Income Insurance seeks to fill billion-dollar financing gap in climate transition

 The region skimmed its carbon intensity by 2.8%, far below the 17.2% needed.

In recent years, climate transition financing has become a critical focus for financial institutions worldwide, with only a fifth of the region’s financing gap having been filled with billions of dollars more to reach net zero. 

However, this also comes with substantial challenges. One of the primary hurdles is the diverse and evolving nature of frameworks and standards across different jurisdictions.

“The various standards across jurisdictions can create difficulties in establishing a common standard to evaluate all $40b of assets we manage. Some standards may work in certain markets while others may not be as applicable,” David Chua, Chief Investment Officer at Income Insurance told Singapore Business Review in a recent interview.

/Income Insurance. David Chua, Chief Investment Officer.

Income Insurance has set ambitious targets to invest SG$100m (US$74.6m) in community initiatives by 2030 and S$1b (US$746m) towards climate transition financing. This investment aims to drive decarbonisation efforts and promote environmentally resilient practices.

“We also work with other global fund managers who have developed various ways to integrate ESG into their investment processes. Some are more targeted towards climate transition, others towards Asia, and so on. We engage with them actively to ensure they are doing what they claim, being mindful of issues like greenwashing,” Chua said.

As an anchor investor in the Fullerton Carbon Action Fund, Income Insurance is actively working to achieve decarbonisation in its portfolio companies as it pursues attractive risk-adjusted returns for its investors.

The company has also set an interim goal to reduce absolute greenhouse gas emissions in its public assets portfolio by 20% by 2025. This will be achieved through active engagement with external fund managers (EFMs) to target the top 20 carbon emitters within its portfolio.

Stringent investment criteria have been established, preventing new investments in companies deriving significant revenue from thermal coal and oil sands production.

To address its operational carbon footprint, particularly in data centres which account for approximately 7% of Singapore’s total electricity consumption, Income Insurance has adopted a cloud-first strategy.

The company implemented an energy monitoring system to enhance real-time energy utilisation efficiency. It also prioritised the use of Green Mark-certified materials in office renovations, recognising that buildings contribute to about 20% of Singapore’s carbon emissions. Income Insurance’s efforts extend to promoting sustainable practices amongst its customers and the broader community. 

Income Insurance introduced a three-year roadmap to develop insurance products tailored for electric vehicle (EV) owners, supporting the acceleration of vehicle electrification in Singapore. Its usage-based motor insurance offers flexibility for EV owners, encouraging lower mileage and reduced carbon emissions.

“On the product front, we recently launched a global income sustainable fund, and we’ll continue developing products like these to meet market demands. In underwriting, a core aspect of our business as the top motor insurer in Singapore, we're developing a product roadmap for electric vehicles. Whilst EV adoption in Singapore differs from the Philippines (for example), we aim to provide insurance solutions that encourage and incentivise more sustainable behaviour among motorists,” Chua said.

The company has enhanced its capabilities to assess environmental risks, particularly in flood-prone areas, enabling proactive risk management for high-risk customers.

To support sustainable investments, Income Insurance launched the JPMorgan Global Income Sustainable Fund, focusing on lowering carbon footprints whilst providing long-term capital growth.

Income Insurance’s social commitment is underscored by its substantial community investments. In 2023, the company invested S$7.9m (US$5.89m) through its Income OrangeAid platform. These funds supported various initiatives, including education for underprivileged children and youths, senior well-being, and environmental causes.

The company’s approach to insurance has led to the introduction of a new suite of products. In 2023, Income Insurance launched the Complete Cancer Care policy, extending guaranteed post-cancer protection, a first in Singapore. This initiative supports cancer survivors as survival rates improve. Additionally, the SNACK Self Care Pack, Singapore’s first standalone mental wellness insurance plan, addresses the growing need for mental health support.

Income Insurance is also focused on ensuring seniors have access to adequate insurance coverage. In 2023, the company’s underwriting approach allowed nine out of ten seniors who applied for life insurance to receive coverage. Furthermore, the number of in-force policies for seniors increased by 4%, and coverage against disability risks saw a significant rise.

Challenges

One of the significant challenges in climate transition financing is the lack of meaningful and credible data, especially in private markets.

Chua emphasised the need for detailed data on carbon emissions and the steps companies are taking for the climate transition. “Data collection is a significant part of what is needed. There is a cost associated with data collection, and the massive amount of work required needs to be funded,” he added.

To address this, Income Insurance is leveraging progress made by data providers like MSCI and creating a feedback loop with their fund managers to ensure effective investment outcomes. “Achieving the first $1b in climate-aware investments is just the beginning; there will be more billions to come,” Chua stated.

They are also exploring sustainable products for their customers, such as ESG-focused investment link funds and insurance solutions for electric vehicles.

Chua highlighted the importance of a delicate approach to climate transition in Asia, recognising the diverse stages and paces of different markets. “It's essential to navigate these complexities carefully because well-intentioned actions can inadvertently lead to unintended negative consequences,” he cautioned.

What the future holds

Looking ahead, Income Insurance plans to enhance its support for Singaporeans' retirement adequacy and mental well-being through financial protection and strategic community partnerships.

In 2022, Asia Pacific reduced its carbon intensity by 2.8%, far below the 17.2% needed to limit global warming to 1.5°C above pre-industrial levels, according to PwC. The same report highlighted the necessity for a six-fold increase in decarbonisation infrastructure and investments in the region. As calls grow for major economies to shoulder more responsibility, the private sector will need to provide up to 90% of the finance flows for climate investment in emerging markets and developing economies.

Whilst climate change is a global and regional issue, markets in Asia are at different stages of progress due to factors such as legacy energy grids and economic dependence on fossil fuels and heavy industries.

As investors, it's important to engage fund managers and investee companies with a nuanced understanding of this diversity. “A cookie-cutter approach” doesn't work; imposing uniform metrics or standards can be misaligned with local realities. Navigating these complexities carefully is crucial to avoid well-intentioned actions leading to unintended negative consequences.

As Chua aptly put it, “This is just the beginning of a multi-year, even multi-decade transition for our investments.”