Last updated: May 2013
Co-operative Insurance - the world’s first ethically-screened insurance products
In the most significant move for ethical consumers since our last report, the UK’s own Co-operative Banking Group has quietly changed its approach and shown a sustainable way forward for the wider global insurance industry.
In February 2011, as part of a bold new project to integrate long-term ethical and business planning across its whole, the Co-operative Group announced that it would be changing the way its insurance business worked.(1)
The funds that underpinned its home and car insurance would be ‘screened’ according to the same ethical criteria which had played a part in the rejuvenation of the Co-operative Bank. Some of the key criteria are summarised below. The whole policy is reproduced in more detail at www.goodwithmoney.co.uk/ethical-banking/
For Ethical Consumer, which has been campaigning for many years for insurance companies to consider the ethical implications of investing the huge funds they hold on our behalf, this is a very significant move.
The ‘engagement’ model of investing ethically can be a very valuable process, but it is not the same as walking away from companies whose problems lie too deep. Many people rightly view the idea of engaging with companies whose core business is oil extraction or arms manufacture with some cynicism.
And although this view has generated a whole industry of ethically screened investment funds and unit trusts around the world, no-one had yet applied the idea of a screened fund to a pot of insurance money.
The softly softly approach
There has not really been any advertising promoting this new insurance approach.
As you might expect, for us at Ethical Consumer, being too discrete may be missing both market share and the opportunity to campaign for change. There is a clear, and easily identified, market of people choosing to invest ethically. Talking to them about extending their principles into insurance seems like an easy step to take. And if there’s a chance to grow market share in this way, even if relatively small, it might make some other insurers pause for thought.
Selling off investments
The move was also made possible by a wider restructuring of all the Co-operative Group’s financial services. In 2002 the Co-op Bank and CIS (Insurance) merged into one company. In June 2011 the new company announced that it had agreed to sell its life insurance and investment (asset management) subsidiaries to Royal London.
These parts of the business, less able to divest problem shareholdings in quite the same way, have nevertheless built up a reputation of leading the field for the transparency and comprehensiveness of its engagement approaches.
Recent reports in Ethical Consumer have, for example, highlighted their work on animal testing in China and the use of kangaroo skin by footwear manufacturers. Although the deal is not completely finalised, all the indications are that the strong ethical positioning (and research teams) will continue under the new owners.
Looking at insurance companies as investors
The investment researchers at the Co-operative also look at ethical behaviour across the wider insurance sector as part of their work. Corporate Governance Manager Abigail Herron explained; “Last year Aviva Investors, once one of the main players in ethical investment, significantly decreased the headcount of its sustainable investment team and moved away from its pole position in corporate engagement and advocacy.
In general, when it comes to sustainability issues, most insurance companies’ approach is very binary; they either ‘get it’ or they don’t. They are either good performers and see the opportunities to capatalise and reduce risks or they are laggards.”
Pressed to name names about which of the general insurers was in each list Abigail described Legal & General and RSA as ‘leaders’, and Admiral as a ‘laggard’.
“L&G has previously been hit by significant flood claims and consequently has been exhibiting positive momentum in terms of incorporating sustainability factors into its business models and expanding its Responsible Investment team. Royal Sun Alliance has been investing in a Geographical Risk Analysis Tool that models climate related risk.”
Obviously, as the analyst, the Co-operative Banking Group’s products appear in neither list. But it seems pretty clear on which one it would sit. Just as the Co-operative Bank was more than ten years ahead of the rest of the banking sector with the launch of its now widely praised ethical policy in 1992, Co-operative Insurance is giving us a glimpse of what insurance companies of the future will look like.
More information on the detailed work done by the investment arm of the Group on ethical issues appears in the Responsible Investment Annual Review.
Extracts from Co-op Banking Group's Ethical Policy
We will not finance:
- any business whose links to an oppressive regime are a continuing cause for concern;
- the manufacture or transfer of armaments to oppressive regimes;
- the manufacture or transfer of indiscriminate weapons, e.g. cluster bombs and depleted uranium munitions.
We will not finance organisations that:
- fail to implement basic labour rights as set out in the Fundamental ILO Conventions
- take an irresponsible approach to the payment of tax in the least developed countries;
- engage in irresponsible marketing practices in developing countries, e.g. with regard to tobacco products and manufacture.
We will not finance any business whose core activity contributes to:
- global climate change, via the extraction or production of fossil fuels (oil, coal and gas, tar sands and certain biofuels)
- the manufacture of chemicals that are persistent in the environment, bioaccumulative in nature or linked to long-term health concerns;
- the unsustainable harvest of natural resources, including timber and fish;
- the development of certain genetically modified organisms and nanotechnology
Policy on animal welfare
We will not finance any organisation involved in:
- animal testing of cosmetic or household products or their ingredients;
- intensive farming methods, e.g. caged egg production;
- blood sports, which involve the use of animals or birds to catch, fight or kill each other;
- the fur trade.
On a practical level this required some re-organisation of its assets, including the sale of around eight core holdings in the oil and gas sector. The re-organisation is now complete and the insurance pot is now fully screened.
Barry Clavin, Ethical Policy manager in the Group’s Social Goals department explains: “Our insurance investments in companies are held as bonds [loans] rather than shares. Insurance invests for a regular income and shares just don’t give us this. Bonds are also longer-term investments. We are not buying and selling all the time, so applying our ethical screen is relatively straightforward.”