Canada’s life insurers have made progress in greening their operations, but their investment portfolios — which represent their largest source of environmental risk — remain a work in progress.
In a new report, DBRS Morningstar said that Canada’s four big life insurers — Manulife, Sun Life, Great-West Life and iA Financial — have taken meaningful steps to understand and improve the sustainability of their operations.
“All of the major life insurers have integrated environmental, social, and governance (ESG) considerations into their overall enterprise risk management frameworks,” the report noted.
The insurers have also undertaken efforts to mitigate the direct impact of their operations on the environment, stepped up their financial commitments to green initiatives and supported global efforts at enhancing climate-risk disclosure.
So far, three of the four big life insurers are committed to carbon neutrality. They’ve also taken steps to reduce waste, meet environmental standards in the real estate they own and manage, and enhance transparency regarding these issues, the report said.
“Great-West Life in particular has been continually recognized as a leader in the transparency of its disclosures related to climate change and the impact on its business, regularly placing in the top 5% of companies globally,” DBRS Morningstar said.
Yet, the report also noted that unlike P&C insurers, which have more direct exposure to environmental risks, life insurers’ primary exposure is through their large investment portfolios and their asset management subsidiaries. Progress on that front has been less impressive.
“While ESG considerations are increasingly being incorporated into the investment selection processes, there have been no major changes in the composition of assets under management as a result of climate considerations,” the report said.
“In general, Canadian life insurers have not yet taken a broad exclusionary approach regarding sectors that are vulnerable to climate risk or that may be considered detrimental to the environment,” the report added.
Insurers have increased their efforts to integrate climate-related risks into their investment risk management processes, the report said. They’ve also increased their ESG offerings to investors through their asset management businesses.
“Integrating environmental considerations into asset management operations has been more challenging, even as progress has been made in terms of increasing the number of sustainable fund offerings, and in incorporating climate risk assessment in the investment analysis process,” said Komal Rizvi, vice president, insurance, at DBRS Morningstar, in a release.
Additionally, the report noted that while there has been growth in sustainable investments, they “remain a small proportion” of the insurers’ overall portfolios.