Asian life insurers back ESG scoring despite S&P pullback

Insurers say they prefer internal ESG evaluations and underline the importance of both quantitative and qualitative analysis after S&P Global drops ESG scores in credit ratings.
Asian life insurers back ESG scoring despite S&P pullback

Leading Asian insurers believe they can shoulder the load of ESG measurement independently, stressing quantitative and qualitative analysis will together remain their focus in sustainable investing.

Their remarks follow rating giant S&P Global's August 4 decision to stop including ESG scores in credit ratings, though it would maintain narrative ESG analysis in credit ratings and standalone company ESG scoring services.

“This is an area where institutional investors can demonstrate their true value, and not necessarily an area in which rating agencies excel,” said Takeshi Kimura, special adviser to the board at Nippon Life Insurance.

Takeshi Kimura,
Nippon Life Insurance

Insurers note that third-party ESG scores like those provided by rating agencies are a practical supplement, providing quick and direct comparisons among thousands of portfolio companies – useful especially to smaller asset owners with fewer in-house capabilities. However, larger firms rely on bespoke internal assessment rather than external data. 

“The rating agency data is only one source of basic and reference information,” Kimura told AsianInvestor.

Nippon Life has been a leader in responsible investing in Japan. It sets annual targets for ESG-themed investments and financing, and has an internal ESG measurement mechanism linked to the United Nations’ sustainable development goals (SDGs) and other global targets.

Kimura said Nippon Life sets "objective and measurable criteria and indicators" for each sustainability issue and conducts milestone management. However, it is difficult to set quantitative targets for sustainability outcomes, such as for biodiversity, human rights, just transitions, and certain social issues.

“In such cases, the best approach is to evaluate a company's value creation model, supplemented by qualitative information…which involves making comprehensive judgments based on a variety of information,” said Kimura, who is a former Bank of Japan executive and the only Asian board member of the United Nations' Principles for Responsible Investing (PRI).

Through engagement and dialogue with its portfolio companies, the Japanese life insurer has analysed and accumulated information on their value creation models.


In recent years, global data providers raced to introduce ESG rating services. S&P Global joined the fray in 2021, attaching alphanumeric evaluations for environmental, social and governance criteria to company credit ratings. Companies were judged on a scale of one to five, with one being the best score.

When asked why the score was dropped, an S&P Global Ratings spokesperson cited its statement, which said analytical narrative paragraphs in credit rating reports, rather than reductive ESG scores, “are most effective at providing detail and transparency on ESG credit factors”.

A Hong Kong-based regional chief investment officer at an overseas life insurer told AsianInvestor that the firm’s proprietary ESG scoring and rating system insulates the portfolios from external provider changes.

The CIO spoke on condition of anonymity since public comments related to ESG are considered sensitive for the organisation.

They noted third-party ESG scoring only serves as a supplement when there are doubts or disputes internally. Furthermore, S&P’s score lacked primacy amongst other ESG analytics firms such as specialised, industry-specific ESG data providers.

ESG metrics are still emerging and remain “fragmented” compared to consolidated credit-ratings markets dominated by S&P, Moody’s, and Fitch. Hence, a single withdrawal won’t have a major impact on the still-formative industry, the CIO said.

Nonetheless, the company monitors the market’s evolution closely and is ready to align with any player assuming dominance, though they don’t see it coming any time soon.

“As of now, we are very much relying on our own framework and continuously updating and learning data and methodology,” they said.


The CIO noted that, while ESG analysis outweighs numbers, scores are still useful in facilitating quick comparisons of a company’s ESG credentials.

For instance, if a company is rated “one” while another is rated “five” on environmental impact, the difference is self-evident. When differences are less distinct, analysis can add value, the CIO said, noting that it would be time-consuming to read every company’s narrative paragraphs in credit rating reports since asset owners can often look after thousands of portfolio companies.

Smaller institutions with less in-house resources and capabilities can be even more stretched, they added.

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While there have been voices in the market that regulators should play a role in standardising ESG ratings and smooth out variations from one provider to another, the CIO does not believe that regulators can instantly standardise the nascent field.

It took decades for the credit-rating business to discover the best approach and reach today’s level of consistency, they said. Although regulators can designate a basic framework, the CIO said the global nature of most ESG rating agencies will make it difficult for practices to be standardised by regulation.

Natalia Rajewska,
Nikko Asset Management

Natalia Rajewska, global head of sustainable investment at Nikko Asset Management, said although the industry is developing towards increased consistency and regulatory scrutiny in the long term, standardisation of ratings “might be premature at this stage”.

“ESG ratings come with plenty of challenges. For example, a one-size-fits-all for corporate governance can be challenging in Asia where we see many different flavours of governance structures,” Rajewska told AsianInvestor.

“A single lens, often based on developed markets, can at times lead to misconstrued ratings,” she added.

“What ultimately matters is that material ESG information is integrated into the creditworthiness. One risk around removing ESG ratings is that the transparency of the methodology could be lowered,” she said. 

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