Specialty (re)insurance group Chaucer has announced a new collaboration with ratings agency Moody’s to produce a data-driven environmental, social and governance (ESG) ‘scorecard’.
The collaboration, the first of its kind in the (re)insurance sector, claims to elevate the way companies’ ESG credentials are assessed using robust propriety data and metrics. The new scorecard will help Chaucer measure counterparties’ ESG performance using 158 different metrics. The scorecard’s design combines Chaucer’s insight into counterparty risk with Moody’s deep ESG performance measurement and risk modelling expertise to evaluate businesses’ risks and opportunities at an in-depth level. By delivering a calibrated output, driven by Moody’s comprehensive ESG assessments coverage and double materiality methodology, Chaucer will be able to derive its own ESG profile and help its counterparties understand their risk both from a stakeholder and an enterprise perspective.
John Fowle, CEO of Chaucer, commented: “It’s incredibly exciting to be working with Moody’s on what we believe will be a game-changer for the (re)insurance industry. Our strategic collaboration with Moody’s enables Chaucer to be at the forefront of leading real change in the way ESG is measured and managed. This is a powerful tool that will not only help Chaucer, but all our clients and business partners, transition to be more sustainable businesses.”
Simon Tighe, group head of investments, treasury and credit risk at Chaucer Group, said ESG lay at the heart of the way Chaucer viewed its own investments. His comments came as Morningstar warned ESG funds representing more than $1trn in assets are not delivering on their stated ESG goals.
A forensic analysis of the industry resulted in the ESG tag being removed from more than 1,200 funds, or roughly one in five, according to Morningstar Inc’s classification system, as reported by Bloomberg. The findings feed into concerns that asset managers are still making misleading claims on the extent to which their allocations are doing the planet or its inhabitants any good.
Hortense Bioy, global head of sustainability research at Morningstar, told Bloomberg that sustainability tags were taken off “funds that say they consider ESG factors in the investment process, but that don’t integrate them in a determinative way for their investment selection”.
Bioy said funds that used “light or ambiguous ESG language” were targeted in the purge.
The correction marks something of a line in the sand for an investment trend that has enjoyed stratospheric growth, much of which took place before regulations were in place. It also offers a glimpse of the scale of potential greenwashing as the ESG label goes from niche to mainstream.
While Morningstar’s definitions don’t reflect the way fund managers themselves market their products, there are signs the industry is also capable of self-correcting. Before the 2021 introduction of Europe’s anti-greenwash rulebook – the Sustainable Finance Disclosure Regulation – asset managers in the region removed the ESG label from $2trn worth of funds, according to the Global Sustainable Investment Alliance (GSIA).
Morningstar said it expects its analysts to catch more funds that don’t merit an ESG tag as they continue to examine industry data.
The move comes after years of lawyers in particular warning of the dangers of greenwashing and claims that do not match the reality.
Mr Tighe told Africa Ahead the dynamic must change for the future and that ESG concerns are not just a “nice to have” but essential to ensure greater sustainability and ultimately profit for insurers.
He gets frustrated, he said, by people who suggest ESG is a cost burden on a business when it should be viewed as an opportunity for future growth and success.
However, Mr Tighe warned that companies should not think this is all about the climate. E is important, he said, but so is the S and the G. Looking to Africa and the debate about coal insurance, the damage done to economies by the withdrawal of cover would be substantial and not in line with an ESG policy. “One is not more important than the other,” Mr Tighe said. “You have to think about all of the impacts. We don’t want to walk away from clients, we want to help them transition to a more sustainable path.”
It is all about a positive drive towards a more sustainable approach, he stressed. The new scorecard, which is available for the whole market to use, is all about helping companies onto a more sustainable journey.
Mr Tighe said, however, it was important to recognise that emerging regions, such as Africa “are still in the industrial age of energy”, adding: “We were there 30 to 50 years ago. We have to find ways to help economies transition and work together.” It is about incentives and not about punishing, stressed Mr Tighe.
Returning to the Morningstar warning on green-tagged assets, Mr Tighe agreed that many green tags are not really green at all and insurers needed to be careful in assessing where they place their investment capital.
“It is not just about the green bonds,” he added, “insurers provide cover for these bonds and there is a real opportunity there to drive change. How do they assess risk around these bonds?”
The key, he re-emphasised, is in being genuine and looking for the right opportunities and making sure there is no greenwashing.