Japanese life insurers are participating in global net zero initiatives to learn from their peers about sustainable investing. But their counterparts, especially European asset owners, are also learning from them how to operate in a low-yield environment.
Fixed income life insurance companies in Japan have faced a very low yielding environment domestically for over 20 years. As some of Asia’s most sophisticated investors, their
In mid-October, three of Japan’s largest life insurers – Nippon Life, Sumitomo Life and Meiji Yasuda Life Insurance – joined the United Nations-organized Net-Zero Asset Owner Alliance.
The three life insurers have combined assets of $ 1.4 trillion, bringing the alliance’s total assets under management (AUM) to nearly $ 10,000 billion. The alliance now has 60 members from all over the world.
Their membership followed the participation of Dai-ichi Life Insurance in March, making them the first Asian members.
They will commit to net zero portfolios by 2050 and set interim targets every five years in line with the Paris Agreement target of limiting warming to 1.5 ° C.
LOW RATE EXPERTS
According to the latest data from the Life Insurance Association of Japan, Japanese life insurers have $ 3.5 trillion in assets under management.
“It is perhaps not surprising to see Japanese insurers moving first to the Asia-Pacific region, as they are among the most mature and sophisticated investors in the region,” said Max Davies, strategist. in insurance at Wellington Management.
With more than a quarter of assets invested overseas, they understand that the net zero trend is happening in global markets, so they need to be concerned about the risks they will be exposed to, Davies said.
Life insurers have longer-term assets, where they could be exposed to higher climate risks in the future, such as temperature and sea level rise, as opposed to short-term risks. such as flooding or extreme weather conditions, he said.
As life insurers tend to have more domestic exposure than global exposure, Davies said if more Asian life insurers join the alliance, foreign investors would better understand the climate risks and challenges facing Asia. confronted.
Meanwhile, European institutions have learned a lot from Japan, as the country has faced low and negative interest rates for some time, a more recent phenomenon in Europe, Davies noted.
“The Japanese market is definitely a highly respected market and has provided an educational lens for markets to look into,” he said.
“That’s why we encourage and really care about these initiatives, because they bring to a full global perspective, hopefully over time, a more Asian perspective to achieve net zero by 2050, which is a goal. ambitious. But it’s probably a little further down the agenda in Asia because there are a number of other challenges that insurers face, ”he said. AsianInvestor.
These include new risk-based capital regimes in many Asian markets, which challenge life insurers to extend the duration of their assets. Similar regimes are well established in Europe.
With the influence of Japanese life insurers in the industry, Davies expects more asset owners in Japan and Asia to follow suit and join the Net-Zero Asset Owner Alliance.
Takeshi Kimura, special adviser to the board of directors of Nippon Life Insurance, said he hoped Japanese life insurers could learn about the global decarbonization trend and how international standards are used to measure progress towards net zero.
Meanwhile, the former head of the Bank of Japan wants to influence the positive behavior of companies in Japan by collaborating with other life insurance companies.
Nippon Life values engagement with issuing companies and only uses divestment as a last resort.
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“It seems unlikely that an investor acting alone in public markets will have sufficient influence over investor behavior,” Kimura said at a panel discussion on AsianInvestorThe Mandating Change Week event on October 25.
“On the other hand, working with other investors is likely to reduce costs and improve the prospects for success in sustainable development and therefore achieve the objectives of impact investing,” he said. he adds.
Edward Baker, policy officer for the Net-Zero Asset Owner Alliance, believes the membership of large Japanese life insurers indicates that more than a few countries in Europe are interested in setting net-zero goals. But he stressed that what is important in the alliance is not only a 2050 target, but also short-term responsibility.
The alliance has just updated the 2025 goal setting protocol. “No board member will be in the world in 2050, but they could be there in 2025. Short-term accountability announcements made today are therefore vital for the credibility of these initiatives, ”said Baker. AsianInvestor.
The priority for new members is to learn about the detailed goal setting work, including the sequence in which the process takes place, key issues and how to deal with sensitive asset classes, he said. declared.