There is a clear-cut hypothesis at the core of the ESG Risk Rating assessment tool launched by Marsh in March of this year – that good ESG is strongly correlated with good risk management. It’s a hypothesis shared by many of the insurance companies that Amy Barnes (pictured), head of climate and sustainability strategy, and her team at Marsh work alongside.
“We’ve shown that relationship with D&O,” she said. “We did some research with publicly available data in the US to show the correlation between ESG performance and underwriting outcomes for D&O. But we have a hypothesis that we’ll find that relationship for property-casualty also.”
This ESG rating tool is an assessment that measures an organisation’s ESG performance, enabling them to improve their ESG risks and gain access to additional insurance market capacity. The assessment sets itself apart by giving companies a score across the 18 ESG themes identified by the World Economic Forum, she said, rather than just assigning them an overall score.
Read more: Marsh launches ESG rating tool
“An overall score doesn’t really help you decide how to navigate and prioritise where you may need to make investments or have a different area of focus,” she said. “This granularity allows people to gain some truly actionable insight. We really wanted to give a risk lens look at environmental, social, and governance through the framework of controls - how robust are your policies and procedures, reporting, transparency and disclosure? And then, finally, resilience - to what extent are you testing your organisation against those things?”
The decision-making process behind the development of the tool took into account that most of the existing assessment frameworks have largely focused on listed companies. Marsh wanted to support corporates, Barnes said, as they are going to be increasingly required to share this information going forward. This ESG tool is offering those businesses the chance to look in the mirror and determine how their risk rating stands up against international frameworks.
“And it's a self-assessment,” she said. “You’re not working with an external body, updating information on an annual cycle. Our approach allows companies to understand their current ESG performance based on their most recent commitments and achievements.”
The tool reflects over 60 different industries, Barnes said. And while everyone is asked the same questions, the weighting of their respective replies takes into account that certain ESG-related risks are less relevant to certain industries.
She noted that what has been great to see is the broad level of engagement the solution has already created. All in all over 1,500 organisations have signed up, with the specialist insurance giant Beazley becoming the latest high-profile joiner. Over 20% of those have turnovers of over $1 billion, which reflects that, even among the larger clients, there is a real appetite for self-assessment and the granular feedback that can bring.
“For smaller, private clients the assessment sets a high bar and it is a tough assessment because we’re holding people to these international frameworks that they may not even be aspiring to yet,” she said. “So, we were really keen that, as we start to think about insurance use cases for ESG, that insurers weren’t penalising a poor score but rather rewarding engagement on the topic.”
When Marsh first launched the tool with Liberty in the US and Canada, Liberty created value-add services for clients who engaged with the tool, irrespective of their performance. As the assessment has become more mature, Marsh is now talking to more and more insurers to further its stated ambition of proving the link between ESG performance and underwriting outcomes. As Marsh continues to build out its data set, it’s hoping to do a lot more analysis to further explore some of these correlations and determine whether it translates to causation.
“I’m really excited to see where this will go and to see the insights generated,” Barnes said. “I’m excited by the feedback we’re already getting from people who completed it. With anything, there are unintended consequences to what you do, and we’ve had some really exciting unintended consequences from this already.
“We’ve had people ask if they can use this to measure executive comp… And yes, we’re delighted for them to do that. We’ve had private equity companies that have asked all their portfolio companies to complete it so they can look across the board. We also have had some parent companies saying they want their subsidiaries to do this so they understand how they can improve performance between subsidiaries.”
Another inadvertent utilisation has been the number of risk managers who have found it a useful tool for creating connections across their entire organisation. Because typically, a sustainability officer will be able to answer all the questions that make up the assessment, she said, but if you don’t have somebody in that position, then it will take several people coming together to fill out the questionnaire.
“The feedback of risk managers to us is that we’ve created some new relationships for them, and a new understanding of parts of the business they haven’t been working with previously,” she said. “This tool is completely free to anybody, client or prospect. As long as they have a valid email address, they can get involved.
“[It] has been really nice to see the tangible impact this is having, and that’s one of the reasons we made this free and accessible to everybody. Because we’re passionate about having this important data in the hands of companies… and we want to make it is really easy for organisations to engage with us on this topic.”