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PwC’s insurance industry ESG Survey: Asia Pacific

The insurer’s first step to embed ESG in the heart of operations

Environmental, Social and Governance (ESG) is no more just about complying with the regulatory requirements. Today it is more about embedding these principles across the business, from investments to sustainable innovation, to better manage risks and deliver sustained outcomes. The insurance industry has always been ahead in the game when it comes to understanding and securing risks, and the sector is fast realising the emerging risks of not embedding ESG in their core operations.

In the Asia Pacific (APAC) region, the push for ESG requirements has stemmed from the rising regulatory requirements, specifically in the insurance industry. The growing awareness amongst the territories is also attributed to the parent companies in regions where ESG maturity is higher.

PwC’s insurance industry ESG survey: Asia Pacific uncovers insights from business leaders across 12 territories in the region, including Australia, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan and Thailand. The focus is on key ESG issues the insurers are presently facing, what are the industry players thinking about and how they are responding to their concerns. It also highlights the readiness of the regional insurers in embedding ESG in their business and how they are developing datasets to benchmark against industry best practices.​ This survey report aims to guide insurance industry decision-makers on:

  1. Getting started: Preparedness to implement ESG frameworks
  2. Embedding ESG frameworks in risk management strategy
  3. Scenario analysis for ESG
  4. Setting timeline for implementation of ESG frameworks
  5. Sustaining ESG frameworks through technology and innovation

Key survey insights

1. Getting started: Preparedness to implement ESG frameworks

The majority of respondents (56%) have a high-level preliminary understanding of ESG requirements, and the preparedness is especially higher in countries like Singapore, Japan and Malaysia (Exhibit 1A).

This can be attributed to the fact that these territories have a strong regulatory push for climate risk management and ESG. Regulatory push is a strong impetus for territories to gain a preliminary understanding of ESG and its underlying requirements.

Respondents are also proactively taking steps to introduce ESG elements into their business (Exhibit 1B). Almost half of the respondents (49%) have integrated ESG considerations into their investment policies, 42% into their business strategy, and 42% into their risk identification process. Most of the respondents who have integrated ESG considerations come from Singapore, Malaysia and Thailand, where there is relatively higher regulatory push for ESG and/or climate risk management (Exhibit 1C).

Exhibit 1C: Regional overview - Integrating ESG considerations

Key considerations

  • With increasing regulatory focus on ESG and climate risk management, more insurers will need to start taking active steps to integrate ESG considerations. Businesses need to analyse the as-is state of their strategy, risk management and reporting and collaborate with stakeholders to embed ESG in these operations.
  • It is beneficial for territories to plan their ESG framework, while also considering the downstream impact on businesses and stakeholders in the long run. Ultimately, this would lead insurers to be ready for the required sustainability reporting, that is meant to contain necessary information on ESG.

2. Embedding ESG frameworks in risk management strategy 

The integration of ESG framework was assessed from the following perspectives: investment processes, product pricing processes and underwriting processes.

Respondents have highlighted that:

  • 66% have integrated the ESG framework in their investment processes for selected industries or sectors, 42% in product pricing processes and 47% in underwriting pricing processes (Exhibit 2A) – with most respondents from Singapore, Japan, Malaysia and Thailand. The growing consciousness, especially for investment processes, can be attributed to investment efforts picking up, especially with the growth of green funds.
  • Respondents that have included the ESG framework for all their three processes stand at 78% (Exhibit 2B) with the largest contributors coming from Singapore, Japan, Malaysia and Thailand (Exhibit 2C).

Key considerations

  • It is interesting to note that the investment process has the highest percentage of ESG consideration currently. Insurers can leverage on the expertise of their asset managers or fund managers for ESG data to evaluate investment decisions, thus making it easier to integrate ESG into investment decisions. However, much more effort will be required to integrate ESG requirements into pricing and underwriting, as there might be a need to further collate necessary data.
  • Insurers should start integrating the ESG framework into their various processes. Territories can start off by selecting certain risk or business lines, then involving the whole business in the risk management framework process.
  • Embedding ESG into a territory’s enterprise risk management framework would provide a structured and coherent approach for territories to assess and manage their ESG risks holistically. With insurers having varied processes in place, the approach to incorporate ESG early into their risk management strategy will help them plan out the processes better in the future.

3. Scenario analysis for ESG

Scenario analysis for climate risk modelling is one of the critical requirements in embedding ESG considerations in risk management, reporting and disclosures. It is a key recommendation of the Task Force on Climate-Related Financial Disclosure (TCFD), which requires a company to understand and quantify the risks and uncertainties it may face under different hypothetical futures. This in turn helps to shape decision making and businesses strategy.

According to the survey, over one third (38%) of the respondents do perform climate scenario analysis or stress testing currently, while 29% more respondents are planning to do so soon. The main countries that perform scenario analysis include Singapore, Japan and Taiwan (Exhibit 3A).

The primary challenge currently faced by respondents is the availability of data for setting up appropriate scenarios and modelling to achieve meaningful analysis and insights (Exhibit 3B). Of the 38% of respondents who currently or plan to perform scenario analysis, only 52% considered themselves to have sufficient data to do so. If we look at a breakdown of countries where territories are deemed to have sufficient data to perform scenario analysis, Singapore emerges on top with 28% respondents in this category. This is an indicator that countries with strong regulatory push have caused organisations to be ahead in terms of data gathering requirements. However, the general sentiment within APAC is that the quality and availability of data is still in its nascent stage of development.

Another key challenge is timeline - 45% of respondents have not decided on a suitable time horizon for climate scenario analysis. This alludes to a “follow the leader” approach, where territories will be looking at the early adopters to implement scenario analysis or be waiting for more guidance from future regulations.

Key considerations

  • Territories are currently still looking into overcoming data challenges and finding appropriate data sources to perform necessary climate related scenario analysis. A quick win would be to start collating in-house data and working with data providers to obtain necessary data for scenario analysis or even for reporting and disclosure purposes.
  • In addition, territories will also need to invest in building or acquiring appropriate climate related models to support scenario analysis and any climate related stress testing. Scenario analysis for climate risk modelling is one of the critical requirements in embedding ESG considerations in risk management, reporting and disclosures. It is a key recommendation of the Task Force on Climate-Related Financial Disclosure (TCFD), which requires a company to understand and quantify the risks and uncertainties it may face under different hypothetical futures. This in turn helps to shape decision making and businesses strategy.

4. Setting goals: Timeline for implementation of ESG frameworks

Majority of respondents are expecting to embed ESG considerations into their business strategy and operations within the next 1 to 3 years (Exhibit 4A).

Territories are looking into embedding ESG considerations in governance, strategy, risk management, metrics and targets. Only 4% of respondents have implemented all metrics considered.

In the area of governance, 35% of respondents are looking towards implementation in the next year, while 29% will implement in the next 2-3 years. In the area of strategy, 25% of respondents will look towards implementation in the next year, while 36% will implement in the next 2-3 years. The responses for both governance and strategy implementation are similar across the region - this can be largely attributed to the regulatory requirements that has come into effect in these various countries, as well as an increased in awareness for ESG requirements.

For risk management, 25% of respondents will look towards implementation in the next year, while 33% will implement in the next 2-3 years. For metrics and target, 20% of respondents will look towards implementation in the next year, while 35% will implement in the next 2-3 years.

Overall, the majority of respondents are looking towards implementing all aspects of ESG in the short-term within three years. The short-term timeline is a good indicator that most territories are aware of the looming deadline to start introducing ESG into the various aspects of their business.

Key considerations

  • With increased regulatory focus and strong industry momentum towards adopting the TCFD framework, territories will need to take active steps to incorporate ESG targets and metrics into their business monitoring and reporting processes.
  • 24% of respondents are not planning to implement ESG specific targets and metrics within their territory, with these respondents coming from Thailand, Philippines, Australia, India and Singapore. It is surprising to see that despite having some regulatory push in these territories (e.g. Australia), there are still respondents who have not made a commitment to introduce ESG targets and metrics.

5. Sustaining the ESG framework through technology and innovation

With regards to technology and IT solutions, 46% of respondents have indicated that they have yet to assess the solutions available to support them in embedding ESG into business strategy and operations. Most of these respondents are from India, Philippines and Malaysia (Exhibit 5A).

In addition, majority of respondents (73%) desire for a globally aligned framework and interpretation rules for ESG reporting and disclosure. These respondents are primarily from Singapore, Malaysia and Japan (Exhibit 5B).

Exhibit 5B: Top-preferred solutions to implement ESG initiatives

Key considerations

  • There is strong demand for a unified or globally aligned interpretation of the framework. Against this backdrop, the recently established Interational Sustainability Standards Board (ISSB) is intended to establish a comprehensive global baseline of sustainability-related disclosure standards. This will hopefully assist territories to produce reporting and disclosure requirements that are transparent, consistent, and comparable, thus enabling the global business community to make better informed decisions on sustainability related matters.

Conclusion

Effective ESG frameworks can unlock a whole new world of opportunities for territories. As we can see in the survey, most insurers are getting started on this journey amidst growing calls for ESG compliance. Key takeaways for territories are to:

  • start taking active steps in integrating ESG considerations into their strategy, risk management and reporting;
  • invest in building or acquiring appropriate climate related models to support scenario analysis and any climate related stress testing; and
  • incorporate ESG targets and metrics into their business monitoring and reporting processes.

Survey methodology

We have garnered 55 survey responses across the twelve territories, including Australia, Hong Kong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Philippines, Singapore, Taiwan and Thailand, in the Asia-Pacific region. The responses were from a range of life insurers (38%), non-life insurers (35%), reinsurers (13%), composite insurers (9%), captive insurers (2%), and others (4%).

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