LCP’s biennial review into how the eight bulk annuity insurers approach Environmental, Social and Governance (ESG) factors and stewardship highlights the significant resource that the insurers have been investing in this area with most insurers scoring highly in the management of climate risk.   

However, not all insurers are progressing at the same pace and there are clear areas for improvement. For example, only 2 out of the 8 insurers are signed up to the UK Stewardship Code 2020 (the Code). This is despite the insurers being amongst the largest institutional investors in the UK and the Code having been overhauled substantially in 2020 to be more relevant to investors of fixed income and alternative asset classes.  

LCP urges trustees and sponsoring employers of pension schemes to consider insurers’ ESG capabilities when entering into buy-ins and buy-outs and when monitoring existing buy-ins in place. Trustees have fiduciary responsibilities to consider how their members’ pensions are managed and to use their influence throughout the investment chain.  This applies to buy-ins just as much as to other investments. 

Other key findings from the LCP review, conducted on 30th September 2021, are: 

• 7 out of 8 insurers have set a net zero carbon emissions target for their asset portfolios – with most using 2050 as their target year 
• 5 out of 8 insurers have gone a step further and disclosed interim targets – a 50% emissions reduction by 2030 is the most common interim target although there are differences amongst insurers 
• 4 out of 8 insurers are already producing Task Force on Climate Related Disclosures (TCFD) reporting, with all 8 expecting to do so in the near future 

Commenting on the findings, Tom Farrell, Partner at LCP, said: “It’s clear that the bulk annuity insurers are upping their game on ESG and climate risk.  It is encouraging to see that 7 out of 8 have set net zero targets and 5 out of 8 going a step further and setting interim targets on their journey to net zero.  But some of the insurers still remain early on their ESG journey and most are behind the curve on stewardship. It is disappointing that so far only 2 out of 8 have signed up to the UK Stewardship Code 2020 as asset owners, despite managing asset portfolios of over £50bn in some cases.  We are encouraging the insurers to sign up to the UK Stewardship Code and have been highlighting other areas of potential improvement.”  

“It is important that pensions scheme trustees and sponsors factor ESG into their insurer selection decisions.  In doing so, trustees and sponsoring employers can use their influence throughout the investment chain, fulfil their own ESG responsibilities and ensure that risks such as climate change are being managed appropriately (and thus ensure that members’ benefits are indeed secure). Given the growing significance of this topic, we are seeing members taking an increasing interest.” 

Notes to editors  

To help trustees and sponsors understand the impacts of climate risk on their portfolios, every two years we run a Responsible Investment review of bulk annuity insurers. This year Aviva, Canada Life, Just, Legal & General, Standard Life, Pension Insurance Corporation, Rothesay and Scottish Widows participated in the review.