• Allianz Trade is cutting its emissions as part of its focus on environmental, social and governance (ESG) issues and trade credit ESG
  • The firm’s real ESG impact, though, is in the business activity it facilitates and launch of products such as Green2Green
  • Firms may soon have ESG ratings that affect their credit risk scores

Offering an insurance policy that invests in green bonds, reducing cover to the least sustainable industries, and incorporating climate change into risk models – these are just some of the ways that Allianz Trade is building ESG issues into its thinking.

The company is driving down its emissions - by January 2023, its office space will be powered by 100% renewable energy (or offset) and its vehicle fleet should at least be 50% electric by 2025.
But while these internal initiatives are important, the real climate impact of Allianz Trade - or any trade credit insurer - is in how it does business.

Trade credit climate change

Trade credit ESG is coming into increasing focus because of the vital role trade credit insurance plays in facilitating business deals.

Jorrit Baken, Chair of Allianz Trade’s ESG committee for Northern Europe, says that Allianz Trade is, for example, no longer offering project cover on upstream oil and gas projects, such as exploration of new fields.

“Allianz Trade is taking ESG very seriously,” he says.

Allianz Group has made an extensive commitment to ESG policies, setting ambitious targets on climate change for both its own activities and by restricting investment in firms mining coal that will be burned for power, or oil and gas projects in the Arctic.

Allianz Group policies are aligned towards limiting global warming to 1.5 degrees and becoming net zero no later than 2030.

A positive impact from trade credit ESG

Allianz Trade has already launched products that link trade credit and ESG in a positive way.

One is Green2Green, a single-transaction insurance product available to banks or companies working on environmental projects, such as renewable energy, energy efficiency, recycling, water treatment, and mass transit.

Under Green2Green, the insurance premium is invested in certified green bonds.
Jorrit says: “It starts with a green project, and the proceeds we receive are being reinvested in another green project, stimulating a cycle of investment.”

Under Green2Green, the insurance premium is invested in certified green bonds.
Jorrit says: “It starts with a green project, and the proceeds we receive are being reinvested in another green project, stimulating a cycle of investment.”

Allianz Trade is also offering ESG-linked surety bonds for sustainable projects, where the premium depends on whether ESG-related performance indicators are met.

These products reflect the growing realisation that trade credit plays a vital role in helping companies and economies embrace new ways of working.

To ensure continued progress, Allianz Trade has a dedicated board member, Florence Lecoutre, who has ESG in her portfolio, and sustainability is a standing item on the board agenda.

Trade credit ESG: the future

In 2020, Allianz Trade became the first credit insurer to include ESG risks into its country risk rankings, reflecting the impact on economies of excessive energy use or extreme weather events.

Currently, ESG issues are not factored into risk ratings for individual companies. This is partly for practical reasons. Allianz Trade monitors around 83 million businesses in 160 countries and many of these, especially smaller firms, don’t understand or measure their own ESG opportunities and risks.

And while studies show that companies with good ESG ratings have a better stock market investment performance, the link to creditworthiness is not yet clear.

Jorrit says: “In four or five years, it might be very normal for a company to have an ESG score, similar to a credit score, derived by external ratings agencies. Or an internal rating that Allianz Trade make ourselves. And there will be more understanding of the correlation between good ESG performance and good financial performance.”

Allianz Trade is already starting a conversation with SME customers on trade credit insurance and sustainability. Some smaller firms see ESG as a business opportunity and want to deal with aligned suppliers, whether those are supplying energy or financial services.

“We don't have a specific solution for them yet,” Jorrit says. “But we're trying to understand what they expect from us as a supplier and see how we can help them with that.”