UK-based insurer Prudential has set a carbon reduction target of net-zero by 2050, with an interim target of a 25% reduction across its investment portfolio by 2025. However, just as important as decarbonising its portfolio is the insurer's focus on a just and inclusive transition in the emerging markets in which it operates.
“Markets such as Indonesia, Malaysia, Cambodia and Vietnam – these are markets which have historically contributed less to the stock of carbon in the atmosphere but may now be more exposed to the physical impacts and potentially have less resources” Kerry Adams-Strump, director of group ESG at Prudential, told AsianInvestor’s Insurance Investment Briefing Hong Kong on March 10.
As a member of the UN-convened Net-Zero Asset Owner Alliance, the insurer uses its voice to help shape evolving regulations and protocols around sustainability so that they can be developed in a way that takes into account the needs of the emerging markets in Africa and Asia.
Many African and Asian growth economies are still heavily reliant on fossil fuels such as coal, which is why an inclusive approach is required, Adams-Strump said.
“When we set our coal policy, for example, it was very much in consideration of what would be the most respectful of the just and inclusive transition," she said. "While there's no perfect answer, it was a discussion that our board had, and we set it at a 30% threshold, which we felt was going to be an appropriate level for us.
“Our core business is providing healthcare and protection, so we're also thinking about where climate and health intersect with that need for a just transition – it's really central to everything we’re trying to do.”
DO WHAT YOU KNOW
Investment approaches to a just and inclusive transition have been interpreted in many ways.
Bupa Asia’s approach boils down to considering the social and economic dynamics inherent in the net-zero transition and understanding how, as a company, it can leverage its capabilities and strengths to better understand and influence these dynamics.
“We're a health insurance company, so it’s really thinking about what the social determinants of healthcare are and how we can impact those,” said Rodney Gollo, Bupa Asia's head of risk.
“In regard to the work we're doing around healthy cities, we're seeking to say: How can we help our corporates and our employees make better informed healthcare and wellbeing decisions based on their lifestyles, where they live and work in the context of the cities, and the environments within which they live?”
RAMPING UP REGULATION
Gollo said the environmental, social and governance (ESG) ecosystem comprises four interdependent components: regulation, consumer behaviour, the actions of corporates, and how capital markets are integrating sustainable finance and investment. He said that during the course of last year, amid inflation and rising geopolitical risks, the capital market component within Asia had faced setbacks.
“However, from a regulatory perspective, discernible trends in Asia are on the rise, with the disclosure requirements here in Hong Kong and Singapore, and more broadly with the work which has been done from an ASEAN perspective to develop a taxonomy,” Gollo said.
With regard to the corporate component, he said there is also evidence that ESG is being embedded more into strategies and business models.
“However, I'd say that's probably more tied to the well-resourced and larger corporates that have international footprints,” he said.
“When you look at small and medium-sized enterprises – or even micro- and small and medium-sized enterprises, which make up the vast majority of economies, particularly in emerging markets, and which tend to be private companies – I think at this stage we're not seeing as many developments from an ESG perspective being integrated into business models just yet.”
“For a long time, it was the markets – particularly in Hong Kong and Singapore – that were really dominating policy development, and they probably still are at the front in terms of regulation, but we're seeing regulation increase in almost all of our markets,” she said.
“It's almost impossible now to keep track of them all, and there seems to be a new development or a new consultation every other week," she said. "But we broadly welcome policy regulation, and it's going to create confidence for investors when there's that sort of safety net and understanding. There's a lot to manage, but that trend of increasing regulation in this space is positive.”