LONDON, November 8, 2021 – According to a recent survey of all eight UK bulk annuity insurers by Willis Towers Watson (WTW), steps have been taken to enhance and develop Environmental, Social and Governance (ESG) procedures over the past calendar year since WTW’s last survey.
While the year-by-year survey comparisons show positive steps, some insurers show further room for improvement across areas including climate related disclosures and putting in place clear stewardship policies to keep up with the pack.
Converting each provider’s ESG procedures and activities into a scoring system* for both 2020 and 2021, the survey revealed a 13% increase in ESG activity for companies that took part in both years. Two providers received the top score in both years, while three improved their score in 2021 and three further insurers completed the survey for the first time this year, leading the survey to record a 60% improvement in ESG activity across the whole industry.
WTW’s survey also revealed that all eight insurers have undertaken enhancements and developments relating to ESG investment analysis in the last calendar year. These changes have been integrated into the investment process specifically for their bulk annuity portfolios. For example, insurers have added dedicated ESG resources, improving ESG analyses and generally increasing the use of external and proprietary analytics, with a marked increase in insurers moving towards ESG integration into ongoing decision making.
Bulk annuity insurers are also keen to show their commitment through signing up to initiatives with 7 out of the 8 now being signatories to the UN’s Principles of Responsible Investment (UNPRI) and/or the UN’s Net Zero Asset Owners Alliance.
Ian Aley, Head of Pension Risk Transfer at Willis Towers Watson, 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.
It makes sense that trustees are taking ESG credentials into account when selecting a bulk annuity insurer.”Ian Aley | Head of Pension Risk Transfer
“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.”
However, being a signatory is one thing, but implementing the UNPRI requirements is the real measure of commitment. Our study identified that only 50% of the bulk annuity insurers are currently reporting in line with the TCFD recommendations for climate-related disclosures, although this is likely to increase to 75% by the end of 2021.
Aley continued: “More than half of the UK bulk annuity insurers have stewardship policies in place setting out expectations for issuers. 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.”
*Each provider received a score of between 0-3, across four different category areas, dependant on their level of activity in each. The categories were: Firm wide policies; bulk annuity portfolio policies; climate risk; and stewardship. Each insurer therefore received a total score out of 12.
Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 45,000 employees serving in more than 140 countries and markets. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas — the dynamic formula that drives business performance. Together, we unlock potential.