The Association of British Insurers (ABI) is campaigning for changes to existing regulation which it says will “unlock billions of pounds of investment for innovative, greener projects”.
The legislation in question is Solvency II, which states that insurers must hold a certain level of capital to prevent insolvency. The association, which represents more than 250 insurance firms in the UK, argues in an article on Solar Power Portal that the rules discourage insurance firms from investing in schemes with long-term benefits, such as clean energy and sustainability projects.
UK insurers currently hold more than £1.8 trillion in invested asset – but just over 1% flows into the Environmental, Social and Governance (ESG) class of assets which renewable energy projects belong to.
Solvency II is an EU legislative programme implemented in all 28 Member States, including the UK. It requires insurers to hold a solvency margin or buffer to cover the risk of their assets not being sufficient to cover their liabilities.
Solvency II is set to be reviewed in 2020 and the ABI is hoping to be put forward enough convincing evidence to get the regulation changed.
On top of this, the association is also agitating for regulators to play a more prominent role across the entire financial sector to help improve the availability of consistent data.
Although some insurers are developing their own internal approaches and specialist teams to tackle the issue, the ABI is concerned that this “piecemeal approach” will make for long lead times.
A lack of data about the efficiency of renewable energy ventures makes it difficult for large institutional investors to justify allocating their funds to such projects, the trade body said.
Steve Findlay, head of Prudential Regulation at the ABI, said: “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.”
He commended the industry for taking “positive action” through initiatives like the recent ClimateWise Transition Risk Framework. But said that more can be done to give insurers “more freedom to invest in sustainable assets”.
Zestec, a specialist asset manager of renewable energy assets for institutional investors wholly supports the ABI’s efforts in attempting to unlock billions of pounds of investments for clean energy projects. When it comes to trying to demonstrate to boards and stakeholders the power of green investments, why not use some of our case studies as evidence?
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