Legal & General is divesting from AIG over climate policy concerns and has already excluded MetLife from its portfolios, in a move that could propel environmental considerations beyond pensions into broader benefits procurement.
Advisers say the inclusion of the parents of two of the seven main group risk providers operating in the UK – AIG and MetLife – highlights the potential for market disruption as companies give increasing weight to environmental, social and governance (ESG) factors when selecting all benefits providers, not just pensions.
Legal & General Asset Management’s (LGIM) recently-published Climate Impact Pledge report includes AIG in a list of four companies it is divesting from, citing an absence of any policy on thermal coal and concerns over a lack of disclosure of its Scope 3, or ‘value chain’ emissions.
LGIM remains divested from MetLife because it is not disclosing Scope 3 emissions associated with its investments, although it has made some restrictions on thermal coal.
MetLife says it has been taking steps to make itself a more environmentally sustainable company. AIG declined to comment, although it has subsequently published its first ESG report which it says aligns with ‘recognised guidelines such as the TCFD framework, Sustainability Accounting Standards Board Standards (SASB), Global Reporting Initiative (GRI) standard and UN Sustainable Development Goals’.
Climate change and ESG factors will be pushed up the agenda of corporates as a result of new Task Force on Climate-related Financial Disclosures (‘TCFD’) reporting requirements due to take effect from April 2022, with premium listed companies having even earlier reporting requirements.
TCFD requirements are new duties on listed companies with more than 500 staff or non-listed companies with turnover over £500m to disclose climate-related financial information on governance, strategy, risk management and metrics & targets.
Commercial companies with a UK premium listing already have stricter requirements. The FCA has introduced a new requirement for them to include a compliance statement in their annual financial report, stating whether they have made disclosures consistent with the recommendations of the TCFD or provide an explanation if they have not done so. The first annual financial reports subject to this rule will be published in spring 2022.
The TCFD which was established in 2015 by the Financial Stability Board at the request of the G20 in order to focus specifically on climate change.
Further regulation is expected in this area and could extend to more extensive reporting of climate-related financial disclosures. The IFRS Foundation, which oversees the international auditing framework, is working on a potential global standard approach.
Advisers say some employers may also be influenced by the desire to marry their corporate social responsibility (CSR) policy with their benefits partners. They add that the ESG debate, that has traditionally been played out in the pensions arena, could extend beyond group risk into all types of benefits.
Benefiz director Tim Gillingham says: “ESG and climate change considerations will be a factor for bigger schemes, where providers might pitch to the employer, or where procurement are involved, where sustainability is an issue. But for the SME market, it doesn’t really matter.
“MetLife and AIG Life are both in the smaller end of the market. AIG use more technology than other providers, so their carbon usage is typically lower, but what being part of a bigger entity means in carbon terms is a different matter.
“Group life is different to pensions as there is no risk of holding stranded assets, and the time scales are not so long. Also, with pensions, we use the brand, whereas in group risk the provider is silent, so it is less of an issue there.”
Howden Employee Benefits head of benefits strategy Steve Herbert says: “ESG for employee benefits? Absolutely. Every company has corporate social responsibility (CSR) and ESG is a reflection of that. It is definitely something we have to do with pensions and if you do it in pensions, then all your employee benefits will need to reflect it.”
A MetLife spokesperson says: ““We’re constantly looking at new ways to make MetLife an even more environmentally sustainable company. Our 2019 Sustainability Report confirmed we are not making any new investments in miners or utilities deriving 25 per cent or more of their revenue from thermal coal, as well as companies that hold at least 20 per cent of their oil reserves in oil sands. In 2020, we issued our first green FA-backed note, a first for U.S. insurance industry. And we unveiled a list of 11 new environmental sustainability targets for 2030, having met or exceeded all of our 2020 goals. We were named, as one of only six insurers in North America, in the Dow Jones Sustainability Index (DJSI) North America for the fifth consecutive year. Our commitment to environmental sustainability remains strong and we continue to engage with LGIM, sharing all the progress we are making.”