Bulk annuity providers are the latest financial services companies to be taking steps to improve their ESG procedures.
Willis Towers Watson’s annual bulk annuity survey found of all eight providers had taken steps to improve their ESG standing over the past calendar year.
WTW says that while year-by-year comparisons show positive steps, some insurers show further room for improvement across areas including climate related disclosures and putting in place clear stewardship policies to keep up with the pack.
Converting each provider’s ESG procedures and activities into a scoring system for both 2020 and 2021, the survey revealed a 13 per cent increase in ESG activity for companies that took part in both years.
Two providers received the top score in both years, while three improved their score in 2021 and three further insurers completed the survey for the first time this year, leading the survey to record a 60 per cent improvement in ESG activity across the whole industry.
WTW’s survey also revealed that all eight insurers have undertaken enhancements and developments relating to ESG investment analysis in the last year. These changes have been integrated into the investment process specifically for their bulk annuity portfolios.
For example, insurers have added dedicated ESG resources, improving ESG analyses and generally increasing the use of external and proprietary analytics, with a marked increase in insurers moving towards ESG integration into ongoing decision making.
Bulk annuity insurers are also keen to show their commitment through signing up to various initiatives with 7 out of the 8 now being signatories to the UN’s Principles of Responsible Investment (UNPRI) and/or the UN’s Net Zero Asset Owners Alliance.
Willis Towers Watson head of pension risk transfer Ian Aley says: “The global push to address climate change is driving ESG and stewardship issues further up the agenda for trustee boards, with expectations progressing from asset managers to other key business partners.
“It makes sense that trustees are therefore taking ESG credentials into account when selecting a bulk annuity insurer. As the UK pensions industry continues to see high and growing levels of bulk annuity transactions, the ESG policies of bulk annuity providers know that they are coming under increasing scrutiny.”
He added that as pension schemes mature and look to de-risk through bulk annuities, understanding where prospective insurers stand with their ESG policies is becoming increasingly important when trustees make their insurer selection decisions.
WTW points out that being a signatory is to initiatives like the UNPRI is not sufficient, providers must also implement their requirement. Its research found that only 50 per cent of the bulk annuity insurers are currently reporting in line with the TCFD recommendations for climate-related disclosures, although this is likely to increase to 75 per cent by the end of 2021.
Aley adds: “More than half of the UK bulk annuity insurers have stewardship policies in place setting out expectations for issuers. 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. 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.”