Zurich Malaysia is stepping up its efforts to manage climate risks and enhance environment, social, and governance (ESG) integration within its investment strategies, Junior Cho, country CEO and head of Zurich Malaysia, said in an interview with AsianInvestor.
Cho highlighted the importance of recognising climate change as a significant issue for investee companies.
“It is important for us to understand if the investee companies acknowledge climate change as a significant issue and if they view it as a relevant risk and/or opportunity for their business,” he said.
The importance of climate-related disclosures
Insurers hold a distinct advantage in evaluating climate risks due to their underwriting models, which focus on assessing and covering losses from climate-related events. Their significant global assets under management considerably amplify their influence.
Malaysian regulators, like many worldwide, are pushing locally for enhanced climate-related financial risk disclosures.
The Joint Committee on Climate Change (JC3), co-chaired by Bank Negara Malaysia and Securities Commission Malaysia, has issued guidelines for TCFD-aligned disclosures, which are set to be adopted by the end of 2024.
Aligned with this are the International Financial Reporting Standards (IFRS) S1 and S2, which are starting to be rolled out globally as of this year.
The standards have been developed by the International Accounting Standards Board (IASB) and incorporate recommendations from the Task Force on Climate-related Financial Disclosures (TCFD). They are being introduced to enhance the transparency and comparability of information related to climate and other sustainability-related financial disclosures across companies globally. They also aim to provide a consistent framework for reporting sustainability-related information, helping investors and other stakeholders make more informed decisions.
However, in light of the increased reporting requirements, industry practitioners told (Re)in Asia that insurers are likely to face difficulties calculating their emission impact — particularly when it comes to important significant Scope III emissions, which are indirect greenhouse gas emissions that occur in a company’s value chain and which account for the majority of insurer’s greenhouse gas footprint.
This is due to unreliable or unavailable data from investee firms and clients’ challenges related to data quality and varying timelines around Asia Pacific, which could delay full adoption.
Proactive measures
While the industry might face difficulties with transparency, Cho said Zurich Malaysia is adopting a proactive approach.
He said that, as part of its investment framework, the company employs both qualitative and quantitative methods for ESG factor assessment. It also collaborates with an external data provider for ESG data and engagement with investee companies.
“Our ESG framework is designed to integrate the relevant [ESG] factors into the investment process, from company research to portfolio construction,” he adds.
Zurich Insurance Group, the parent company of Zurich Malaysia, has committed to a net-zero investment portfolio by 2050 and has targets to reduce emissions intensity in its investments. Zurich Malaysia has partnered with the Tropical Rainforest Conservation and Research Centre to reintroduce rare and endangered species into the Malaysian tropical rainforest ecosystem, as part of its commitment to climate action and biodiversity protection.
