(Re)insurers cite lack of assets, data as obstacles to sustainable investments: study
More sustainable assets need to meet institutional investors’ needs and basic investment criteria, stated GFIA’s research. According to the Green Bonds Global State of the Market 2019, $260bn of green bonds were issued in the overall market. While there was an increase in the volume of suitable climate-resilient and green infrastructure projects that provide appropriate risk/return profiles, more action is needed, said GFIA.
The lack of reliable, comparable and material ESG data from companies are yet another obstacle. This data is key to help (re)insurers in their investment decisions.
GFIA’s study underlined the need for public stakeholders and capital investors to work together to encourage the development of financially sound sustainable assets, meeting basic investment criteria and adequate risk-adjusted returns. “In more concrete terms, (re)insurers need investment-grade green investment opportunities. This would enable (re)insurers to take more investment decisions that contribute to the fight against climate change. (Re)insurers, therefore, support a reassessment of the current requirements of rating agencies for investment grade products to allow for more diversity and alternative asset classes (without substantially increasing risk). Such a reassessment should be based on the rating agencies’ fair evaluation of investment performance and should be independent of political considerations,” cited the report.
To increase the range of firms that (re)insurers can invest in, policymakers should clearly indicate defined trajectories to facilitate transformation of the real economy. This includes putting an adequate price on GHG emissions or to use another cost mechanism that provides appropriate incentives for GHG emitters to reduce emissions or modernisation of public sector infrastructure to reduce carbon emissions. Public sector incentives and risk-mitigating measures such as public guarantees, first-loss instruments or co-financing are effective solutions for institutional investors, stated GFIA.