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TCFD benchmarking: where do insurers go from here?

Climate Quantified|Insurance Consulting and Technology
Climate Risk and Resilience|Climate and Resilience Hub|Insurer Solutions

By Dhiran Dookhi and Nambassa Nakatudde | December 22, 2020

As an insurance specialist and advocate for the Taskforce for Climate-related Financial Disclosures (TCFD), Willis Towers Watson recently carried out a benchmarking exercise to examine the TCFD practices of 21 leading UK and European Union (EU) (re)insurers as well as insurance focused asset managers.

We used publicly available reports (from 2018 to 2019) for each company1, applying a Red, Amber, Green (RAG) scoring methodology as follows:

  • Green: Meets requirements
  • Amber: Partially meets requirements
  • Red: Does not meet requirements

Companies achieved one point for a green score for any one of the eleven TCFD recommendations in the four categories (see below ‘The march of TCFD’). Figure 1 shows total scores for each company.

Green RAG scores against the 11 recommended TCFD disclosures
Figure 1. Green RAG scores against the 11 recommended TCFD disclosures

Key takeaways

  • First, although a lot of progress has been made in recent years, and many companies are now disclosing a reasonable amount of climate-related information, most companies, including those who scored highest in our analysis, acknowledge they need to make further progress. We believe that further work is required in areas such as climate scenario testing, consistent use of metrics and target setting.
Graph showing the TCFD major themes RAG summary (all companies)
Figure 2. Major themes RAG summary (all companies)
  • Secondly, as Figure 2 shows, the scoring across the four major themes was varied and only four companies achieved the highest score in at least three of them. The strongest area was governance, with the highest proportion of top scorers in comparison to the other three themes. As the following table shows, board oversight is the area in which companies show the best performance overall. On the other hand, only seven companies achieved a green rating for scenario analysis.
Major themes RAG summary (total scoring)
Major themes Red Amber Green
Governance Board oversight 2 1 18
Management's role in assessment and management of risk and opportunity 2 2 17
Strategy Short, medium and long-term organisational risk and opportunity 2 10 9
Impact of risk and opportunity on business, strategy and financial planning 3 6 12
Resilience of strategy under several scenarios including 2°C or lower 4 10 7
Risk Management Processes for identifying and assessing risks 2 5 14
Processes for managing risks 0 7 14
Integration of the above processes into organisation’s overall management 4 6 11
Metrics and Targets Metrics used for assessment of related risks and opportunities 1 5 15
Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas emissions 6 5 10
Organisational targets used to manage performance in the area 2 8 11
  • The analysis highlights the variation in scoring by company type. Independent asset management companies scored the worst in all areas, with the most red scores overall as well as in each of the four main themes. The mean total score of independent asset management companies is four whilst the figure for insurance and asset management groups is nine. The (re)insurance mean score is five but with more variation.

As well as investigating their overall performance, we also explored the possibility of correlation between companies’ scores and other factors. Specifically, we investigated whether there is correlation between score and market capitalisation, and if there is a correlation between the length of TCFD report and score. On both counts we found no clear correlation.

What next?

Although some companies in the insurance sector are performing better than others, in all but one case there is room for improvement across the board. This is not to detract from progress already made across the industry and by regulators - but there is still considerable room for fuller and more transparent disclosures.


Footnote

1Aviva plc, Standard Life Aberdeen, Phoenix Group, Legal and General, Lloyds Banking Group, Prudential, AXA Group, Swiss RE, Aegon Group, Allianz, Storebrand ASA, Generali, NNGROUP, SCOR, M&G, LGIM, Wellington, Amundi, Schroders, JPMorgan and Aegon


Author

Dhiran Dookhi
Director, Insurance Investment Team

Nambassa Nakatudde
Lead Associate, Insurance Investment Team

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