Statistical News Release: Insurers have relatively sustainable equity investments

Statistical news
Datum 4 oktober 2019

Insurers have relatively sustainable equity holdings, and are on average investing less in carbon-intensive sectors. The development of carbon footprints over time must be measured carefully as foreign exchange fluctuations can influence these results. Measurement methods need to be further developed to gain a better overview of sustainability in the financial sector.

Insurers’ carbon footprint in focus

On 10 July 2019, fifty banks, pension funds, insurers and asset managers signed the Dutch Climate Agreement. The signatories pledged to report on the climate impact of their investments from 2020, and to have plans in place to reduce their carbon emissions as of 2022. One way of determining the climate impact of investments is by calculating their carbon footprint. Using data on individual investments, Figures 1 and 2 show the carbon footprint of the average insurer's equity portfolio for the period 2012-2019. On average, approximately 10% of the total investment portfolio of insurers comprises equities.

Figure 1 and 2 show that the carbon footprint of insurers is below the benchmark (the market). This means that insurers invest relatively less in carbon-intensive sectors, and that their investment policy is therefore more sustainable than average. The figures also show that the carbon footprint fell sharply in the period from 2012 to 2015, and has remained relatively constant since then. This fall can be explained by a reduction in the average carbon intensity of companies in which the insurers invest and/or the reorientation of insurers’ investment policy towards less carbon-intensive sectors.

Actual greening is difficult to measure

Particular care must be exercised in interpreting the development of the carbon footprint over time. For example, carbon footprint developments expressed in EUR (Figure 1) are not equal to the carbon footprint developments expressed in USD, and fluctuations in the USD/EUR exchange rate play a role in the rises and falls of the carbon footprint. This is because insurers’ portfolios contain equities issued in different currencies. In order to calculate the carbon footprint, these positions in equities and their related carbon intensities are converted to a single currency. I.e. for portfolios with a mix of currencies, substantial exchange rate fluctuations are reflected in the carbon footprint development over time.

Further development of measurement methods

Due to the imminent introduction of national and international regulations and initiatives in the financial sector, measuring greening is expected to take off in the coming years. The methods for calculating the carbon footprint are rapidly evolving, and the availability of data on carbon emissions is increasingly improving. In further developing measurement methods, it is important to carefully examine the possibilities for correcting for the influence of exchange rate fluctuations, so that the actual reduction or increase in carbon footprint is clearer. The different methods for calculating the carbon intensity of companies - for example based on turnover or added value instead of market capitalisation - will also influence the measurement of the carbon footprint. Achieving uniformity in the methods applied is therefore highly desirable. Based on further research, DNB wants to support the development of the various measurement methods, through for example close cooperation with the Partnership for Carbon Accounting Financials.

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