PwC’s insurance industry ESG Survey: Asia Pacific

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
   

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.

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.
  

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.
  

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.
  

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