge will not only bring about real change for our sector, but will inspire others to follow suit and change our economy and ultimately our way of life.

It has been a tough year for many of us, but that’s one hope that can very much turn into reality, perhaps sooner than you may expect.