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UK insurers aiming to unlock billions of pounds of clean energy investments

Image: Getty.

Image: Getty.

The UK’s insurance giants are proposing regulatory tweaks which could help unlock billions of pounds of investment into clean energy projects.

Insurance firms based in the UK hold more than £1.8 trillion in invested assets, but just over 1% of this fall into the Environmental, Social and Governance (ESG) asset class of which renewable energy projects belong to.

The Association of British Insurers, which represents more than 250 insurance firms, has said that insurance firms, acknowledging the inherent risks associated to climate change, wish to increase that share but are being blocked by regulatory and procedural hurdles.

These include a shortage of consistent asset-level data and solvency rules which disincentivise insurers from investing in long-term projects.

The ABI said that the existing prudential regime for insurers, which formulate the Solvency II rules, fails to properly reflect insurance’s long-term nature, effectively preventing insurance firms from investing in sustainable projects.

Solvency II is a Directive within EU law which sought to harmonise Europe’s insurance regulation, primarily reflecting the level of capital insurance firms must hold to prevent insolvency.

To fix this, the association has responded to a consultation ran by the Prudential Regulation Authority, proposing that more is done to take sustainability factors are taken into account when considering assets for investment.

The ABI said that this should be a “key focus” of the Solvency II 2020 review which is beginning to compile evidence.

Meanwhile the lack of reliable data is being tackled independently, with some insurers developing their own, internal approaches and specialist teams to examine this.

The concern for the ABI is that a “piecemeal approach” to this will take a long time, and regulators will have a role to play across the entire financial sector to help improve the availability of consistent data.

Steve Findlay, head of Prudential Regulation at the ABI, said that the insurers were in a “unique position” to be able to seriously boost green technologies and energies, and that the industry was now setting some steps to help “unlock billions of pounds of investment for innovative, greener projects”.

“But we have to be practical about what will make a difference. Those responsible for managing assets need to be able to demonstrate to their boards and their shareholders that greener investments are good for their balance sheet, not only the planet.

“The industry, through initiatives like the recent ClimateWise Transition Risk Framework, is already taking positive action; regulatory changes to give insurers more freedom to invest in sustainable assets would also be a step in the right direction,” he said.

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