8 things that will help insurers with ESG strategy and implementation

Following our webinar ‘Why insurers can’t afford to be ESG (environmental, social and governance) spectators’, we’ve summarised the content into eight key points that should help insurers respond to the risks – and opportunities – of the growing scrutiny of their performance and identity through an ESG lens.

ESG under the spotlight

Let’s begin with the rationale for our webinar title. ‘Why can’t insurers afford to be ESG spectators?’

First off, our focus is on the letter – “E”. According to the Energy and Climate Intelligence Unit Net Zero Tracker, 54% of global emissions were covered by net zero commitments by July 2021. The push to achieve net zero emissions, and the economic and social transition that will be necessary to do so means that value, financial and client worth, in their widest sense, are being re-evaluated.

A notable feature of the COP26 meeting in Glasgow in 2021 was, for example, the heightened participation and interest of the finance sector in driving net zero ambitions and targets. Large scale investors are becoming fully attuned to assessing climate-based risks and returns. And from an insurance perspective, the “E” focus, predominantly arising from the frequency and increased severity of natural catastrophe events, has heaped further pressure on the need to try and bridge the protection gap with company values and sustainability in mind.

Another reason; regulators. Regulators around the world have the bit between their teeth on ESG issues. It’s the sign of the times, and more so than ever, as more regulatory bodies are pushing the ESG agenda by making reporting based on the Taskforce for Climate-related Financial Disclosures (TCFD) framework mandatory. Indeed, the pace at which ESG and climate regulation is changing, and new initiatives and reporting requirements are being brought to the board room table, can be perplexing to navigate. This must be the reason for a company to dig deeper in of itself.

And finally; the catch all, stakeholder management. Managing ESG with a broad church of just about everyone that an insurer interacts with requires meticulous expectation management; from shareholders who want to see evidence of ESG plans and actions, to employees that want to work for a ‘responsible’ employer, and to the public at large who are basing buying decisions on a changing value scale. Current and future clients are increasingly considering the actions and reputation of companies in their decision making and perceptions.

The implications for insurers are broad and deep, but at a high level are likely to include timely and well thought out actions on:

• The assessment of underwriting and investments with consideration of ESG strategies, risks and opportunities
• How ESG fits into and/or redefines the employee value proposition
• Understanding and meeting expanding regulatory and reporting expectations
• Short, medium and long-term plans that help achieve multi-year aspirations and avoid the need to play catch up
• Changing directors’ responsibilities and whether these need to be reflected in rewards packages

Our eight tips

Here are eight broad tips that we believe will help set insurers on their way or, more likely, advance their ESG agenda so that they are not in danger of being left on the ESG side lines – to take the full brunt of the risks and not miss out on business opportunities:

Allow for ESG approach tentacles

While the selection of eight tips is purely coincidental, octopus-like tentacles are a useful metaphor for how ESG strategy is likely reach into the nooks and crannies of any insurance business. Even so, our experience shows that knee jerk reactions are just not pragmatic, or a realistic response to the growing need to demonstrate progress to a wide variety of stakeholders, such as the effects of a change in underwriting strategy on claims reserving.

Instead, building these points into a multi-year roadmap that considers the implications from within the business has to be an iterative process. For insurers, who are increasingly being thrust to the centre of climate and ESG discussions because of their role in both providing risk capital and as major investors, the window for sitting back and seeing what others are doing is starting to close. The regulators’ tentacle may just be an unwelcome visitor.