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ESG: Putting words into action

  • Publish Date: Posted over 2 years ago
  • Author:by Paul Jardine
​There are many excellent ideas where ESG is concerned. The challenge is turning these into tangible and measurable actions.

Years ago when I was working at a large global carrier, one of the teams went to meet with an important prospect - an Australian bank. The team who went to present on the tender were five, middle-aged white men.

After the pitch, the female CEO said to them words to the effect of: 'We think you're a great company, you offer a great service and we want to work with you. But next time you come and present to me, I want to see a different team.'

It was both a compliment and a threat. As insurers, we need to be looking and acting more like our customers and broader society, and to be making a firm commitment to continue to evolve. We must adopt standards to encourage long-term profitability, sustainability and resilience and measure our progress.

Let's roll up our sleeves

A lot of organisations in the industry have already launched exciting and effective ESG initiatives. Inclusion@Lloyd's has been a breath of fresh air, but even with the energy, enthusiasm and commitment of individuals such as Pauline Miller (former head of culture at Lloyd's), there is more work to do.

In a previous role, I would look through the ranks of our younger colleagues - we were recruiting at both a school leaver and graduate level - and we had the most diverse set of colleagues you could ever imagine. It was marvellous.

If we could have retained them, that natural evolution would have meant we'd have the most diverse leadership team in the industry. But they didn't stay because they didn't see the pace of change happening quickly enough, and so they were not able to maximise their full potential.

When opportunity knocks

​We know we all need to be better corporate citizens. We know we will struggle to attract and retain talent if we fail to address issues around diversity and inclusion (D&I) and that poor ethics and governance can erode corporate reputations overnight.

Meanwhile, the climate crisis is upon us. We are told in the IPCC's latest report that climate extremes, many examples of which we have witnessed already in 2021 - including devastating floods in Germany and the winter freeze in Texas - are becoming more common and extreme. Economies are transitioning to zero carbon and global regulators expect us to be on board.

​Yes, it's the right thing to do. But there is also a clear business case. If I was searching for property insurance and the broker came back with two quotes, and the more expensive was offering sustainability and resilience as part of its restoration package, I know which one I would choose.

The sustainable option is currently the more expensive, but this will change and those insurers that are innovating and offering these choices will benefit. Choices will have to be made to walk away from business that is no longer compatible with the company's values, but there is also an opportunity to carve out new markets.

SDG-linked insurance is one way of incentivising clients on their own transition pathways, while solutions for emerging renewable energy (including wind and solar plants, battery and even hydrogen energy storage) can create new sources of premium.

Sigma's latest study anticipates global P&C premiums will double to $4.3 trillion in 2040, driven by growth in property and liability lines. In particular, it anticipates climate-related risks will contribute to a 22% growth in property premiums, to $183 billion in just two decades.

The triple bottom line

From a supervisory perspective, ESG is no longer a nice-to-have addition to your annual report. Rating agencies, regulators and shareholders alike want to see consistent reporting on your ESG targets. You must use actionable metrics and report openly and honestly on how your triple bottom line of 'people, plant, profits' is performing.

In a world that is rapidly changing, insurance businesses must demonstrate an openness and willingness to change, warts and all. Failure to act decisively is not an option for firms that want to be around in 30 years' time.

We have seen some examples of what happens to organisations that do not adapt quickly enough and the legal, regulatory and reputational consequences. The ruling in May against Shell by a Dutch court and the high-profile shareholder rebellion at ExxonMobil has significant implications beyond just the heavy emitters.

Industry practitioners need to be embracing ESG to its full extent. Diversity initiatives must start with recruitment and provide support, training and mentoring throughout an individuals' career. Recruit from outside the industry, design an effective returners programme, be the change.

Companies need resource for ESG and someone senior within the organisation to own it. As with any big change program, ESG needs proper budgets, tight project management and measuring in terms of the value and change it is delivering.

Within P&C insurance, there has always been the tension between the short-term nature of insurance contracts and reporting periods, versus longer-term commitments of creating enduring, sustainable value for all your stakeholders (to quote BlackRock's Larry Fink). Increasingly, the balance is shifting fast towards these longer-term goals.