AIA Singapore ESG Integration Approach

Introduction

As an insurer, we recognise the potential impact of environmental, social and governance (ESG) issues on insurance and investment portfolios and, conversely, the potential for insurance and investment portfolios to impact the environment and society.

The AIA Singapore Enterprise Risk Management (ERM) framework considers Sustainability Risk as any ESG event or condition that, if it occurs, could cause an actual or a potential material negative impact on our business and operations.

AIA Singapore considers Environmental Risk as a category of Sustainability Risk. We define Environmental Risk as risk that arises from the potential adverse impact of changes in the environment on economic activity and human well-being. Such changes may come about as a result of climate change, loss of biodiversity, pollution and degradation of water supplies. The financial and operational impact on our portfolios and activities can arise through physical and transition risk channels.

Physical risk arises from the impact of weather events and long-term or widespread environmental changes.
Transition risk arises from the process of adjustment to an environmentally sustainable economy, including changes in public policies, disruptive technological developments, and shifts in consumer and investor preferences.

The impact of Environmental Risk can vary by geography, line of business, sector, customer characteristic and other factors.

The disclosures below are made in response to the Environmental Risk Management Guidelines (Insurers) issued by the Monetary Authority of Singapore in December 2020.

AIA Singapore Environmental Risk Management Approach

The approach to managing and disclosing Environmental Risk is integrated into our overall ERM framework.

1 Risk Governance

The sound management of Environmental Risk is achieved through clearly defined roles and responsibilities, with oversight by appropriate governance bodies.

1.1 Board

The AIA Singapore Board has the overall responsibility to establish and oversee an effective risk management framework, which includes appropriate governance arrangements, capabilities to understand, and to manage the risk profile. As this pertains to Environmental Risk, the AIA Singapore Board sets the risk strategy and provides oversight of Environmental Risk management, including setting the Risk Principle and Risk Tolerance, reviewing and challenging reports on Environmental Risk exposures.

1.2 Board Risk Committee (BRC)

The AIA Singapore BRC is tasked with supporting the AIA Singapore Board to discharge these responsibilities, in particular ensuring that material environmental risks are identified and mitigated to an acceptable level in line with the Risk Tolerance.

1.3 Financial Risk Committee (FRC) and Operational Risk Committees (ORC)

The FRC and ORC are established by the AIA Singapore BRC to support oversight and decision-making in relation to financial and operational risk respectively, both of which can be potentially impacted by Environmental Risk.

1.4 Environmental, Social and Governance Management Committee (ESGMC)

The ESGMC provides direction on AIA Singapore's strategy, oversees the development and implementation of Environmental Risk management and policies, as well as tools and metrics to monitor exposures to Environmental Risk, and ensures that ESG disclosure and reporting is in accordance with regulatory requirements and recognised voluntary standards.

1.5 Three Lines of Defence

Consistent with the overall risk management framework approach, AIA Singapore manages Environmental Risk by adopting the Three Lines of Defence model, which clearly defines roles and responsibilities for the management of Environmental Risk.

The First Line is made up of the business decision-takers who are the Risk Owners responsible for the initial identification, assessment and management of risk to ensure that the business operates within the Environmental Risk considerations as stipulated in the ERM framework.

The Second Line consists of the Risk and Compliance functions who are independent of, but work closely with, the First Line to ensure that Environmental Risk is managed appropriately within the risk appetite. The Second Line is responsible for overseeing the First Line activities and ensuring that decisions are subject to an appropriate level of governance, as well as ensuring that AIA Singapore adheres to applicable rules and regulations.

The Third Line which is the Group Internal Audit function is responsible for providing independent assurance over the robustness of the Company's ERM framework in managing Environmental Risk.

2 Risk Strategy and Appetite

AIA Singapore's Environmental Risk Strategy seeks to integrate environmental risk considerations and objectives into its operations and business strategy, both in the shorter- and longer-term. This is approached through mitigating and adapting to environmental risks and thereby contributing to the transition to a more sustainable future, as well as meeting growing stakeholder expectations that businesses demonstrate leadership and action.

In line with the overall Risk Strategy, AIA Singapore seeks to manage its Environmental Risk within tolerance thresholds. The level of Environmental Risk deemed acceptable is defined by the AIA Singapore Board's articulation of Risk Appetite, Risk Principle and Risk Tolerance.

The management of Environmental Risk is guided by the Risk Principle on Business Practice as part of the AIA Singapore Risk Appetite adopted by the AIA Singapore Board.

Risk Principle on Business Practice:

"AIA Singapore will uphold high ethical standards and implement sound internal controls to minimise downside risk from the impact of any operational failures within reasonable tolerances."

This risk principle is supported by the Risk Tolerance on Sustainability which defines a measurable benchmark that enables AIA Singapore to validate the principles such that assurance can be provided to the Board that the Company is operating within its risk appetite.

3 Risk Management Process

The chart below sets out the approach to identifying, assessing, managing and monitoring Environmental Risk across all activities that exposes AIA Singapore to material environmental risk. This may include, but is not limited to, underwriting and investment activities.

Environmental Risk Management Process

Risk Owners to identify and assess the corporate customers/ investee companies / investment portfolio Environmental Risk profile and assign a risk rating.

Based on outcome of the assessment, controls would be formulated to either (i) mitigate; (ii) avoid or; (iii) accept the risk.
Significant Environmental Risk and issues will be escalated to the appropriate governance bodies for guidance and exceptional approval.

The Environmental Risk profile will be regularly monitored and reported to the relevant management committees and the Board.
An Environmental Risk reassessment on corporate customers/ investee companies / investment portfolio will be performed regularly. The frequency of the reassessment will depend on the materiality of the Environmental Risk exposure.
If there are significant changes to the risk profile, a re-assessment will be triggered.

4 Disclosures

To support ongoing evaluation of the Company's environmental risk profile, compliance status, and overall effectiveness of the Environmental Risk management, regular disclosure on the Company's management of environmental risks to relevant stakeholders will be made at least annually.

Environmental risk disclosures are to be made in accordance with recognised standards and frameworks including, but not limited to, the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).

This information is made available on the Company's website and the Group's sustainability report.

The management of Environmental Risk within the ERM Framework was endorsed by the AIA Singapore ESGMC in February 2022 and approved by the AIA Singapore Board of Directors in March 2022.

Capacity Building

The AIA Singapore Board of Directors and AIA Singapore ESGMC will be supported by ESG risk training, including on environmental risk topics, on an at least annual basis starting in 2022.

We will also allocate resources to ensure that colleagues in roles that support ESG risk management can access quality ESG learning material through recognised professional certification and credential programmes, post-graduate courses, etc. In addition, as a member of the United Nations Global Compact (UNGC), all our colleagues will be able to access via the UNGC Academy portal a wide range of sustainability e-modules.

In January of 2022, AIA Singapore created a dedicated Head of ESG role whose purpose is to provide guidance and expertise on ESG risk and opportunities related strategy, implementation and reporting.

Promotion of Responsible Behaviour

AIA Singapore participates in initiatives and consultations by the Green Finance Industry Taskforce (GFIT) which is convened by the Monetary Authority of Singapore. We will continue our efforts to engage and partner with external stakeholders to promote mutual understanding of ESG issues.

In 2022, we will collaborate with external experts to bring a series of educational sessions and activities to our employees to help promote better awareness and understanding of environmental and social challenges.

Climate Change Risks and Opportunities

AIA's Commitment to Net Zero and the Science Based Targets Initiative

In 2021, AIA committed to achieving net-zero GHG emissions by 2050. This pledge is fully aligned with our aim of creating long-term value for the company and supporting the best interests of all our stakeholders.

AIA has also committed to the Science Based Targets initiative (SBTi). The SBTi is a global body supporting businesses to set ambitious emissions reduction targets in line with the latest climate science deemed necessary to meet the goals of the Paris Agreement. They will provide independent assessment and validation of AIA's targets and progress reporting.

Our net-zero commitment will be further embedded into our established portfolio engagement process, with the target that 100 per cent of in-scope investee companies will establish Science Based Targets for their organisations by 2040.

Coal Divestment

As of October 2021, AIA Singapore has completely divested its directly-managed listed equity and fixed income exposure to coal mining and coal-fired power businesses.

This commitment followed an extensively researched and phased approach to divestment over the last three years to address stranded assets risk specifically and manage down our investments in the most carbon-intensive sectors. Going forward we will make no new investments in businesses involved directly in either mining coal or generating electricity from coal.

These are some of the many ways our sustainable investment practice is contributing to AIA's ESG Strategy and Purpose. We believe that investing in companies with sound ESG practices will deliver sustainable outcomes and superior financial returns, and better enable AIA to meet its longer-term financial commitment.

Task Force on Climate-related Financial Disclosures

To provide transparency around our climate-related exposures, AIA Group published its inaugural climate-related disclosures in alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) in 2019. The 2021 Report provides further transparency in this area by describing our contributions and progress in line with the voluntary disclosure recommendations of the TCFD.

AIA Group's climate-related disclosures cover the four pillars that comprise the recommendations of the TCFD – namely Governance, Strategy, Risk Management, and Metrics and Targets. AIA Group also reports on group wide Scope 1 greenhouse gas (GHG) emissions, Scope 2 GHG emissions, Scope 3 air travel emissions, as well as the weighted average carbon intensity of our directly-managed listed equity portfolio and the carbon footprint of our total financed emissions.

To read the latest TCFD aligned disclosures, please see the AIA Group ESG Report 2023.

AIA Group ESG Report 2023

Next Steps

We understand that building resilience for climate change risks is an iterative process and intend to expand the scope of our risk assessment. We will monitor developments as more insurance-specific research, tools and methodology are made available. For instance, the Partnership for Carbon Accounting Financials' (PCAF's) initiation of efforts to develop a common set of guiding principles for measuring insurance-associated emissions is a welcome development. This and other evolving trends will be critical to ensure that our climate strategy adequately identifies, measures, monitors and mitigates risks, as well as responds to the market's demand for more ESG products.

Sustainable and Responsible Investment

As an insurer, we are committed to supporting the protection needs of our customers over many years. Our investment strategy reflects our belief that ESG principles underpin proactive risk management, and help deliver sustainable risk-adjusted returns.

Given this long-term outlook, we focus on prioritising businesses that practice good governance and understand the impacts of social and environmental factors on their operations.

We believe that sound governance underpins good corporate behaviour, which contributes to good results for stakeholders and reinforces our ability to achieve sustainable long-term outcomes.

Markets are increasingly aware of the potential risk and value impact of ESG factors, and their effect on profitability and investment returns. We understand that, to create long-term stakeholder value, ESG considerations must be managed and mitigated.

Read the AIA Group ESG Report to find out more about the approach to Sustainable and Responsible Investment, including AIA Group's:

processes and systems to monitor, assess and manage ESG risks;
exclusion of tobacco manufacturing, cluster munitions manufacturing, and coal mining and coal-fired power generation;
divestment from directly-managed listed equity and fixed income exposure to coal mining and coal-fired power businesses;
progress in broadening the portfolio to include investments in renewable energy, social infrastructure, healthcare and other key industries for economic development;
Principles for Responsible Investment (PRI) membership and PRI reporting;
proprietary sector-specific ESG ratings scorecard;
engagement approach with investees;
engagement approach with investment managers;
proxy voting standard; and
approach to stewardship and active ownership.

Download Board Diversity Policy

AIA Group ESG Report 2023

ESG in Underwriting

As a leading life and employee benefits insurer in Singapore, we recognise our responsibility to influence our customers to make better decisions for the environment and local communities. We will progressively explore avenues to integrate ESG criteria and risk detection capabilities in our underwriting process for corporate customers, taking into account their track record in sustainability and their willingness to mitigate identified ESG risks. We will also continue to engage corporates to encourage more sustainable business practices.