Insurers in the UK have more work to do on the environmental and social aspects of ESG, though they are global leaders in governance.
The UK is underperforming many of its European peers on environmental processes and reporting across a number of areas, research by Big Four consultancy firm EY has found.
EY carried out the research on the UK insurance market using its Sustainable Finance Index, a global benchmark comparing over 1,100 financial services firms worldwide on ESG metrics and disclosure rates.
For environmental factors, the UK insurance market received a disappointing 4.5 out of a possible 10 and a disclosure rate of 37%.
This compares to France’s environmental score of 7.5 and a 61% rate of disclosing against the Index’s parameters and Switzerland’s 8.0 score and 62% disclosure rate – although it should be noted that the sample sizes are smaller for both markets.
In comparison, UK insurers outstrips US market competitors who scored just 1.3 on environmental activities and were found to be disclosing against just 13 per cent of the Index’s environmental parameters – among the lowest of the world’s major insurance markets.
EY UK sustainable finance leader Gill Lofts said: “While the insurance industry should be commended for its exemplary governance structures, this Index demonstrates that there is still a long way to go to fulfil any ambitions to lead on environmental and social practices.
“The Bank of England’s emphasis on supporting the transition to a carbon neutral economy and last year’s government announcements calling for the City to become a leader in green finance highlight that the motivation is there. In addition, the UK’s ongoing strong supervisory framework should accelerate insurers’ focus on environmental factors, but firms need to continue going beyond regulation if they are to break into the ranks of the top global performers on social and environmental measures.”
EY said the key to achieving higher scores on the green agenda, UK insurers need to further incorporate environmental processes into their corporate strategies and should also consider developing more green-focused policies and products, as well as improving their reporting.
Last year the government announced intentions to make recommendations of the Task Force for Climate-Related Financial Disclosures – the global baseline reporting standards – mandatory across the economy by 2025.
Leaders in governance
In governance, EY found the UK and Belgian insurance markets were unparalleled in the rigor they place on good governance, with strong disclosure rates across the majority of insurers tracked.
The UK sector scored 7.7 out of a possible 10 for the level and strength of governance in place, compared to the 6.4 global average.
According to EY, UK insurers do especially well on board effectiveness, scoring highly due to the focus placed on board members having deep industry knowledge and ensuring appropriate independence, as well as maintaining high standards of conduct and transparency.
Insurance boards also scored relatively well on diversity, although the benchmark was low, with firms averaging around 30 per cent for female representation.
In diversity more generally, the UK insurance market ranked the eighth best market in Europe for diverse and inclusive hiring progression.
With that said, UK insurers had a way to go with board representation. Women make up just 31 per cent of board members, compared to 50 per cent in Norway, 47 per cent in France and 43 per cent in Denmark.
EY UK insurance partner Stuart Wilson said: “Diversity and inclusion within the workplace is something that all UK firms are working to move the dial on, and the insurers are no exception. It is well acknowledged that diverse teams drive stronger performance, and that it is not only the right thing to do, but it makes commercial sense.
“However, the speed of change remains slow. It is not new news to say that more needs to be done in this space and, while it is positive that UK insurers are outperforming many other markets across the world, this is not an area where anyone can claim ‘victory’.”
Overall, the UK insurance market scored 6.6 out of a possible 10 points for ESG activity it is currently carrying out and reporting on, according to EY’s metric. The global average score was 5.8, giving the UK a better-than-average result, but with more to be done.
For disclosing ESG data, the UK’s benchmark stood at 63 per cent, higher than the global benchmark of 55 per cent, placing the UK market in the top ten countries globally to report on ESG.