On the Front Lines of Climate Change: The Opportunity in P&C Insurers
The P&C insurance industry’s expanding growth opportunities continue to support PGIM Fixed Income's overweight positioning to the global P&C insurance industry.
As a signatory to the Principles of Responsible Investment (PRI), PGIM Fixed Income is committed to adopting and implementing the Principles, consistent with our fiduciary responsibilities. We also recognize that applying the Principles of the UN Global Compact (UNGC) and the UN Sustainable Development Goals (SDG’s) may better align clients with broader societal objectives. To this end, the PGIM Fixed Income ESG Committee (the “Committee”), comprised of both investment professionals and senior executives, is actively engaged as the internal governing body for directing and overseeing PGIM Fixed Income’s ESG-related activities. In addition to the development and governance of our new ESG rating process, the Committee’s specific responsibilities include:
Several factors-including evolving regulations, shifting dynamics across commodity markets, declining costs of renewable electrical generation, and mounting environmental concerns-continue to affect the economics of coal-fueled electrical generation. With these factors in mind, this paper addresses a primary investment-related question: Do (or will) utility bonds issued by more coal-heavy or carbon-intensive utilities trade at a discount? Or stated differently, what are the implications from the relationship between bonds issued by coal-heavy utilities and those issued by utilities with less reliance on coal?
Commonly cited ESG concerns, such as labor practices, corruption, corporate governance, and environmental stewardship, do not prominently feature in many assets common to securitization. However, such interpretations rely on an overly narrow perspective, and ESG considerations-particularly Social and Governance issues-are integral to successfully investing in securitized assets over the long term. In fact, as we discuss in this paper, we believe that securitized asset investors who ignore ESG considerations are failing to heed some of the most important lessons of the global financial crisis.