Lloyd's Gets Low Marks in Insurance-Industry ESG Survey

 

A British investment activism group has handed Lloyd's of London low marks on environmental and social responsibility, and has suggested imposing new regulations on the historic insurance marketplace if it does not improve. 

The activists' group, ShareAction, wants to see the British financial industry reorient towards adequate protection for both society and for the planet. It recently undertook a review of the nation's large insurers, including the Lloyd's market, to see how well their social-responsibility and climate policies stacked up against each other.  

Though Lloyd's has voluntary ESG guidance for its managing agents - the professionals who manage the operations of each Lloyd's syndicate - ShareAction found that it falls short of other institutions' recommendations. Managing agents who follow Lloyd's voluntary rules precisely would get a low score of 13/100 on ShareAction's assessment, and an "extremely poor" grade of "E." The market's voluntary guidance dates back three years, and recommends joining an ESG alliance that Lloyd's itself has since departed, ShareAction said. 

As would be expected, Lloyd's has no restrictions on underwriting business ventures in thermal coal or offshore oil and gas, both of which are staples of the shipping industry. ShareAction called for a commitment to phase out these carbon-intensive elements of the business. 

But the real responsibility lies with the managing agents themselves, as they each run an independent book of business. Nearly half received an "extremely poor" grade of "F" on the group's ratings, for several key reasons. Less than half of Lloyd’s of London managing agents have set any net-zero targets for their underwriting business, the group found. No managing agents have adopted a net-zero transition plan, though Lloyd's has launched a new consultation process for market-wide transition. Only a handful of agents offer insurance products for green businesses and projects.

"Raising performance among managing agents may therefore require that Lloyd’s of London mandate specific requirements for its agents," ShareAction wrote. "If ambition at Lloyd’s of
London is moving in the wrong direction, then such actions could be mandated by legislation
and regulation, particularly given Lloyd’s’ historic relationship to the British state."

Among all insurance industry members surveyed - within Lloyd's and without - ESG factors are rarely tied to management compensation. On a day-to-day level, this means that "climate targets are likely to be marginalized in practice and senior staff are primarily incentivized to meet other KPIs" like P&L, concluded ShareAction.