ESG: Can insurance firms change the mining industry?

ESG: Can insurance firms change the mining industry? | Insurance Business Canada

Environmental

ESG: Can insurance firms change the mining industry?

“Our job is to support our clients’ transition,” CEO says

Environmental

By
Daniel Wood

“I do not support in any way, shape, or form, any market – whether it’s here in Australia, in London, or anywhere else – that just turns their back on the energy and the mining sector, rather than working with them,” said Nick Cook (pictured above). “Our job is to support our clients’ transition and that’s what we’re doing.”

Cook is CEO of the global brokerage BMS Group. The London-based chief was in Australia recently where the local economy is heavily dependent on the fossil fuel industry. Many insurers and brokerages, including BMS, facilitate the necessary coverages.

However, unlike some other insurance leaders, Cook was frank and direct about this topic area. He was also clear about where he sees responsibility for his firm – a brokerage with a focus on the energy space.

“Climate change is here,” he said. “We’re living and breathing it every day and the industry has to adapt to it.”

“We want to work with our clients, our employees and all our stakeholders to assist in moving the market towards more sustainable and environmentally conscious business practices,” said Cook in a media release welcoming the appointment.

Leading the energy sector towards ESG

Insurance Business asked Cook what his firm has managed to achieve with clients in the ESG space over the last year? IB suggested that it must be tough having these conversations with mining companies?

“A really great question,” said Cook. “I think there are two ways to answer this.”

The global CEO said, as a private business, headquartered in the UK, there are currently no explicit regulatory requirements for his firm to “push through an ESG agenda.”

“But I took a decision where I felt, because of the blend of our portfolio where we handle a lot of energy and mining risks – and a lot of those mining risks are here in Australia – that we needed to lead from the front,” said Cook.

He said the “only way” to do that in the insurance market and across financial services is “to get our own house in order first.” Over the last 12 to 18 months, he said, that’s what BMS, led by Prior, has been doing.

“I look at this across three buckets,” said Cook. “The first one: get our own house in order; two: move on to specific work streams with a particular client base; third: working with our markets across the ESG sector.”

He said the ‘E’ in ESG, the environmental piece, “has been the biggest challenge.”

“So similar to other brokers and many other firms, what we did was get an external third party that specialized in ESG, to come in and run a gap analysis across our business,” said Cook.

Apex and carbon footprints

In October 2021, BMS appointed Apex Group to deliver carbon footprint reporting services and to support plans to reduce the firm’s carbon footprint. Cook said some of the ESG lessons learnt through Apex “were pretty harsh.”

“We put aside capital to invest in areas where there were clear gaps in our ESG policy – which is what Neil Prior has been implementing over the last 12 to 18 months,” said Cook.

Cook said a part of that work has included achieving energy efficiencies across their global offices, reducing international travel and, where travel is necessary, folding several trips into one. The firm has also invested directly in carbon offsetting programs.

He said the result has pushed BMS into the top ranked decile of financial services companies across the UK and Europe for ESG.

“That allows us to go with credibility into a conversation with our mining clients and with our energy clients,” said Cook. “I think it’s incumbent upon our industry and the insurance broking community to be part of the solution to help these companies, in particular some of these mining companies, to effectively go through a considerable period of change.”

Cook said an ESG transition for a fossil fuel energy company, away from “certain types of coal mining into cleaner energy”, would take “a long time,” possibly four to five years.

No draconian moves

“While some insurers have taken, I think, quite a draconian move by saying that within the next 24 months, or 12 months, they will not renew certain portfolios and certain types of energy clients and mining clients – we will not do that,” said Cook.

He said it’s part of his firm’s commitment as a broker – and incumbent on the wider industry – to work with energy companies through this “cycle of change”.

In Australia, Cook said his brokerage is working with “a number of mining companies directly, both coal and precious metals”. Together with third party firms like Apex, he said, BMS is supporting their ESG transition.

“We’re busy bringing [Australian mining companies] some of the lessons that we’ve learned from around the world,” he said.

No quick fix

Cook said his firm has managed to “change mindsets” but there’s “no quick fix”.

One industry reality, said Cook, is that investment is now often tied to ESG policies, more so today compared to even just 12 months ago.

“When you’re looking for new investment, one of the questions that virtually every private equity house and sovereign wealth fund asks us, as an organization is, what’s our ESG policy? Can we demonstrate the progress we’ve made?” he said.

Cook said there are “tangible” benefits that come from adhering to ESG policies when seeking new investment.

“That is going to become ever more prevalent,” he said. “You’re simply not going to see investment companies around the world investing in businesses unless they are adopting and embracing that transition and can clearly show tangible change and benefit.”

He said this was evident last year when BMS refinanced.

“When I spoke to dozens of private equity houses, it is absolutely on their agenda,” said Cook. “When considering an investment in any business: infrastructure, real estate, mining, energy, retail or whatever it may be, they absolutely take into consideration that particular asset’s position on ESG.”

He said greenwashing doesn’t work because firms must be able to clearly show where they’re spending capital.

“Whether it’s a mining company, or it’s a real estate company, it doesn’t matter,” he said. “If these guys do not adopt and embrace and show progress, they are going to struggle to find any form of new investment.”

Do you work in the energy sector? How do you see your role in terms of ESG and climate issues? Please tell us below?

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