Andy MacFarlane: You need the right regulatory framework, the right goals, targets. For a multinational like us it makes your mind boggle when you see all the different regulatory frameworks and the differences between them. But I agree there’s potentially an opportunity for Bermuda.

If you have a framework that works and encourages investment or insurance and reinsurance opportunities, others may follow. The link between ESG and insurance-linked securities is also interesting.

There’s a lot of work to be done. There are many differences, but they are subtle and this definitely creates a risk of greenwashing. With all this in mind, to what extent can we turn what we have on the Island into an advantage?

Andrew Smith: It is a challenge. If you’re a regulator assessing whether an insurer is going to be able to pay a claim, then it’s easy. The more capital they have, the better their solvency. ESG factors are much more complex and nuanced.

With a regulatory framework it’s difficult to determine with clarity what’s good and what’s bad.

Michael Neff: I agree that’s a huge problem: how do you agree on a set of metrics that everybody can look at and say: “OK, that’s doing the right thing”?

Ariane West: The ones that are, in my opinion, well thought-out, aren’t necessarily trying to place a value judgement or an assessment, it is more about disclosure: finding the information and allowing others to evaluate that. In terms of Bermuda’s role, we proved we can bridge different regulatory systems—so doing that in the ESG space is a huge opportunity for us.

Ralf Kuerzdoerfer: Let us not forget our role as a regulator: to protect policyholders. A green company might be appealing but might be more likely to fail than a brown company. If there are incentives for us to allow certain things, that might go against the purpose of regulation.

Neff: Yes, but there is prudential regulation and then there is a conduct regulation. And how you would manage those two things?

West: Nobody would suggest that you can lose sight of the primary goal. But maybe we need a broader scope of criteria, a different set of timelines. Perhaps regulations as they’re set now are underweighted in terms of the long-term risk of so-called brown investments because they are not appropriately weighting the future risks.

MacFarlane: You’re talking about the financial stability of the industry. Without green investment and without a transition we won’t have an industry at all. We need to balance incentives to encourage the transition against the demands of prudential regulation. But I definitely agree there needs to be a way you balance that need for incentivisation against prudential regulation.

Neff: Question: if you want a high ESG score would you compromise on expected return? That typically ends up being the conversation with the customers. And sorry, you can’t have both.

Most of our clients have long investment horizons because they’re independently wealthy. I’m just simply saying that the trade-off is a very real challenge.

Smith: Positive investments will become more appealing when the value goes up—and that happens when you ration something due to demand. That is what has happened with carbon offsets. Companies want to be carbon-neutral. They are looking to reduce emissions but for anything they can’t reduce, they will offset. And that’s even without a mandatory framework.

That is then funnelling money into typically nature-based projects which are investing in the green economy and improving the environment.

A lot of that is happening voluntarily; the next stage will be more encouragement and measuring the impact of projects, whether it’s reforestation, sea grass, mangroves, whatever it may be. A lot of these projects are good in terms of either reducing carbon dioxide or protecting coastal communities. But you’re channelling money to the right issues.

West: The value of carbon credits has increased dramatically in voluntary markets in addition to markets where purchase of credits to offset carbon profile is mandated. In a short space of two years there has been a significant jump in the value of those credits driven by voluntary uptake. That is partly because there’s an expectation that it could become mandated.