Professor Lapman Lee is a Professor of Practice in ESG and FinTech at the Hong Kong Polytechnic University and a convenor of its Sustainable Finance Centre.
This edition of the Sustainable Insurer Interview is with Alger Fung, Chief Executive Officer of AIA Hong Kong & Macau, with whom I had the pleasure to exchange thoughts on AIA’s ESG strategic priorities and real progress made; risks, challenges, and opportunities faced by the insurance industry in the sustainability journey; and the role of insurers in the fight against climate change.
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Lapman Lee: AIA has a triple role as an insurer, investor, and itself a responsible company. Can you share your ESG strategic priorities and concrete progress to move the needle?
Alger Fung: Our ESG Strategy includes a clear programme of goals, meaningful commitments, and actions across five key pillars:
- Health and Wellness:
- Under the pillar of Health and Wellness, we engage, inspire, and deliver better health outcomes. AIA Vitality plays an important role and in 2021 we saw a year-on-year increase in the number of AIA Vitality Customers in Hong Kong with either one biometric result from unhealthy to healthy OR Vitality age improvement:
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- 34% of at-risk AIA Vitality members have moved to a healthy BMI range
- 67% of at-risk AIA Vitality members have seen their blood pressure levels improve
- 35% of at-risk AIA Vitality members have seen their cholesterol levels improve
- 70% of at-risk members have seen their glucose levels improve
- We also champion financial inclusion and expand access to quality care, producing a wider positive impact on society, employees, agents, partners, shareholders, and our communities
- A major initiative in this area is AIA One Billion, that our ambition is to engage a billion people to live healthier, longer, better lives by 2030 across all 18 markets, with the aim of improving physical, mental, and environmental health as well as financial inclusion.
- Sustainable Operations:
- We reduce the environmental footprint of AIA’s operations as well as incorporate ESG factors in sourcing considerations. We are also one of the largest life and health insurers in the world to commit to achieving net zero by 2050
- E.g. in Hong Kong, accelerating our digital transformation, such as e-adoption of our buy, service and claim transactions, has led to saving over 230 million pieces of paper over three years (2018-2020), which is as tall as 125 blocks of AIA Central when we stack it all up. Today, nearly 100% of insurance applications and almost 90% of claims are paid via digital platforms.
- Sustainable Investment:
- We deliver long-term value by allocating capital to companies that commit to sustainable outcomes, investing for the future and lowering our exposure to the risk of stranded assets in a future low or zero carbon economy
- E.g. the AIA Group has completed divestment of directly managed listed equity and fixed income exposure to coal mining and coal-fired power businesses, seven years ahead of our planned schedule
- We have also designed a proprietary ESG rating scorecard as a first step to investment screening.
- People and Culture:
- We empower our people to succeed through fostering a learning environment, ensuring equitable and fair processes for employment and progression and a diverse, inclusive, and supportive culture
- 60% of our employees and more than 60% of Executive Committee members in HK are female.
- Effective Governance:
- We ensure that AIA continues to operate to the highest standards of business practices, both in terms of its engagement with stakeholders, and how we manage risks. This provides the necessary management oversight, incentives, organisational accountability, data governance systems and transparent reporting to enable us to succeed.
LL: Taking the discussion to the insurance industry level, what do you perceive as the key challenges and opportunities as the industry moves towards becoming more sustainable?
AF: Sustainability is a broad and complex topic. As ESG is becoming more and more an expected business requirement and a significant driver of value, we must ensure we meet challenges as they emerge to unlock the potential of ESG for a more sustainable future. Some of these include:
Identifying, Collecting, Compiling and Reporting ESG Data
- While ESG reporting has become increasingly important, many companies find it challenging and difficult to collect and analyse ESG data for reporting
- According to a recent PWC study, about 60% of the companies think that data collection is heavy in terms of workload; and 48% of the companies think that different data calibres and boundaries create difficulties for analysis
- The study also noted increasing use of ESG digital tools to improve ESG data quality. And independent third-party assurance can further increase the credibility and transparency of ESG reports – which is being proposed in the 2020 edition of the ESG Reporting Guide by the HK Stock Exchange.
Keeping up with the Ever-Changing Landscape of ESG
- ESG is a relatively new and evolving concept. Companies should keep abreast of latest local and regional ESG-related regulations (e.g. HKEx’s ESG Reporting Guide), ESG reporting standards (e.g. Task Force for Climate-related Financial Disclosures) and industrial best practices, and evaluate risks and opportunities that may arise from these local/global trends.
Engaging Different Stakeholders on the Same Journey
- As stakeholder expectations and attitudes around ESG evolve, companies must look for ways to listen to and monitor the stakeholder landscape – from their largest investors down to front-line employees and consumers.
Shaping the Right Mindset and Fostering the Right Culture among Staff
- Shaping the right mindset and culture calls for highly visible commitment from senior management. The ESG strategy should get the blessing and support of management and the board of directors; and a sense of ownership should be cultivated among department heads and middle managers.
At AIA, we believe ESG offers opportunities for meaningful change and impact:
- Portfolio company engagement: AIA believes that active engagement with investee companies is a more effective mechanism to promote, develop and enhance ESG-related business practices
- We should also always keep pace with changes in the wider social and environmental context, to seize the opportunities we as insurers have, to make a positive impact
- Climate change: We must act quickly to develop targeted insurance solutions that mitigate the impact of climate change on sickness and life expectancy while helping customers become more resilient
- Ageing and inequalities: Providing greater access to quality care, relevant and timely information, diagnoses, treatment, and rehabilitation.
LL: With COP27 just behind us, what role can insurers play in the fight against climate change?
AF: AIA is deeply rooted and exclusively focused on Asia, which is home to 60% of the world’s population and is a significant contributor to total greenhouse gases, placing this region on the frontline of the climate crisis. Estimates suggested that 55% of climate transition investment is needed in Asia. (Source: McKinsey & Company – Could the next normal emerge from Asia)
- Climate change is the greatest global health threat and the biggest environmental crisis of our time and insurers are at the forefront of this challenge. We are the sector most exposed to extreme weather events, and, at the same time, are responsible for developing targeted insurance solutions that mitigate the impact of climate change on sickness and life expectancy while helping customers become more resilient
- The industry needs, for example, to adopt a comprehensive climate risk assessment approach with longer time horizons. This means strong scenario analysis methodologies need to be developed to strengthen understanding and manage underwriting exposure
- To address Climate Change, we’ve further broadened our portfolio inclusions (as part of our Sustainable Investment effort) and have also stepped up our Sustainable Operations:
- As part of our Sustainable Investment effort, as of 2021 AIA Group has over US$5.2 billion invested in a combination of renewable energy, green, social and sustainability bonds
- In terms of our commitment to Sustainable Operations, we are reducing the environmental footprint of AIA’s operations as well as incorporating ESG factors in sourcing considerations:
- 100% of our buildings and redevelopments will be green certified
- We are committed to achieving net zero by 2050
- In terms of cutting carbon footprint, we are at the forefront of going digital – which has considerably cut down the use of paper while enhancing operations efficiency. 77% of our buy, service and claims transactions were submitted digitally, saving 1,200 tonnes of paper across the Group
- As shared, for Hong Kong, in 2021, almost 100% of insurance purchase was via e-submission and close to 90% of claims were paid electronically. And we shall see further increase in e-adoption in the coming years. As for our agency force, from recruitment to training to general communications, we are all going paperless
- We also plan to engage Tier 1 suppliers on ESG performance.
LL: Alger, I truly enjoyed our discussion and look forward to AIA and the broader Hong Kong insurance industry taking a regional leadership role in the fight against climate change and live AIA’s purpose to help people live healthier, longer, better lives.