- Allianz’s ESG board chair, Günther Thallinger, makes his case for investor engagement but says it has its limits.
- Thallinger says ending fossil fuel subsidies and pivoting them into renewables financing should be top of policymakers’ to-do lists.
- Allianz has no plans to establish its own ESG data gathering process, says Thallinger, urging investors to work together towards standardised ESG reporting.
German insurance giant Allianz – already widely recognised as a leader in business and investment sustainability – was quick to condemn unequivocally President Vladimir Putin’s war on Ukraine, despite having substantial operations in Russia.
The firm scores highly in ESG terms for its investment and underwriting by organisations such as activist group Insure our Future, non-profit ShareAction and opinion provider Sustainalytics (see charts below). Allianz also ranked top among insurance companies in the Dow Jones Sustainability Index in November last year and has strongly tightened its policy on coal underwriting in the past year.
The man leading both the company’s sustainability strategy and spearheading its response to the 24 February invasion is Günther Thallinger, chairman of the group ESG board. He also chairs the Net-Zero Asset Owner Alliance (NZAOA), a UN-convened group of 71 institutional investors with around $10.4trn under management.
Thallinger sat down with Capital Monitor in Munich last week to discuss issues such as climate policy and what the Ukraine war means for the divestment-versus-engagement debate that is front and centre these days for responsible allocators.
Stance on Ukraine
In a LinkedIn post on 26 February Thallinger supported specific action against Russia and promised Allianz would provide financial support for the victims of the invasion. At the end of February, Allianz duly pledged €10m ($11.04m) – as well as a further €2.5m to match its employees’ own contributions – for humanitarian purposes to support Ukraine.
That may seem small fry for a company with €2.25trn under management – including €809bn in its insurance general account and most of the rest accounted for by fund houses Allianz Global Investors and Pimco – but it substantially outstrips the €6m, €3m, $1m and $5m pledged by rival insurers Axa and Generali and banks Citi and J.P. Morgan, respectively.
What’s more, the principled stance taken by Allianz and others makes for an even starker contrast to the policy of certain financial institutions. British bank HSBC, for instance, is still resisting calls to close its Russia operations and staying silent on whether it will ditch stakes in Russian oil and gas companies. The company has even reportedly softened language in its research reports on Ukraine, including changing the word ‘war’ to ‘conflict’, it emerged this week.
Allianz, meanwhile, said in mid-March that it had put a stop to insuring new business in Russia and was no longer investing there for its own portfolio. Doing so was not an easy choice, admits Thallinger, who has been with the group since 2009, first as CFO then CEO of Allianz Investment Management, which oversees the insurer’s proprietary investment portfolio.
“We are really troubled by the decision-makers [in the Russian government], but not by the Russian population,” he says. “We want to support the Russian people, to offer them our insurance services. Now we are simply trying to support what international political experts say are the necessary measures.”
Meanwhile, the war has given additional impetus to the imperative to reduce emissions of harmful climate gases by accelerating the switch to renewable energy, Allianz said in an article on its website on 21 March. “Namely, to reduce or end dependence on dictatorships or authoritarian regimes as soon as possible.”
Asked what he felt the key takeaway from the Ukraine crisis was for investors, Thallinger said it meant that one’s ability to rely on governments had been reduced. “It makes it really difficult to assess whether certain jurisdictions are ones where you want to be invested. This is one of the bigger issues for a global investor like Allianz.”
Most notably, perhaps, it poses uncomfortable questions for capital allocators over China, given Beijing’s potential support for Russia and widespread concerns that President Xi Jinping could seek to subsume Taiwan by force. The head of BlackRock’s Investment Institute and high-profile London financier Helena Morrissey, for instance, are among those to have flagged concerns on this front.
The divestment question
The ethical questions over Russia also cut to an issue at the heart of the divest-or-engage debate: at what point does one decide that engagement is not working?
Clearly, for most companies and investors – though not yet all – one country launching an unprovoked attack on another is reason enough to cut business ties with the aggressor. But, as has been widely argued, Putin has given notice several times before the latest invasion of his regime’s bellicose inclinations, most obviously through the 2014 annexation of Crimea.
Like most investors, Thallinger is wholeheartedly in the engagement camp. But he concedes that there must be a point when further action may be required: “We usually engage for two years, and if we don’t see any progress, then we walk away. This is also what [$65trn investor collective] Climate Action 100+ proposes, and this is what we bring to the Net-Zero Asset Owner Alliance.” Similarly, Sweden’s state AP pension funds set a four-year engagement limit.
Thallinger argues that engagement is ultimately more effective than divestment for bringing about positive change and having real-world impact. The market is so big that even if a large number of investors were to walk away from an asset, that would not be sufficient to have enough impact, he adds.
“We do not want to name and shame companies,” Thallinger says. “We want to work with them so that they transform. What we would like to achieve is that companies understand that there are groups of investors they can rely on, so that if they go for a certain change, those long-term investors will support them.”
And, for investors to engage properly, they need to understand the business processes of the corporation in question, Thallinger says.
“To require that a company’s emission intensity needs to go down is only the starting point. As an investor, one also needs to be able to have a meaningful discussion as to how such an intensity reduction can be achieved, how much time that would require, and whether an investor can believe it will happen.”
ESG data falling short
As might be expected given his chairmanship of the NZAOA, Thallinger stresses the importance of investors working in concert to achieve climate goals. The more fragmented their approach, for instance, the harder it will be to standardise climate data reporting – one of the three ‘policy requests’ that Allianz sees as key to helping the world achieve net-zero emissions.
That is one reason why Allianz is unlikely to establish its own emissions data gathering process, Thallinger says, “because the quality [of data] is not where we want it to be and we believe it will improve in line with standardised requirements anyway”. He cites as examples Europe’s Corporate Sustainability Reporting Directive, which is due to go live in 2023, and the US-based International Sustainability Standards Board, which was launched at the Cop26 summit in November.
Similarly, Allianz is – alongside the likes of technology giants Amazon and Microsoft and rating agency S&P Global – a leading member of the Open Source Climate platform (OS-Climate). Announced in September 2020, the initiative uses artificial intelligence, open-source analytics and open data to help better manage climate risks. Since its launch it has welcomed new members, including Goldman Sachs, Federated Hermes, EY, BNP Paribas, NZAOA, London Stock Exchange Group and Airbus.
There are some major institutions missing from the top climate-focused investor groupings, however, that Thallinger feels would help drive policy. Norges Bank Investment Management (NBIM), which allocates Norway’s $1.3trn sovereign wealth fund and is known for its long-standing environmental focus, is one notable absentee.
“I would love it if NBIM were to join the NZAOA,” Thallinger says. “How do we really shape the market’s approach to sustainability? Certainly not by everybody running alone. Irrespective of size, we need to work on this together.”
Indeed Thallinger made a public appeal to the Norwegian institution – and other sovereign wealth funds – in October, saying they should be putting their $10trn or so of assets to better use in tackling climate change.
Carbon pricing and subsidies policy
Also on Thallinger’s wish list: an internationally agreed carbon price and an end to fossil fuel subsidies.
A concerted approach – from policymakers above all – would be needed to achieve the former, but agreement appears unlikely from the US, he says, referencing a conversation he had with environmentalist, author and academic Bill McKibben that Allianz published on 21 March.
“Nevertheless, the price of carbon and other elements in this context, like the European Carbon Border Adjustment Mechanism, are really important because otherwise we will continue to face arbitrage between different jurisdictions,” Thallinger says.
Yet Thallinger sees ending fossil fuel subsidies as the most important of Allianz’s three policy requests now because this capital is “going completely in the wrong direction – and it is an enormous block of money. It could be used to kick-start a dramatically faster transition to renewable energy.”
Some $650bn is spent annually worldwide on subsidising energy sources, but only $170bn goes to renewables, according to Allianz research published in July last year.
It is refreshing to hear such a large and influential asset owner as Allianz speak so frankly about what is required from policymakers, the corporate world and its investor peers.
Thallinger sees this is as the insurer’s responsibility as “a special form of activist investor” focused on sustainability. After all, he says, “an activist investor who does not communicate is not particularly active”.