Embracing ESG: How insurers turn ambition into action

To contain global warming within the 1.5°C increase agreed at the 2015 Paris Agreements, the world has less than ten years to halve global greenhouse gas (GHG) emissions and until 2050 to reach net zero. Failure could have catastrophic consequences for the world population and our way of living.

As the principal managers of risk within the real economy, the insurance industry needs to find ways to help businesses understand and mitigate the risks and uncertainties of the move to net zero. Without effective risk expertise and protection, it would be difficult for individual companies and wider economies to transition, certainly at the speed required. Insurers will need to play a key role in the transformation into a green economy with their investment and underwriting activities as well as their risk management capacity. That will also allow them to bring their own business model to the next level with new business opportunities.

The decarbonisation of the economy is only one important part of the required ESG transformation. It is key to address all environment goals aligned and to cover ‘S’ and ‘G’ as well during that transformation (e.g. just transition).

Bringing ESG to the forefront of strategy and governance

As an insurer, your business is in an ideal position to influence sustainability strategies and promote positive outcomes through your underwriting and investment decisions. This would allow you to move from simply absorbing the impact of climate change to becoming a vital enabler and accelerator for the development of a green and inclusive economy. This presents both a decisive test of purpose and a once in a generation opportunity to drive innovation and growth.

Getting to grips with ESG regulation

The influx of new ESG regulation and the policy goals that sit behind it are placing a whole new set of expectations on your business. The changing expectations have significant implications for your strategy, reputation and market valuation, as well as your compliance capabilities.

A lot of the rules are still being finalised and even more are likely to come in the future. But the timelines mean that you can’t wait until everything is agreed before getting implementation underway. Further challenges centre on the inconsistencies and even conflicts between the various regulations. It’s important to be able to communicate a clear strategy, embedding a ESG focussed culture and defining relevant KPIs, all backed up by firm evidence and honest proofs.

Embedding sustainability in your products, assets and own operations

Product development, asset management and the management of your own operations, including your supply chain are the building blocks for turning your ESG ambitions into concrete actions.

The insurers out in front are looking at how clients’ risk protection needs are changing and how to put these new demands at the centre of their product design. They’re also bringing their influence to bear as major investors. And to make sure they practise what they preach, they are looking at how to bring the sustainability, inclusion and ethical policies within their own businesses and value chains up to the standards they expect from clients and portfolio companies.

Turning reporting, risk and tax management into engines of ESG

Risk, reporting and tax management are the key engines of delivery on ESG.

Growing stakeholder demands for ESG disclosure are an opportunity to convey your ESG ambitions, build stakeholder trust and attract new business. But sustainability reporting remains fragmented, in parts inconsistent and challenging to use.

Without the burning platform of regulatory change, there may be a tendency to view ESG risk as largely a compliance exercise. But with the risk landscape changing so fast, ESG strategy and risk management need to be fully aligned.

Tax is coming under an increasing ESG spotlight, both in how much you contribute as a business and as an incentive for sustainable strategies and investments.

Legislative and sustainability developments as well as the shift from shareholders to stakeholders’ capitalism have placed tax firmly on the sustainability agenda. Tax is coming under an increasing ESG spotlight, both in how much you contribute as a business in the societies you operate and as an incentive for sustainable strategies and investments.

How a data rethink can sharpen insight, innovation and credibility

Your ability to realise your ESG ambitions depends on data. The main challenge isn’t the lack of data – it’s largely there if you can find it – but how to embed it into decision making and performance reporting in a way that turns information into insights and intentions into actions.

Time for solutions not words

COP 27 ended with excitement and disappointment. The discussion on damage from climate change, the need for accountability performed via actions illustrated the pivotal role insurers need to play today and in the coming years.

The climate crisis and wider focus on ESG are changing what society and your clients want from insurance and insurers. Sustaining relevance and delivering your purpose requires you to become an enabler for green transition and the sustainable economy of the future.

This is neither a straightforward nor linear challenge, with the scale of the task amplified by the uncertainty, ambiguity and inconsistency surrounding it. But with the will, there is a way. In this report, we have sought to cut through the immensity of ESG to provide a structured approach to turning ambition into action. This starts with the strategic and regulatory imperatives, before moving on to what this means for the fundamentals of your business and how to gear up your organisation to deliver.

What cuts through this is the need to determine what a green and sustainable future looks like, what your clients need to transition and what you can do to support this. The answers and solutions are an opportunity to unleash the full power of innovation and risk expertise within your business and emerge as a leader in a sustainable new economy.