What does ESG mean for the insurance industry?
Today’s global organizations in all industries, public and private, have a vital role to play; both in terms of the economic landscape of the business community and the responsibility to address critical issues facing society.
Environmental Social Governance is a growing and pivotal strategic imperative that sets a basis of standards for these very factors: considering all stakeholders and the non-financial performance relating to areas of climate change, human capital, organizational leadership practices, and more. ESG is a natural fit for the industry, as insurance is fundamentally about managing risk, such as extreme weather events’ impact on a company and its value. Furthermore, the insurance industry is shaping ESG adoption on a world scale, especially as many of the largest insurance companies are based in Europe (Zurich, AIG, Allianz, etc.).
As the insurance industry focuses on both their own assets as well as those they underwrite, a new focus has emerged ensuring that private companies are best prepared for the wave of ESG expectations and regulations, in particular, the ‘ESG ripple effect’ of disclosure requirements already expected of many public companies.
Thus, as ESG adoption grows, corporate leaders are under pressure to adopt ESG into every aspect of their business. Particularly, when it comes to supply chain management and digital integration, this can be the source of empowering or enabling clients to meet their ESG commitments as they work with suppliers and producers to find responsible solutions for the long haul of increased demand. While once ‘voluntary,’ ESG disclosures are on trend to transform into ‘required’ reporting, and a studied plan to prepare for such can be the difference between maximum efficiency or being left scrambling when asked for such disclosures.
From a global economic perspective, a large emphasis on climate change, human capital, board diversity, and cybersecurity risk is making ESG funding a hot-button topic when it comes to policy implementation. The international financial community has already invested trillions into ESG, and it is fair to say that with or without formal mandatory requirements, the business world, investors, and consumers will not wait to follow this lead, further enhancing the urgency of ESG integration.
Digital transformation as a key tactic
Knowing this, any comprehensive ESG plan should also focus on data. Specifically, data assessing non-financial risks of an organization and their value chain provides significant insights to embrace change. After all, data that isn’t measured cannot be reported. Digital transformation is a key enabler in supporting risk management through technology. By way of an entire system where the complexities of numerous standards and frameworks, with a variance of reporting by industry, technology demands stakeholders work together and align their data.
New data technologies can even help manage public opinion by evaluating key stakeholder impressions related to a company’s ethics and policies, thereby driving more strategic ESG practices and having a more secure footing when it comes to analyzing potential controversies, criticisms, or needed legal actions. Thorough technology implementation is also crucial to factors such as measuring greenhouse gas emissions, safety performance reviews, and more.
Likewise, the more technology is driven to communicate this information widely and clearly, the better the business is slated for long-term ESG achievements. In all, when ESG is properly utilized as a driver for innovation, policies become mutually beneficial to both the growth and success of the organization, and the immediate need for more sustainable and responsible practices.
As another example, being equipped with green software with maximum energy efficiency is another tech related step to strengthen an organization’s ESG plan. Looking ahead, business leaders should ensure they are establishing sustainable tools not only related to renewable energy, fuel-efficient transportation, etc., but also making sure that the software running their daily operations is privy to the latest sustainable practices, which could very well be subject to energy monitoring, industry evaluations, and efficiency reviews.
Overall, while the world of ESG may be complex at times and ever-changing, there is no doubt that it’s quickly evolving into a necessary aspect of doing business. It’s a time for insurance professionals to shine with the proper guidance and resources to safeguard client success.
