Every pension bulk annuity insurer showed improvements in enhancing and developing their environmental, social and governance (ESG) procedures in 2020, according to Willis Towers Watson (WTW).

The consultancy’s annual bulk annuity provider ESG index showed positive year-on-year steps, although some insurers showed “room for improvement” on climate-related disclosures and their development of clear stewardship policies.

The insurers that took part in both the 2020 and 2021 surveys saw a 13 per cent increase in ESG activity, according to WTW’s scoring system that considered firm-wide policies, bulk annuity portfolio policies, climate risk and stewardship.

Two providers received the top score in both years, three improved their score, while the final three completed the survey for the first time this year.

The survey therefore recorded a 60 per cent improvement in ESG activity across the whole industry.

All eight insurers were found to have undertaken enhancements and developments related to ESG investment analysis over the course of 2020, including adding dedicated ESG resources, improving ESG analyses, and increasing the use of external and proprietary analytics, with a “marked increase” in insurers moving towards ESG integration into ongoing decision making.

Furthermore, seven of the eight insurers have signed up to the UN’s Principles of Responsible Investment (UNPRI) and/or the UN’s Net Zero Asset Owners Alliance.

Commenting on the findings, WTW head of pension risk transfer, Ian Aley, said: “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 – and they are stepping up.

“As pension schemes continue to 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. It is pleasing that all of the UK bulk annuity insurers in the market are taking proactive steps to continue to develop their ESG and stewardship policies – but there is more to do.”

WTW found that only half (50 per cent) of the insurers were reporting in line with the Task Force for Climate-related Financial Disclosures (TCFD) requirements, although this was “likely” to increase to 75 per cent by the end of 2021.

“More than half of the UK bulk annuity insurers have stewardship policies in place setting out expectations for issuers,” said Aley.

“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.”

Share Story: