ESG has been embedded in the way insurers think about investment risk in recent years despite controversy from some angles. Nevertheless, the sticking point remains: How can insurers make sure that their ESG activities are meaningful and make a real difference?
This question was put to Todd Hedtke, Senior Vice President of Investment Growth at Allianz, in a recent conversation. Clear Path Analysis’s report, “Insurance Asset Management, North America 2022”, sees several senior industry players discussing the biggest themes and challenges in this area – as well as potential opportunities for 2023.
"What I love about ESG is that, as insurance investors, it is a
complex business."
Hedtke said that ESG constituted an important cultural and financial aspect of doing business in 2023, adding that it still needed to be further honed and embedded. “Impact is a great question in and of itself and figuring out how to measure it is important,” he said when asked how to mitigate the risks of ESG – especially around greenwashing.
“What I love about ESG is that, as insurance investors, it is a complex business. Our targets are not just about getting a benchmark and going to achieve alpha. We have multiple capital models to deal with, and multiple accounting models, not to mention our liability funding costs and actuaries that are hitting us up all the time.”
Hedtke added that impact would require ample consideration and added resources to achieve necessary results. The measurement of impact is where “the data, underwriting, and due diligence come in, and this has been a setback for the whole sustainability movement, to some degree, with people not doing their homework and not understanding these investments but people putting a lot of products out there,” he said.
“You have the left telling you that you should do more and the
right telling you to do less."
“[It’s] about the basics of investing; knowing what you are investing in and having the data that can support it is critical because the greenwashing topic has set us back as an industry in some regards.”
As part of the conversation, Hedtke was also asked about the between the US Republican party and sections of the financial services industry that find themselves on opposite sides of the ESG debate.
“You have the left telling you that you should do more and the right telling you to do less; the issue in our industry is that it has always been on the conservative side, and I am wondering what the debate within the industry is, as this issue is unfolding,” one audience member asked Hedtke in the Q&A section of the interview. The implication was that ESG was suffering due to this mindset.
“Even [in] academia you have universities getting into this debate and having new courses and even majors on ESG. How do we, as an industry, see this topic [and] where we are in this debate?” the audience member
In response, Hedtke said that “Maybe that [division] has to do with where we are domiciled to some degree as companies face different issues depending on if they are in California or Texas.”
In March, President Joe Biden is likely to veto a Senate-led bill aimed at quashing ESG investing, which revealed building animosity.
Several states maintain opposing views on ESG. In late 2022, Gavin Newsom, the Governor of California and a Democrat, wrote a treatise defending ESG investing and its ‘proven results’.
Meanwhile, in other states – often with a Republican majority – there is antagonism toward ESG with the reasoning that it is a distraction from enhancing profits and growing the overall economy.
“Shame would be if we sit back and say this is somebody else’s
problem as we are too systemic to it."
“As an industry, there are efforts out there to try to come together,” said Hedtke on his views on ESG. “It is difficult because it is a 50/50 topic in a lot of cases, [but] I am optimistic we can come together.”
He added that there was one factor the industry should focus on, which is the relative ease of using capital to engage and “become part of the solution”.
“We represent too much capital in this country to not be part of the solution. Shame would be if we sit back and say that this is somebody else’s problem as we are too big and too systemic to it,” said Hedtke. “I am hoping that we can come together more but I don’t feel that we are anywhere there yet as an industry, but we are working on it.”
