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Environmental,
Social and Governance (ESG) in insurance – an opportunity or threat?

Our viewpoint

Our recent roundtable event uncovered some great insights from CROs on the impact that external challenge on ESG issues was having on their firms.

In addition to the general increase in ESG reporting, CROs observed the most common effects were: 

  • market scrutiny on renewal of specific business segments (eg coal) 
  • difficulty in keeping up with responses, given the variety of challenges raised 
  • opportunities created through ESG approaches being a positive differentiator 

Sharing real-life experiences really brought these complex issues to life.    

There were three points that jumped out to me from the discussion: 

1. Pressure on ESG issues is not just from investors but also from staff 

Environmental and diversity issues are fast becoming a primary focus of employees. One CRO noted that the most popular question at a recent all-staff meeting was on the company’s position on continuing to provide cover to the coal industry. It’s important that firms ensure all their policies (and messaging) on these issues consider the perspective of all the interested stakeholders, including its own people. 

2. The issues are complex, and policies need careful thought 

There is a big difference between not writing any new business in certain sectors and not renewing existing policies, but this isn’t always clear from headline-grabbing statements on ESG policies.  In addition, where should firms draw the line for companies which operate over multiple sectors, only some of which are subject to ESG sensitivities?  There are also potential unintended consequences on industry sectors of a mass exodus of insurance providers.  For example, (unfairly?) rewarding those insurers left behind through higher profits due to less competition and/or stifling the industry sector’s own transitions to more sustainable operating models. 

3. The data you want often isn’t readily available 

The insurance industry is used to having data it its fingertips, but this doesn’t seem to be the case yet in an ESG environment.  CROs noted difficulties in capturing key metrics – for example office utility usage statistics were typically based on estimates as landlords either didn’t have or wouldn’t share the relevant data.  This uncertainty is also an issue for investors: according to a recent LCP survey, 54% of investment managers are making extensive adjustments to the ESG data they receive from third parties.  

Best practice is yet to emerge.

Our discussions highlighted ESG as a series of complex issues which need a lot of careful consideration before the right sort of change can be brought about.  There was no clear consensus on best practice and our discussions concluded that the industry has a long journey ahead. 

I’d love to hear your thoughts or about approaches you’ve seen so that we can work together as an industry to address these important challenges. 

 

LCP Responsible Investment Survey 2020

LCP Responsible Investment Survey 2020

Thought Leadership

Getting behind the spin: Are investment managers delivering on their responsible investment claims?

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