Determining how the insurance investment industry can make a direct impact on climate change and sustainability is an issue that keeps senior market leaders awake at night, said AXA’s Group Chief Economist, Gilles Moëc.
Moëc spoke at a recent Clear Path Analysis event, “ESG Investment Leader 2022”, on a panel discussion that covered the major issues at the heart of the ESG debate, alongside representatives from Foresters Friendly Society and Scottish Widows.
"The lack of precision in regulations and industry standards contributes to
involuntary greenwashing: not doing what you said you would do.”
Moëc said he will only sleep well at night when ESG goals become more mainstream. He also mentioned that, despite his humorous tone, the conundrums faced are no laughing matter.
“The rules of the game are getting clearer,” he said. “Even so, the lack of precision in regulations and industry standards contributes to involuntary greenwashing: not doing what you said you would do.”
The industry is still working this facet out. In the last few weeks, a host of investment managers have swapped their funds form Article 9 to other under the EU’s Sustainable Finance Disclosure Regulation (SFDR) framework. The swaps came as they were pressured around claims of ESG-compliance, but also saw the fund managers say that the current admin burden around ESG-compliant financial activities was too onerous, which was why they swapped.
Whilst problems like this one currently dominate the headlines, Moëc was adamant that he sees this situation improving in the future. However, he was realistic that teething problems with attempts to combat greenwashing would continue for some time. “As we move toward clearer standards and definitions, we should see an improvement in ESG impact,” he said. “Still, there will be accidents. We saw many accidents 15 years ago when financial regulations tightened. We will probably see a similar phenomenon this time around.”
“Governments are running out of money, and their capacity to continue
supporting the welfare system we’ve enjoyed for 70 years is dwindling.”
This, he said, was the reason why companies should care about the issue. “One of the main reasons is value creation,” he said. “If you want to be cynical – and sometimes you have to be – you should be concerned about changing investor appetites and potential future regulations. Even with pressure from investors, companies can choose their own timeline to implement these changes.”
He added that this point is particularly evident in the realm of social and employee welfare. “Western governments are running out of money, and their capacity to continue supporting the broad welfare system we’ve enjoyed for the past 70 years is dwindling,” said Moëc. Indeed, an Accenture blog said that to meet all current and future ESG regulatory requirements, unlikely partnerships may become the norm among industry participants, governments, and international standard-setting non-profits.
“Governments will likely push that burden toward the corporate sector, requiring more attention to employee welfare," he said. "Right now, you can choose your timing to avoid reputational risk and keep investors on your side. But if you don’t, the government will soon step in.”
