On the go: The integration of environmental, social and governance risks by UK bulk annuity insurers has been described as “sharp”, in a survey of the eight largest providers by Willis Towers Watson.
All eight insurers have taken steps to “enhance and develop” ESG investment analysis in the past calendar year, the research revealed.
Seven of the companies are now signatories to the UN’s Principles for Responsible Investment, and/or the organisation’s Net-zero Asset Owner Alliance.
Willis Towers Watson did find discrepancies between commitment and implementation in its research.Despite the majority of UK bulk annuity providers signing up to these international frameworks, only half were currently reporting in line with Task Force on Climate-related Financial Disclosures recommendations.
Commenting on these findings, Ian Aley, head of pensions risk transfer at Willis Towers Watson, said ESG is multi-faceted and insurers have to recognise this.
“Some insurers demonstrated thinking that good stewardship was optional for bulk annuity portfolios, citing that they are unlikely to hold equities against which they can exercise voting rights. In our view, this is only one component of stewardship,” Aley said.
“Good stewardship principles apply across all asset classes and we, as well as trustee boards, would like to see all insurers demonstrate robust stewardship policies.”
The UK bulk annuity insurers were rated based on their ESG activity, with two receiving the top score in both 2021 and 2020.
Three others improved their score in 2021, with three further insurers completing the survey for the first time in the past calendar year.
ESG improvements have included adding dedicated ESG resources, improving analyses in this field, and generally increasing the use of external and proprietary analytics.
Overall, Aley said it was “pleasing” to see the extent of ESG adoption in the space.
“As pension schemes continue to mature and look to derisk through bulk annuities, understanding where prospective insurers stand with their ESG policies is becoming increasingly important when trustees make their insurer-selection decisions,” he said.
“It is pleasing that all the UK bulk annuity insurers in the market are taking proactive steps to continue to develop their ESG and stewardship policies — but there is more to do.”
