What could the heightened risk and potential missed opportunities be for those who drag their feet in addressing the practical side of ESG?
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By Adhiraj Maitra and David Singh
Insurers are already taking seriously the growing scrutiny and regulatory demands of their performance through an ESG (environmental, social, governance) lens. Instances though of implementation and continual monitoring, where ESG is an integral part of business strategy aligned with the overall company values, are thinner on the ground. This current gap - between top down and bottom up - raises the prospect of heightened risk and missed opportunities for those that drag their feet in addressing the practical side of ESG into the business.
"What is your company doing about ESG?" By now, it's highly likely that if you are a senior executive working in the insurance industry, you have been asked this question in one form or another from one or multiple groups of stakeholders.
Growing regulatory pressure aside, one measure of just how prevalent the need to address this question is becoming across the business spectrum is some analysis compiled by FactSet that showed a rapidly rising trend in the number of Standard & Poors 500 Index companies mentioning ESG on their earnings calls. And that is only in the United States, despite Europe having been seen to push the ESG agenda harder with investors up to now.
Typically, insurers will be able to point to a number of workstreams they are pursuing – and are indeed doing well. This might be limiting underwriting criteria on climate or social grounds or allowing for climate and ESG uncertainty in modelling. It may be taking a stronger line on inclusion and diversity and employee wellbeing. It might be publishing a net zero ambition and enhancing reporting on climate and sustainability issues because of growing regulatory pressure. Or maybe it's adopting a stronger ESG theme as part of asset and investment strategy.
All individually are of course quite valid and further cement how central the insurance industry can be to accelerating ESG and climate transition outcomes given its role in managing risks and the large investment portfolios it controls. A cohesive strategy however must be the next step for many in the industry. By adopting such a strategy, the insurance industry can focus on safeguarding future bottom line financial performance as well as be a powerful force in societal transformation.