Insurance Companies Face Massive Losses in 'Alternative Investments'... Seeking Breakthrough with ESG

Insurance CEOs Declare ESG Management
Expanding ESG Investments for Carbon Neutral Era

On the 23rd, the presidents of the life and non-life insurance industries held a ceremony to announce ESG management for enhancing trust and sustainable growth in the insurance industry, and they declared the insurance industry's ESG management statement.

[Asia Economy Reporter Oh Hyung-gil] As 'ESG (Environmental, Social, Governance) management' emerges as a key topic in the insurance industry, attention is focused on whether the performance of alternative investments, which have shown 'red lights,' can be reversed.

In line with the 'carbon-neutral' era that shifts from fossil fuels to renewable energy sources such as wind, solar, and hydrogen, insurance companies plan to secure stable investment returns in renewable energy and other sectors.

According to the insurance industry on the 24th, life and non-life insurance company executives held an ESG management declaration ceremony on the 23rd to enhance trust in the insurance industry and promote sustainable growth, announcing the insurance industry's ESG management declaration.

What stands out in this declaration is the asset management section. Insurance companies expressed their commitment to "consider ESG factors in asset management and participate in efforts to reduce greenhouse gas emissions and transition to a low-carbon economy."

Among private financial institutions, insurance companies have accounted for an overwhelming share of investments in the coal sector. According to the '2020 Korea Coal Finance White Paper' released by the Korea Socially Responsible Investment Forum, eight of the top ten private financial institutions investing in coal power generation were insurance companies.

Samsung Fire & Marine Insurance led with KRW 7.7073 trillion, followed by Samsung Life Insurance with KRW 7.4115 trillion, KB Insurance with KRW 5.4723 trillion, Hyundai Marine & Fire Insurance with KRW 3.7006 trillion, NongHyup Life Insurance with KRW 2.691 trillion, Kyobo Life Insurance with KRW 1.5435 trillion, Hanwha Life Insurance with KRW 1.1683 trillion, and Shinhan Life Insurance with KRW 814 billion. These funds were provided through project financing (PF) loans, corporate bonds, and insurance support.

The problem is that as global environmental concerns increase, opportunities for insurance companies to invest in coal power generation are gradually disappearing. It is pointed out that survival will be difficult with existing asset management strategies, and concerns about future losses are rising.

According to the Financial Supervisory Service, as of the end of September last year, overseas alternative investments by insurance companies amounted to KRW 70.4 trillion, accounting for 6.5% of total assets (KRW 1,087 trillion). Real estate was the largest at KRW 24.1 trillion (34.2%), followed by social overhead capital (SOC) at KRW 20 trillion (28.4%), and corporate acquisitions and restructuring at KRW 9.3 trillion (13.2%).

In particular, financial authorities have decided to strengthen soundness management by preparing model guidelines for risk management of alternative investments focused on overseas assets, as losses of about KRW 194.4 billion have occurred due to the impact of COVID-19, including declines in the value of overseas real estate and aircraft investment funds, increasing the possibility of further losses.

In this situation where new alternative investment destinations are urgently needed, the ESG sector is emerging as an alternative. Several large insurance companies have already started coal phase-out management declarations.

Samsung Life Insurance and Samsung Fire & Marine Insurance have stopped new investments in coal power generation since June 2018 and have decided not to invest in direct loans or financing for coal-fired power plants or corporate bonds issued for the construction of coal-fired power plants. As of 2019, Samsung Life's share of new investments amounting to about KRW 1.1 trillion in renewable energy such as solar and wind power reached 29.1%.

Hanwha Life Insurance and Hanwha General Insurance also declared last month that they, along with Hanwha Financial affiliates, will not participate in financial investments or support for coal-fired power generation in the future.

An insurance industry official said, "Not only coal phase-out but also asset management reflecting ESG factors such as ESG bonds, which are expected to increase issuance in the future, will become important," adding, "We plan to continuously expand investments in eco-friendly assets such as renewable energy."

This content was produced with the assistance of AI translation services.