A global insurance firm advances its ESG strategy with innovative risk modelling

With growing regulatory and reputational pressures, organisations worldwide are raising their ambitions for new sustainability targets. While many companies have publicly committed to Environmental, Social and Governance (ESG) objectives, few have a clear understanding of the investment risks and rewards involved in achieving these aims.

Recognising that environmental initiatives only succeed when business does as well, a leading global insurance company sought advice on ESG risk modelling for a large European portfolio.

The company’s leaders wanted to explore the ESG-related risks and opportunities of adopting a net-zero carbon strategy across different assets under management. They needed a comprehensive view of how to decarbonise their assets, what the associated costs would be, and how performance improvements could affect asset values. They also wanted to assess the valuation and operational cost impacts of maintaining business as usual if they decided not to invest in ESG initiatives.

Ultimately, the firm wanted a well-rounded perspective to shape a balanced ESG-focused asset management strategy that supports both financial and environmental goals.

As a global firm, the insurance company needed to understand risk exposure across a large and geographically varied portfolio. The project involved three asset classes—office, industrial and residential—with 80 properties in total spanning five European countries. Each of these 80 properties had its own specific requirements and possible decarbonisation pathways. The company turned to JLL to pinpoint and model the risks and benefits of an ESG strategy both for each property and the whole portfolio. The JLL Value and Risk Advisory team collaborated with the Sustainability Consulting, Project & Development Services, and Capital Markets teams to deliver the project with significant technical and market expertise.

The process began with research reports from JLL that detailed the connection between sustainability and value for each of the company’s asset types. The firm gained an understanding of distinct sustainability trends for both investors and occupiers, as well as regulatory pressures unique to each asset class. These reports formed the basis for modelling value impact.

JLL’s team of advisers designed a framework to analyse a range of factors, including micro-location, property-level energy performance, holding periods, rental growth, intervention dates, income trends and more.

To evaluate the value impacts of these factors across the company’s global portfolio, JLL specialists devised an innovative cash flow modelling system, illustrating 132 distinct cash flows. JLL then built the value adjustment into the bespoke cash flow model, refining it according to the effects of the green premium and brown discount.

This pioneering approach benefited from a close partnership between company stakeholders and JLL’s risk advisers, ensuring a clear understanding of the research, property drivers and data. In partnership, the team examined valuation data alongside internal rate of return (IRR) to assess both decarbonisation and business-as-usual scenarios.

Equipped with detailed information and predictive modelling, the company now has a clearer view of decarbonisation’s impact on asset value, and which properties offer the greatest opportunities to enhance value. The findings also identified where inaction could lead to higher risk.

This method delivered a targeted asset management strategy that meets both ESG and financial priorities.

_{*This solution was future-focused, but many firms have questions about the operational and financial risks of investing in decarbonisation—or not. Find out how a thorough risk assessment can help you identify ways to drive sustainability while lowering risk exposure.}