The increasing integration of sustainable and responsible investing (SRI) strategies by insurers into their investment decisions is a net credit positive for the industry, Moody’s Investors Service says in a new report.
Certain life insurers, including Manulife Financial Corp., Prudential Financial Inc., and Aegon NV, among others, are increasing their use of SRI strategies and incorporating environmental, social and governance (ESG) considerations into their investment guidelines. This is a good thing, Moody’s concludes.
“A sustainable investing approach encourages insurers to focus on ESG risks, to diversify their portfolios, and to think long term and more broadly about material risks and opportunities across all asset classes,” says Bob Garofalo, vice president at Moody’s, in a statement.
While the insurers’ SRI allocations are currently relatively small, their increasing use will require insurers to “think more comprehensively” about investment risk management, to identify material risks and opportunities, and to further diversify their investment portfolios, Moody’s says.
“The effectiveness or benefits of these decisions will be realized only gradually in an insurer’s asset quality through a decrease in impairments and fallen angels in certain sectors, as results of insurers risk-mitigating actions emerge,” it adds.
Additionally, the increased use of SRI strategies represent an opportunity to “expand a brand’s reach while ESG trends are gaining traction with investors who seek to ensure their assets and investments have a positive environmental and social impact,” Moody’s says. This can improve client loyalty, retention and sales.