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Asset Management & ESG
For ESG Investors, It’s Getting Easier to Be Green

The environmental, social and governance movement raises many challenges for insurers, including: Do green investments come at the expense of return and a whole raft of future uncertainties?
  • John Weber
  • May 2022

Environmental, social and governance investment is a journey that will not happen overnight, according to industry experts. The asset management movement is also a collective effort encompassing the insurance industry, policyholders and regulators.

Ashish Dafria, chief investment officer, Aviva; Stewart Foley, managing partner, Insurance AUM Journal; and Bryan Falchuk, managing partner of Insurance Evolution Partners, took part in a panel that examined the challenges of ESG investing. Following is an edited transcript of their discussion.

A little over a year ago, Aviva became the first major global insurance company to target net zero carbon from investments by 2040. How do you plan to do this?

Dafria: We clearly wanted to show leadership. There was an acknowledgment of humility in that we don't have a fully mapped-out, detailed plan that can spec out our net zero to a future point—2040, 2050, or any other time. There is also a statement of ambition in there that, “Yes, we have some assumptions. We don't know exactly how we will get there, but we think we need to try harder.” In our own operations [and supply chain], the announcement was we aim to get to net zero by 2030, and that's [the] somewhat easier part.

The harder part is what's in the jargon—we call Scope 3, which is our own investments. That's where I come in as the CIO. That's where our ambition is, to get to net zero by 2040. It is a tall order. There are challenges in doing that. The key way we are looking to get there is probably threefold.

One is by engaging with the companies that we invest in by bringing them along on the journey, by working with them, partnering with them. The second part, which goes somewhat hand in hand, hopefully not too often, by moving away from companies with investments where we think the risk is too pronounced and the actions being taken are not sufficient—companies who are not on their journey, not on their path. Third, by more proactively, more directly investing in the investments, companies, solutions that benefit from this transition, that are part of that getting to the green.

With a mixture of those three, with a lot of trepidation on my part, with lots of uncertainties, that's how hopefully we'll get there.

Related: ESG Under Insurance Regulatory Spotlight

Ashish Dafria Aviva

“Sometimes, the debate on ESG tends to be very black and white, with a very moral sense. I am fond of saying that it’s 50 shades of green that you should be thinking about. It’s not quite black or white. There is a spectrum.”

Ashish Dafria

Why does implementing an ESG strategy matter and how will returns be affected?

Dafria: Sometimes, the debate on ESG tends to be very black and white, with a very moral sense. I am fond of saying that it's 50 shades of green that you should be thinking about. It's not quite black or white. There is a spectrum.

ESG is not a moral statement on my part as an investor. It's a risk management statement on my part as an investor, that there are risks, and how do we measure them? It's somewhat not dissimilar to, “Well, we will be looking at risks of companies going bust.”

No one will ask me the question, “Well, why do you analyze risk of companies going bust? How will it impact the returns?” We are firmly of the camp that we practice ESG. The way we practice it is with the intention of enhancing our risk-adjusted returns.

Will we get it right every time? No, clearly, we won't, especially on a topic such as ESG, where the funnel of uncertainty is wide. We are looking to do it because we think it's in the best interest of the customers whose money we manage.

Where are U.S. insurers on their ESG journey versus their European and Asia-Pacific counterparts?

Foley: They're probably behind, but making a very concerted effort to catch up. I remember sitting in CIO Eric Kirsch's office at Aflac a few years ago, and he brought up ESG as one of the emerging issues and talked about that exact difference in where they are in their journey.

No industry has more to gain or lose from climate change and weather extremes. Insurance companies—they're insuring wind, and hail, and floods, and all sorts of things that, clearly, they have an economic impact. Forget about the social aspects of it, or the environmental aspects of it; from strictly a business perspective, it makes sense.

The challenge is insurance companies get paid to make long-term promises, and long-term assets are bought to fund those long-term liabilities. You can't snap your fingers and turn the Queen Mary and wash out all the ESG investments and suddenly restructure for a myriad of reasons that people who understand managing insurance assets understand it takes time.

There are major challenges. For example, there's no standard by which to judge. There's no numerical score. It's challenging for insurance companies. They're motivated, they have the right ideas to do it, but the devil is in the details as far as implementation goes.

Stewart Foley Insurance AUM Journal

Stewart Foley
Insurance AUM Journal

Is there a way to quantify the ESG component of a particular investment?

Foley: There are people who want to sell you data that has a score attached to it. If it was that simple, it would be great, but people disagree on how to measure. It's challenging. When you have a portfolio that's the size of some of the global insurers' there are a lot of assets and a lot of facets to each one of those assets to see where they line up on an ESG spectrum. It's a very difficult problem.

For insurers, are the results worth it when it comes to ESG investing?

Falchuk: When I talk about ESG investments, I have some folks who say, “Yeah, those are great returns, great investment opportunities,” and others who say, “No, the returns are not equal to the more traditional sectors and investments that are less positive on the ESG scale.”

There's subjectivity to it still. There are some things we can agree, probably not a great thing, from an ESG standpoint, or probably a better thing, from an ESG standpoint. In today's world, many of those returns are more stable and stronger in the more traditional maybe negative ESG investments.

We're not here for the short term and that's what makes this moment a bit different and perhaps harder is we're in the point of transition. Yet we don't know what the ultimate long term looks like.

Is ESG investing volatile right now simply because these are not mature investments?

Falchuk: There's an aspect of that. We've all been dealing with unsettled times for some time—a financial crisis, COVID, take your pick. There's always things that when you have something new, that's volatile enough, and then the context into which it's starting up only makes that worse. We're living in quite a bit of that right now, and that makes it tricky. Let's not forget 1999. Many of those dot-com companies don't exist anymore but there are a few that do. If you stuck it out with them, you would be in a tremendous place—including a couple of them who are now the richest people in the world.

Related: Focus on ESG Expands Beyond Environmental, Energy

Bryan Falchuk Insurance Evolution Partners

Bryan Falchuk
Insurance Evolution Partners

Can you structure insurance coverages to create better ESG outcomes for insureds?

Falchuk: This is where our industry has an even greater impact: Our investment dollars are massive and can move markets, and we shouldn't downplay that. The reality is the entire economy rests on our product, on the insurance that we provide.

What we're willing to insure or not is one question. There's a lot of debate about that. “Do you insure oil rigs?” for example. That's right or that's wrong. People get very black and white on it. What if you say you do cover them, only you're going to change the way they operate if they want coverage? Maybe they have options today, but a couple of years from now, they may not, so they're willing to make the changes you're asking of them.

There's got to be a number of different ways to integrate ESG investing. In fact, Ashish used the term 50 shades of green.

Foley: The Principles for Responsible Investment has got a very robust campaign to get insurers to become signatories. One of the things that we've talked about today is this idea that they have made a solid pledge, and it is quite a ways into the future.

2040 is quick, but it's not today. You don't have to, “To sign up, I've got to go today.” When you look at 50 shades of green, we're going to get there over time. Insurers are typically not reallocating huge portions of their portfolio. They're investing cash flow at the margin of where it comes in. This different lens of looking at where to allocate those dollars will get us greener over time.

How do we get on the ESG journey?

Dafria: There are three things reflecting on our experience as we have started the journey: No. 1, by recognizing that we can't get there alone. We need to work with the companies that we invest in, with our peers, with the regulators, with the community broadly.

It's a collective effort, so that's quite important. I am managing, directly or indirectly, money on behalf of my policyholders, so I need to reflect their journey in many ways. No. 2, by having courage of your conviction, by making some investment decisions which are probably slightly more ambiguous than your normal investment decisions. Therein lies the opportunity. The messiness always is a place where you can differentiate investment returns. No. 3, by being open, too, with yourself, with your organization, with your stakeholders that, “Not everything I'm doing will turn out to be right. There are 15 things in my list. At least three of them will be probably not the best course of action in hindsight.”

I can't wait for having that perfect vision until I start taking action. 2040 is really, really near when I am thinking about a large portfolio to move. It's combined, those three. I'm as confident as I can be. We are on that journey quite firmly.

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John Weber is a senior associate editor. He can be reached at

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