How AIA Malaysia incorporates sustainability in portfolios
While regulatory frameworks are helpful to create a tangible ESG and sustainability strategy, simply divesting from any investment incompatible with the framework might not be the most constructive approach.
That was the key message from Junaid Iqbal, director and head of sustainability at AIA Malaysia when he spoke at the ESG Evolve 2022 event by Kexxel Group in Kuala Lumpur on December 6.
Iqbal praised the framework that Bank Negara, the regulator for financial institutions in Malaysia, had created for classifying investment sustainability. While the framework provides direction, AIA Malaysia also targets a “just and orderly transition” of portfolio investments, Iqbal said at a panel discussion.
“It is easy to say something is not green at all and drop it immediately, but it is a whole other thing to try and do it in an orderly manner. There is a possibility to move what is not green into a greener spectrum by engaging with companies that we have invested in,” Iqbal said.
Bank Negara’s climate change and principle-based taxonomy is a classification system for all economic activities. Financial institutions, including insurers, are required to classify investments or lending they make on a spectrum where they will be classified on a scale from C1 to C5. The scale represents the different levels of contribution of economic activities towards climate and environmental objectives.
Only economic activities that meaningfully contribute to climate objectives without causing significant harm to environmental objectives, in the immediate and intermediate future, can be categorised as C1. Bank Negara published a financial sector blueprint which envisions that by 2026, most economic activities will be rated from C1 to C3.
FROM GREENWASHING TO GREENHUSHING
Another advantage of regulatory frameworks for ESG and sustainability is that they create an objective standard at a time when ESG implementation in many cases is being criticised for being little more than greenwashing.
“The rise of the term 'greenwashing' tells us that there has been an erosion of trust across the world. Regulations can really act to prevent greenwashing” Iqbal said.
Greenwashing is when a company claims to be environmentally conscious but isn't making any notable sustainability efforts.
Frameworks and regulations for sustainabillity already exist; insurers just need to ensure they follow these frameworks with “a granular and layered thought process," Iqbal said. Credibility will come from providing evidence for whatever is claimed, he noted.
“The opposite of greenwashing is now being referred to as greenhushing. It is another dangerous thing where people are so scared about what they are doing that they don’t talk about anything at all. You don’t want that either, so the ideal thing is to follow a framework that gives you credibility,” Iqbal said.
He pointed out the usefulness of the Science Based Target initiative, where organisations sign up to follow a process with governance checkpoints set up along the way to reduce emissions. The AIA group globally signed up for this initiative in 2021 when it made a net-zero commitment by 2050.
The same year, AIA decided to fully divest from coal-powered businesses and removed them from its portfolios. Prior to this, the insurer signed up for the UN Global Compact in 2016 for a framework to start reporting on sustainability efforts, Iqbal explained.
In 2018 AIA endorsed the taskforce for climate-related financial disclosures and started reporting on its Scope 1, 2 and 3 emissions, according to the Paris Agreement.
“AIA has a very large presence in the Asia Pacific region. One of the primary areas of impact is in investments. The group has more than $200 billion worth of investments, so we can determine whether these investments are going towards causes that aid the environment or causes that harm the environment,” Iqbal said.