Insurers reposition portfolios to capitalise on net-zero economy

A new report from BlackRock has found that 95 per cent of senior insurance executives believe climate risk will have a significant impact on portfolio construction in the next two years.

Half of the 362 executives surveyed by BlackRock, representing US$27 trillion in investable assets, said they had reallocated their existing assets to sustainable investments in a bid to generate a better risk-adjusted performance.

“An overwhelming majority of insurers view climate risk as investment risk, and are positioning portfolios to mitigate the risks and capitalise on the transformational opportunities presented by the transition to a net-zero economy,” said BlackRock global head of the financial institutions group and financial markets advisory Charles Hatami.

“Insurers’ growing focus on sustainability should be a clarion call for the investment industry,"

Environmental risk was identified as a potential headwind by more than a third of executives globally, however geopolitical risk remained the most significant concern.

For insurers in the Asia-Pacific region, the top reasons for reallocating to sustainable investments included better risk-adjusted performance (55 per cent) and regulation requirements surrounding ESG risks (53 per cent).

More than half of respondents in the region also reported turning down an investment opportunity due to ESG concerns within the past year.

“APAC insurers are putting words into action, with increasing focus on partnering with asset managers on developing granular sustainable investing strategies for their portfolios,” BlackRock head of financial institutions group for APAC Kimberly Kim.

“Over 40 per cent of insurers in APAC cited availability and quality of data as challenges for implementing ESG strategy, so there’s a gap to fill in terms of getting good quality analytics to facilitate their investment process.”

Three-quarters of APAC insurers planned to maintain or increase their investment in technology that integrates climate risks and metrics.

Digital transformation was revealed as a key priority for over half of APAC insurers who plan to make additional investments in technology over the next two years, including a focus on holistic multi-asset management solutions and integrated asset and liability management capabilities.

BlackRock’s report also identified a requirement for insurers to diversify their portfolios into higher-yielding asset classes in the future.

Sixty per cent of insurers said they expect to increase investment risk during the next two years as low-interest rates remain.

Jon Bragg

Jon Bragg is a journalist for Momentum Media's Investor Daily, nestegg and ifa. He enjoys writing about a wide variety of financial topics and issues and exploring the many implications they have on all aspects of life.