The UK insurance sector is making notable strides in embedding sustainability across investment, underwriting and risk management, according to Insurers for Purpose – Navigating sustainability integration across the insurance sector, a report by Pensions for Purpose commissioned by Federated Hermes, Fidelity International, Gresham House, Mercer, SAIL Investments and Solas Capital.
Issues once primarily seen as reputational are now recognised as material financial and strategic factors, shaping investment strategies, underwriting policies and enterprise-wide risk management, as highlighted in the Pensions for Purpose report.
Based on 20 in-depth interviews across life, commercial, savings, mutual, reinsurance and annuity providers, the report by Pensions for Purpose explores how insurers embed sustainability objectives across governance, culture, investment processes and risk frameworks while navigating structural and regulatory challenges.
The findings indicate that senior leadership engagement, risk management expertise and regulatory evolution have been decisive in establishing sustainability as a core business priority. Boards and CEOs are increasingly involved through dedicated sustainability committees and governance structures that integrate climate risk alongside financial risk.
Participants noted that while Solvency UK ensures prudence, it is neutral between high- and low-carbon assets. According to the Pensions for Purpose report, this creates a regulatory gap where capital requirements safeguard balance sheets but do not differentiate between projects that drive the transition and those that perpetuate fossil fuel dependence.
Insurers are calling for clear, principles-based guidance from regulators, including clarity on fiduciary duties, incentives for transition investments, reduced reporting burdens, actionable scenario insights and consistent benchmarking. These steps would help convert sustainability ambitions into actionable investment strategies and strengthen the case for sustainability-positive assets.
The Pensions for Purpose report notes that most insurers focus on screening and exclusions rather than actively targeting positive environmental or social outcomes, though some exceptions are emerging. Larger firms are progressing faster due to greater resources, while smaller firms remain committed despite compliance and capacity challenges. Many UK insurers prefer the term responsible over impact or ESG, which some perceive as politicised.
Firms are starting to align climate strategies across investment and underwriting functions, although investment teams are generally further ahead. Climate risk is managed through stress testing, TCFD reporting, stewardship activity and allocations to transition-aligned and Article 8/9 assets. Insurers seek principles-based guidance, clearer fiduciary duties, incentives for transition investments, reduced reporting burdens and consistent benchmarking to translate ambition into practical action.
Bruna Bauer, Head of Impact Lens, Pensions for Purpose, said: “Insurers play a central role in a resilient financial system. As risk managers, they have extensive experience integrating climate considerations into stress tests and risk registers. However, they are now seeking clearer guidance and stronger incentives to embed sustainability into their asset allocation, including nature-positive and transition assets. Their ask is clear: clarity on fiduciary duty, incentives for transition investments, reduction of reporting burdens, actionable scenario insights and consistent benchmarking.”
Doug Anderson, Executive Director – Head of International Consultant Relations, Federated Hermes, commented: “Insurers are increasingly incorporating sustainability goals into their investment strategies. Beyond exclusions, structured sustainable approaches and strong engagement, especially with transitioning companies, are key. Regulatory incentives could further unlock sustainable opportunities across markets.”
Heather Fleming, Managing Director, Institutional Business, Gresham House, noted: “Greater collaboration between insurers, asset managers and policymakers will be essential to ensure regulation evolves in step with the market. A principles-based approach that recognises the inherent stability and value of sustainable real assets would help to unlock meaningful capital flows, and accelerate progress toward shared transition goals.”
Ghislain Perisse, Head of Insurance Solutions Europe, Fidelity International, said: “As long-term buy-and-hold investors, insurers are increasingly focused on how sustainability risks affect their future capital. In order to minimise the risks, many have highlighted the need for forward-looking and qualitative assessments of these risks within their investment portfolios, that do not rely solely on backward looking data and company commitments. Combing this with an active, flexible approach to investing sustainably can help insurers respond to a fast-changing environment and better manage risk/reward trade-offs within their portfolios.”
Vanessa Hodge, Sustainability Integration Lead, Mercer, added: “This report by Pensions for Purpose provides valuable insights into insurers’ views and priorities when it comes to sustainable investing, and many of the themes highlighted align with the discussions we are having with our insurance clients… Overall, many insurers have made good headway around incorporating sustainability criteria within investments, but this is still a work in progress. Areas around policy objectives, risk measurement and integration with underwriting risks remain of focus for most non-life insurers.”
Michael Schlup, Chief Sustainability Officer, Member of the Investment Committee, SAIL Investments, said: “This report underlines that climate and nature are now core prudential issues, not niche ESG topics. From where we operate in agriculture, forestry and land-use supply chains at risk of deforestation and disruption, we see that every pound of capital can either entrench those risks or actively reduce them. The challenge, and opportunity, is to turn real-economy resilience into investable, scalable solutions that insurers hold with confidence as an asset on their balance sheets.”
Paul Kearney, Partner & Co-Founder, Solas Capital, added: “The matching adjustment (MA) eligibility constraint identified by insurers points to a structural challenge: many climate-positive assets simply do not meet the criteria for fixed, predictable cashflows and investment-grade ratings that MA portfolios require. Yet this constraint also clarifies the pathway forward: assets that can meet these requirements while delivering climate impact become relevant to insurers, with energy efficiency infrastructure debt representing a compelling example.”
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