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Japanese insurance industry quickens pace on climate action, leaving U.S. peers far behind

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A handful of insurance firms in Japan are building capacity in the fight against climate change, outpacing the U.S., but with investment strategies still not aligned with the Paris Agreement goals, the progress is alarmingly slow, according to a new global ranking of the sector released Thursday.

The report by the Asset Owners Disclosure Project (AODP), part of responsible investment organisation ShareAction, titled "Got it covered? Insurance in a changing climate," examines 80 of the world’s largest insurers, with $15 trillion AUM (assets under management), including 11 of Japan’s largest insurers, with $3 trillion AUM, on their management of material climate risk.

AODP recorded improvement in the rating of Japanese insurers since the last assessment in 2017, driven by their transparency on climate-related risks. Over a third of assessed insurers have jumped to a higher rating band, with Tokio Marine joining the leaderboard as the only non-European insurer. In fact, four Japanese insurers even ranked higher than the highest-ranked U.S. insurer. One factor that could have contributed to this is the "ripple effect" on the financial ecosystem by Japan’s largest asset owner, the Government Pension Investment Fund (GPIF), integrating environmental, social and governance factors into its investment processes.

Results show that, out of the eleven Japanese insurers, Tokio Marine comes out on top. This is the first time for a Japanese insurer to break through to the leaderboard, having shot up six rating bands to a BBB rating, having been rated D in 2017. Nippon Life has climbed up three rating bands, now rated CCC, the second best in Japan. Dai-ichi Life and MS&AD Insurance shared third place (nineteenth in the overall index), rated CC, still better than The Hartford, the number one rated insurer in the US (ranked 22nd in the overall index).

AODP analyses insurers’ disclosures based on industry recommendations on climate strategy, risk management, and climate targets. This includes both publicly available information and private survey responses on these topics. For the first time, 5 out of 11 Japanese insurers responded to AODP, showing the rising profile of the issue.

In terms of low-carbon investments in assets like renewable energy, only two Japanese insurers have invested or committed to invest one per cent of their assets. Christiana Figueres, a former Executive Secretary of the UNFCCC, had issued a challenge for investors to be able to declare an allocation of one per cent of their assets into clean technologies and renewable energy by 2020. One per cent is a modest ask, yet the majority of assessed insurers are not able to rise to it.

This is not the only challenge proved too challenging for the world’s largest insurers. It is now two years since the then U.N. Secretary General Ban Ki-moon urged the insurance industry to address climate issues by doubling sustainable energy investments while decarbonising existing portfolios and supporting the Sustainable Development Goals. The analysis found that only two of the assessed eleven insurers are able to partially claim such achievements, although using loose definitions, with the absolute majority failing on all three of Ban Ki-moon’s challenges.

Pavel Kirjanas, AODP Project Manager at ShareAction and report author, says: “This year, AODP has put the insurance industry in the spotlight. We applaud the leading and innovative approaches taken by the sector’s leaders. Unfortunately, there is no time to celebrate. While the world is being shaken by climate-induced catastrophes, the world’s largest insurers keep pressing the snooze button. U.S. insurance companies seem complacent about portfolios that put us on a disastrous six-degrees pathway.”

Dave Jones, California’s Insurance Commissioner, says: “We look forward to using the information contained in the report as we consider insurance companies’ response to climate risk and as we consider additional regulatory steps to make sure that insurers are considering and addressing climate-related risks.”

Jad Ariss, AXA Group Head of Public Affairs and Corporate Responsibility, adds: “Being a sector leader of the 2018 AODP Insurance Index is a recognition of AXA’s commitment to address climate change both as an insurer and an investor, in line with the TCFD recommendations. Indeed in 2018, we have published our first comprehensive climate-related investment and insurance report leveraging innovative indicators to assess climate-related financial risks and opportunities.”

Zelda Bentham, Group Head of Sustainability at Aviva, says: “We continue to value the work and insight that the Asset Owners Disclosure Project report provides and would like to the thank the AODP for awarding Aviva a AAA rating in their Global Climate Index of Insurance Companies. It is clear from the report that there is much more to do. Increased action on addressing climate risk is needed throughout the insurance sector value chain, on both the asset and liability side, if we are to continue in our role as society’s risk manager.”

Katharina Latif, Head of Corporate Responsibility at Allianz, comments: “As an institutional investor and insurer we are supporting the transition to a low-carbon economy with both our insurance solutions and investments. Climate action is a strategic priority for us and we, therefore, engage investee companies as well as international policy-makers to walk the talk. Our recent climate action announcements are another proof point for Allianz’s leadership position in AODP’s ranking. We hope the report helps more peers develop ambitious climate strategies.”

Peter Bosshard, finance program director at the Sunrise Project and coordinator of the Unfriend Coal campaign, says: "The AODP report shows that the insurance industry is starting to take the risks of climate change to their insurance services and investments more seriously. Going forward, responsible insurers need to urgently address the reverse risks which their investments and insurance services for the fossil fuel industry pose to the climate."

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