Assessing pension insurers’ sustainability performance

Most bulk annuity providers are making good progress to decarbonise their investment portfolios and are ahead of internal targets, according to new research.

Hymans Robertson analysed emissions data from seven insurers active in the bulk annuity market and found six to be ahead of the targets they have set themselves.

Whether measuring carbon intensity of portfolios or carbon footprint, the research found that Aviva, Pension Insurance Corporation (PIC), Rothesay, Legal & General, Phoenix Group and Royal London were all ahead of their 2030 interim decarbonisation targets.

This places them on a trajectory to achieve their longer-term goals, which for most is carbon neutrality by 2050 or sooner.

Just Group is behind its stated 2030 target, but ahead when including scope 3 emissions – those from indirect sources.

The consultancy said that, as demand for bulk annuity transactions has increased, so has the importance of assessing the sustainability credentials of insurance companies.

“Overall, most insurers are making good progress towards their net-zero targets,” wrote report author Paul Hewitson, head of ESG for risk transfer. “However, trustees should continue to monitor how the insurers’ positions evolve before deciding which provider to transact with.”

In its £200m buy-in deal with Aviva announced earlier this month, the Merseyside Pension Fund emphasised the importance of the insurer’s sustainability approach. The pension scheme also signed up to the Sustainability Principles Charter for bulk annuities, which was launched earlier this year.

How insurers score on decarbonisation

Hymans Robertson charted each insurance company’s reported carbon emissions metric, taking the data from annual Task Force on Climate-related Financial Disclosures reports.

PIC recorded the biggest reduction, having managed to shrink its weighted average carbon intensity by 42% in 2023 compared to its 2020 baseline. Aviva managed a 41% reduction compared to 2019.

Phoenix Group recorded a 41% reduction in its carbon footprint – a different metric to Aviva and PIC – compared to its 2019 baseline.