Only Aviva and Scottish Widows have signed up to the UK Stewardship Code out of the eight bulk annuity insurers, new LCP research has highlighted.
The code, which is released every year by the Financial Reporting Council, covers asset owners — such as pension schemes and insurers — as well as asset managers and service providers, including investment consultants and proxy advisors.
It contains 12 principles for asset owners and managers. The code was revised in 2020 to become more relevant to fixed income and alternative asset investors.
The insurers that are not listed among the code’s signatories are Canada Life, Just, Legal & General, Standard Life, Pension Insurance Corporation and Rothesay.
It’s clear that the bulk annuity insurers are upping their game on ESG and climate risk
Tom Farrell, LCP
LCP said that the companies had offered a range of explanations as to why they had yet to register. While some are considering signing up, others believe that the code is less relevant to them as they do not invest in equities.
Some insurers referred to fund managers they delegate to as having applied to sign up to the code. However, the code stipulates that responsibility for adhering to it cannot be delegated.
“Some of the insurers still remain early on their environmental, social and governance journey and most are behind the curve on stewardship,” said LCP partner Tom Farrell.
“We are encouraging the insurers to sign up to the UK Stewardship Code and have been highlighting other areas of potential improvement.”
Most of the insurers are, however, signatories of similar industry groups, such as the Institutional Investors Group on Climate Change, and the Net Zero Asset Owner Alliance.
All insurers have now committed to net zero
Despite the report stating that seven out of the eight insurers have committed to net zero, a pledge by Canada Life’s parent company, Great-West Lifeco, in November to commit to net zero greenhouse gas emissions by 2050 means that all insurers have now signed up to the target.
According to LCP, most insurers have set 2050 as their target year, while Aviva is aiming to reach net zero by 2040.
Canada Life’s parent company also announced last year that it would “develop and implement responsible science-based targets”. According to LCP’s survey, five insurers — Aviva, Just, L&G, Rothesay and Scottish Widows — have now published their interim goals.
DWP tells schemes to prioritise stewardship
Pension schemes may see the end of stewardship ‘box-ticking’ under new proposals brought forward by the Department for Work and Pensions.
While Aviva’s net zero goals appear more ambitious than its peers, the report cautioned that a higher percentage reduction may not necessarily produce lower emissions. For example, Aviva could be starting its net zero journey with higher emissions.
“It’s clear that the bulk annuity insurers are upping their game on ESG and climate risk,” Farrell said.
“It is important that pension 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.”
In a previous version of this article, a table created by LCP categorised Scottish Widows' second interim net zero target as 'N/A'. This is inaccurate and the table has been removed.
