‘Strong demand’ for green bonds despite fears investment opportunities will narrow

There is a drive within the insurance industry to increase portfolio allocations to green bonds and specialist climate focused funds.

That was according to business management consultancy Ortec Finance, which said 62% of institutions are boosting allocations to green bonds and 75% to specialist climate focused funds.

This was despite the firm revealing that fears had been raised that the range of investment opportunities available to insurers will narrow over the next two years because of “increasingly stringent” environmental, social and governance (ESG) requirements.

Ortec’s data showed that 80% of investment management professionals in life insurers and London market (re)insurers expected a rise in the range of investments becoming unavailable.

It came amid just 18% believing the industry as a whole has ”very good” ESG strategies and programmes currently in place. 

Hamish Bailey, UK managing director and head of insurance and investment at Ortec, said: “There is strong demand among insurers and insurance asset managers for specialist climate focused funds and green bonds.

“But that is running up against increasing concern about a belief that the range of available investment opportunities will narrow over the next two years as ESG requirements become tougher.”

Greenwashing

Ortec commissioned independent research company Pureprofile to interview 100 investment management professionals for the survey.

It also revealed that nearly half (45%) were very concerned about the current level of greenwashing when it came to investing, with 53% quite concerned.

Greenwashing refers to the practice whereby a company deceives stakeholders into falsely believing that it is more environmentally friendly than it really is via marketing spin.

During a fourm hosted by speciality insurer Chaucer and ratings agency Moody’s in January 2024, calls were made for the creation of a set of standardised ESG metrics to be used to record performance.

James Wright, Chaucer’s chief risk officer, explained: “For ESG reporting to be robust and useful, it needs to be consistent.

“Without that standardisation, our industry’s efforts to measure the ESG performance of our clients carry too much risk for error, inefficiency and frustration amongst customers.”

Bailey added: “Insurers increasingly need support in identifying investment opportunities which deliver for their institution and meet ESG requirements, which means a tougher focus on greenwashing.”