ASEAN insurers to play key role in region’s transition to low-carbon economy

ASEAN insurers are aiming to phase out of thermal coal, thermal power plant or coal cargo, and to increase renewable energy, but the challenges in building up a climate-resilient or ESG-compliant investment portfolio still outweigh the opportunities, according to this year’s ASEAN Insurance Pulse from Malaysian Re and Faber Consulting. The report highlights the contribution of the insurance industry to climate adaptation and resilience building. It notes that ASEAN countries have pledged to implement the UN’s Paris Agreement of 2015, reducing their carbon emissions to limit global warming to 1.5°C, and the region will have to transform its economy and install a business model less reliant on carbon emissions. The report says the insurance industry will play a key role in facilitating and financing the region’s transition towards a low-carbon economy. “The industry plays a prominent role in promoting climate action, ranging from its own asset management and underwriting to supporting clean technologies and changes in its own operations,” it states. “In December 2021, Malaysia was hit by the Great Malaysian Flood, the most deadly and expensive natural catastrophe in our history,” commented Zainudin Ishak, president and chief executive officer of Malaysian Re. “Also in December, the Philippines and Vietnam were struck by typhoons, while across the region and in south Asia, we experience more and more devastating rainfalls during monsoon seasons.” He added: “Insurers across the ASEAN region support the decarbonisation of our economies, set themselves targets to contribute to lower or even to ‘zero-carbon’ emissions and to better understand, manage and stress-test our exposure towards climate risks – a trend strongly encouraged by regulators. The basis for this development is the environmental, social and governance framework (ESG), which was turned into a governance standard by which insurers measure and report their impact on climate risk, but also demonstrate social responsibility and transparent business practices.” The report says ASEAN insurers are well aware of the Paris accord, with the region having experienced a steady increase in losses resulting from climate change. As a result, most ASEAN insurers have already taken strategic steps to incorporate the Paris accord or ESG into their operations. “However, a general taxonomy on how to classify assets and liability according to a clear ranking is still being developed in most markets. This applies both to their investment and underwriting strategies. On the asset side, insurers aim to phase out thermal coal, thermal power plants or coal cargo – and to increase renewable energy. However, the challenges in building up a climate-resilient or ESG-compliant investment portfolio still outweigh the opportunities,” it states. According to the report, insurers see themselves at the forefront of the energy transformation, funnelling investments towards renewable energy projects, such as hydro, wind or solar energy, or to innovative technologies that enable a less carbon-intensive economic model. It says that on the liability side, most insurers see exclusions as the most advanced measure to decarbonise their underwriting portfolio, notably coal-fired power plants, coalmining, arctic drilling or animal testing. But it adds: “Since the ASEAN countries are largely fossil fuel exporters, insurers will not pull out of established contracts or withdraw capacity from existing clients. But they might have set themselves strict targets to reduce their fossil fuel portfolio to a minimum.” At the same time, ASEAN insurers expect growing demand arising from the emergence of ‘green’ technologies. Insurance products may cover renewable energy products, their manufacturing, derivatives and green energy pools, as well as mass-market products like electric cars. And insurers are developing credit products to guarantee loans issued for renewable energy investments, as well as weather derivatives for renewable energy. The Pulse report says ASEAN regulators are a key driver in promoting and encouraging the integration of ESG or decarbonisation targets into insurers’ operations and reporting. “Malaysia and Singapore seem most advanced, having introduced principle-based taxonomies or guidelines on environmental risk management, expecting the country’s insurers to monitor and stress-test their exposure to climate risks. Other insurance commissions expect disclosure on climate risk, made regulatory sustainability reports a standard and asked to fill in questionnaires to gain transparency on the risks of their insurers,” says the report.

ASEAN insurers to play key role in region’s transition to low-carbon economy

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