The integral bond between insurance and Environmental, Social and Governance (ESG) initiatives is ever-reforming, and in recent years every evolution of the relationship only brings these structures closer together. A recently published Marsh study examining how UK insurers perceive ESG risk when it comes to underwriting revealed that 100% of surveyed insurers expect ESG factors to play a bigger role in underwriting processes in the future.
Every new day seems to bring further insight and research into the connectivity between ESG and insurance – and no link in the insurance chain is immune from the implications this brings for the performance and sustainability of the insurance and risk management industries. Aided in large part by the array of whitepapers, initiatives and thought leadership discussions around ESG, many businesses are coming to terms with the magnitude of the subject matter and the consequences of ignoring it but for some, there is still a tendency to take a siloed view of the topic.
At the launch of the second edition of Generali’s SME EnterPrize initiative, a celebration of SMEs taking a forward-facing stance to sustainability, Generali’s Marco Sesana highlighted that the sustainability transition is about more than just the energy transition – and it’s a vital message for the market. ESG is about more than just environmental considerations. In the same way, the ‘E’ of ESG is about more than just climate, it’s also about pollution, waste, and issues around water.
To have these critical conversations become side-tracked by focusing on one topic, one concern or one perspective is to leave a plethora of other risks exposed, and all the more hazardous for being unmonitored. A siloed approach also downplays the natural interplay between environmental, societal and corporate governance risks, encouraging a tick-box approach to evaluating, mitigating and managing the challenges that face the insurance ecosystem.
As emphasised by Sesana in his recent speech, the sustainability transition is a behavioural change more than a technical topic. It is with this mind that insurance businesses should start to wrest with the full range of attitudes, preconceptions and resource-led challenges that come between companies engaging with the sustainability transition. For many businesses, particularly at this time, it is a case that, “the spirit is willing, but the flesh is weak”, as they take arms against the sea of economic concerns that threaten their livelihoods.
It is the role of insurance, and particularly insurance brokers, to make insureds aware that a sustainable approach to doing business is critical to the survival not just of their own enterprises but the wider market in which they operate. Instrumental to that is relaying and explaining where a business fits in with its external environment and the full range of standards and procedures it requires to maintain that place.
A conversation about environmental risk that doesn’t touch on the changing regulatory standards that are looking to push businesses towards the energy transition where they can’t be nudged is inadequate. In much the same way, a discussion about regulatory shifts around environmental reporting that doesn’t assess changing societal expectations, particularly among young talent and their expectations of modern businesses is half-formed at best. ESG is not a checklist with three options but rather Borromean rings that cannot be separated from each other.
In essence, it is the responsibility of insurance to make insureds understand that achieving success that is not founded on sustainable foundations is little more than a pyrrhic victory – and a short-lived one at that.