Royal London says ESG may take short-term hit from energy crisis

LONDON (Reuters) - British asset manager and life insurer Royal London said on Friday that the European gas crisis may mean companies it invests in reverse course on responsible investment policies in the near term, but divesting was a last resort.

European countries including Germany and Italy are considering bringing back coal for power generation due to the Ukraine crisis, which has cut Russian gas flows.

Some companies have also said they may consume more coal, which risks a fall in their environmental, social and governance (ESG) ratings.

"Might some companies go backwards in the short term? It might be inevitable across the western world because of the focus now on energy security," Royal London Chief Executive Barry O'Dwyer told Reuters.

"We would have to speak to the management of those firms to understand how they would get themselves back on a net zero trajectory," he said in a telephone interview.

However, Royal London would be unlikely to sell out of firms as it prefers to engage with them, O'Dwyer said.

"Divesting for us is the last resort and only if management just aren't listening," he said, adding Royal London had not taken such action yet as "most blue-chip companies do get it".

Royal London, Britain's largest mutual life insurer, said its assets under management fell 9% in the first half of 2022 to 150 billion pounds ($182.13 billion), with net inflows outweighed by market falls.

Most fund firms have seen a fall in assets due to market volatility, including Hargreaves Lansdown, which reported a full-year drop in assets on Friday.

Royal London's operating profit rose 36% to 109 million pounds.

($1 = 0.8236 pounds)

(Reporting by Carolyn Cohn; Editing by Alexander Smith)