Impact investing in insurance – a virtuous cycle

Impact Investment Series 3

Rahul Kapur is a student member of the IFoA working for E&Y in Delhi, India. He believes that Impact Investing provides a win-win for investors and society. In this article, the third of a three-part series, Rahul sets out the rationale for impact investment for insurance companies, gives real-life examples, and explains how insurers can enter this space.

The Covid-19 pandemic has changed our lives – in ways we won’t fully understand for a long time. What is becoming increasingly clear is that it has amplified inequality. More workers became unemployed in the US in March 2020 than in the recession of 2008-2009. Those without college-level education faced the highest job losses.1

By assessing the countries affected by five major epidemics of this century – SARS (2003), H1N1 (2009), MERS (2012), Ebola (2014), and Zika (2016), Vox found that income inequality widened over the subsequent five years.2

Its findings suggest that the income inequality impact increases with the negative effect of pandemic events on economic activity. Due to the large-scale reduction of economic activity during this pandemic, it suggests that all else being equal, the distributional consequences of Covid-19 may be more significant than those in previous pandemics.

Large-scale action is needed to turn the tide to create a fairer and more equal future. Impact Investing is growing rapidly, and it has the potential to reduce inequality on a large scale.

What is Impact Investing?

It can be defined as investing with the intention of generating positive, measurable social and environmental impact alongside a financial return. The distinguishing feature of this type of investing is the requirement to measure the impact.

The term “impact investing” was coined by the Rockefeller Foundation fourteen years ago. It differs from environmental, social, and governance (ESG) investing, which focuses on reducing ESG risks and assessing non-financial performance. Instead, impact investing focuses on business models and the products and services these companies produce. In this sense, impact investing aims to positively impact society beyond ESG-related compliance and investing.

The International Finance Corporation (IFC), a member of the World Bank Group, believes that the appetite for Impact Investing is currently USD 26 trillion.3 The Global Impact Investing Network (GIIN) estimates that over 1,720 organisations manage USD 715 billion in impact assets as of the end of 2019. From these figures, there is massive scope for growth.

In my first article on this topic, “Impact Investing – Can We Make Returns and Reduce Inequality?” I outline in more detail what this growing investment approach is.4

Why should Insurance Companies consider Impact Investing?

The world is facing environmental, social and governance (ESG) challenges. The risk landscape is leading to diverse, interconnected, and complex risks; it also presents new opportunities. The insurance industry continually adjusts the range of risk factors considered in managing its business. ESG issues are increasingly influencing traditional risk factors. They have the potential to impact the industry’s viability significantly. Therefore, a resilient insurance industry depends on holistic and far-sighted risk management in which ESG issues are considered.

With assets under management (AUM) of USD 36 trillion, the global insurance industry has enormous power to control where investments are made across the world, and which activities, good or bad, receive our financial support.5

On top of the impact benefits, there are myriad potential benefits for insurance companies and their stakeholders.

Market Competitive Financial Returns

According to a report published by the GIIN in January this year, nearly nine in ten impact investors find that their portfolios are either meeting or exceeding their financial performance expectations.6 The report synthesised existing research published between 2018 and 2020 on the financial performance of impact investments in private markets. Impact investors, like all investors, need to exercise a variety of choices to optimise their portfolio performance, such as financial returns, risk appetite, liquidity requirements. It is clear from this report that financial performance does not need to be sacrificed at the expense of impact performance.


As discussed in my previous articles, diversification is a big attraction of Impact Investing.7 There is low correlation between impact investments and the assets commonly held by insurance companies. Furthermore, as the impact market deepens, insurers should be able to diversify across impact sectors.8


Throughout the pandemic, public awareness of social and climate issues has grown. For example, despite the Covid-19 pandemic, an appreciable increase in the number of new ESG fund launches was observed for the calendar year 2020 in India.9 The inflows into sustainable or ESG funds for the fiscal year 2020-21 in India was INR 3,686 crore.10

This represents an increase of 76% compared with inflows into similar funds for the fiscal year 2019-20.

There is more interest from regulators too. Regulatory disclosure requirements for sustainability are increasing. For example, from 1 January 2021, all UK premium listed companies must report their climate risk exposure, in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. This requirement will roll out to all UK companies by 2025.

Making impact investments or indeed making these investments available to policyholders would send a strong message to the public about the company’s core values. The reputational benefits could potentially attract and retain talent as well as increasing the customer base.

Reducing Risk – on both sides of the balance sheet

Globally, the insurance industry is unique in relation to ESG risks, as insurers can be exposed on both sides of the balance sheet. For example, their investments face climate risk on the asset side of the balance sheet, and they face underwriting risk, particularly in the property and casualty line, on the liability side.

The same is true about economic sustainability and income inequality. The higher the proportion of society that can afford to be insured, the more stable are the expected claims and the lower the required capital. This creates a virtuous cycle whereby premiums can reduce, thus increasing accessibility even further.

It makes financial sense to make investments that will make our planet less risky and unequal. For example, investing in companies that improve environmental sustainability should ultimately result in lower frequency and severity of climate and environment-related claims such as floods, hurricanes and pollution. Likewise, investing in health may increase life expectancy or reduce the incidence of infectious disease and other health conditions, thus reducing death and critical illness claims costs.

Which Insurers are Impact Investors?

Zurich Insurance was an early adopter of Impact Investing. At the end of last year, its impact portfolio amounted to USD 5.8 billion. Green, social, and sustainability bonds made up the majority of the portfolio, about four-fifths, with private equity and private debt making up the remaining one-fifth.

Zurich has set itself two targets: to avoid 5 million metric tons of CO2-equivalent emissions per annum; and improve the lives and livelihood of 5 million people per annum. At the end of December 2020, it was well on its way to achieving these goals. In recent years, Zurich has developed a measurement framework that allows it to aggregate impact across the relevant portfolio in terms of two defined metrics: ‘CO2-equivalent emissions avoided’ and ‘the number of people who benefited.’ Zurich’s model is an excellent example of taking a thematic investment approach to allow them to focus on areas of specific interest or concern when embarking on an impact investment journey.11

Aegon NV is another insurer that invests company assets in Impact Investments. It deploys capital in diverse sectors like renewable energy, microfinance, green bonds and student loans to low- and middle-income Americans. About five years ago, the group decided to implement a formal strategy - which included joining the GIIN membership and setting up structures to encourage and facilitate discussions about impact.

It integrates impact into the entire portfolio instead of carving out a portion, which signals that impact is not separate or considered “play money”. Its impact assets under management now amount to about EUR 8 billion.12

AXA Insurance Singapore is an example of an insurer that offers impact investments to its policyholders. Two of its fund options enable policyholders to contribute to the UN’s Sustainable Development Goals. It is the first insurer in Singapore to do so. Through AXA’s Investment Linked Plan, policymakers can invest in Mirova Global Sustainable Equity Fund and RobecoSAM SDG Credit Income.13

How can Insurers start making Impact Investments?

In some companies, it will be top-down; it will start with the CEO and the board of directors. If they say that the company favors impact investment and that they will monitor it, then employees will start doing it. Others may take a bottom-up approach; by setting up a small team to discuss impact investing and identify ways to be active in the space.

The board of directors may consider membership of the GIIN to gain easier access to industry information, tools, and resources to enhance the capacity to make and manage impact. They may also sign up to the Principles of Sustainable Insurance (PSI) and the Impact Principles.

The Impact Principles provide a framework to help investors design impact management systems, whereby impact considerations are integrated throughout the investment lifecycle. Signatories to the Impact Principles are investors that publicly demonstrate their commitment to implementing a global standard for managing investments for impact. There are currently 141 signatories, with covered assets under management amounting to USD 420 billion.14

The PSI are a set of four principles, which outline an insurance company’s commitment to sustainable insurance. It is a strategic approach whereby all activities in the insurance value chain, including interactions with stakeholders, are done in a responsible and forward-looking way by identifying, assessing, managing, and monitoring risks and opportunities associated with environmental, social, and governance issues. There are currently 105 signatories across 40 countries.15

The board of directors may choose to adopt an impact investing company strategy. There are many resources available to assist with this. One is the Impact Investing Market Map, which was designed to bring more clarity to the process of identifying mainstream impact investing companies. It provides a practical link between the ambitions of the SDGs and real-world impact investment opportunities. The Market Map sets out ten environmental and social thematic areas and groups impactful businesses into each of these ten categories.16

The Market Map can help decision-makers choose the themes and set the impact KPIs, which will need to sit alongside the existing investment criteria such as risk and expected return, capital requirements, size, credit rating, and duration.


As risk carriers and investors, the insurance industry has a vital interest and an essential role in fostering sustainable economic, environmental, and social development. Better management of ESG issues will strengthen the insurance industry’s contribution towards building a resilient, inclusive, and sustainable society. As risk specialists, actuaries have a pivotal part to play in determining whether or not the insurance industry ends up being on the right side of history in this critical century. Undoubtedly, impact investing is a space we should urgently explore.



Read the first and second parts of this series:

Impact Investing: Can we make returns and reduce inequality?

Impact Investing by Pensions Funds – Towards a better future