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INSURANCE FIRMS – IT’S TIME TO ROLL UP YOUR SLEEVES ON ESG

by Mia Wallace 27 Aug 2021
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INSURANCE FIRMS – IT’S TIME TO ROLL UP YOUR SLEEVES ON ESG | INSURANCE BUSINESS

Alexandra Mihailescu Cichon (pictured), executive vice president at ESG data
science firm, RepRisk has a message for insurance firms – if you haven’t
already, now is the time to roll up your sleeves and get started on managing ESG
risk. 

There’s little denying that ESG is a complex topic, she said, particularly as
though it’s only a small acronym, it covers so many topics, many of which are
intersectional. However, sometimes, when companies are aware that they are
behind the curve and that they need to play catch-up, it can be easy to blow the
task ahead out of proportion, and forget the progress that has already been made
and the connection between insurance and ESG.

“ESG is inherently a long term and holistic view on business,” she said. “It’s
about embedding these issues that look beyond the core economics of a business
to the society and the environment around that business. And I find that goes in
tandem with how the insurance industry also touches so many areas of the world,
and also has this long-term view. To me, it’s a very natural fit. There
shouldn’t be any scepticism or hesitancy around this.

“Insurers know how to manage risks, how to calculate risks, they know the
actuarial piece. [Their people] are all highly specialised and intelligent. So,
it’s now just about plugging these issues into an already existing system. I
feel like it is easier than perhaps some people are making it out to be… and
there are so many templates in place, so many organisations that have done it
before, there’s the UNEP FI who can help guide and there are plenty of resources
to get [these programs] up and running rather quickly.”

Read more: How can insurers kick start their ESG investment journey?

RepRisk occupies a unique space in the ESG data sphere, having devised a
systematic methodology for identifying and assessing companies based on their
ESG risks. Over the last 15 years, the firm has built an online database that
has grown to be the largest in the ESG space, now including almost 180,000
companies from all across the world. Of the 450 clients that the firm serves,
the vast majority are in the financial industry – including insurers, reinsurers
and asset managers.

The need for companies, including insurers, across the financial services space
to embrace ESG is steadily becoming more pressing as, traditionally, ESG has
been governed primarily through soft laws e.g. voluntary initiatives or
industry-specific standards. What RepRisk is now seeing, Mihailescu Cichon said,
is the move from soft laws to hard laws – it started with a wave of disclosure
requirements around their different KPIs on ESG, but now it’s moving on to the
implementation of policies, risk analysis and principal adverse impact
indicators.

“This will impact all types of organisations, not just insurance companies, but
insurance companies have a unique role to play because nothing happens around
the world without financing and without insurance,” she said. “When we look at
our client base, in our experience banks have got on that bandwagon a little
earlier, and have moved forward in a more sophisticated, systematic way, when it
comes to ESG risk management - but I think insurance is finally catching up.”

On some areas of the ESG risk agenda, insurance has played a vocal and important
role, she said, particularly as it relates to climate risk and climate change
concerns. However, overall many insurance companies are in the position of
having to play catch-up because they are seeing the growing shift in awareness
and the shift in expectations around ESG and are increasingly aware that they
will need to play a more leading role in integrating these topics going forward.

Read more: Insurers face greater pressure to manage ESG risks

Mihailescu Cichon has seen a mainstreaming of ESG over the last two to three
years but noted that the coronavirus crisis has really tipped the scale in terms
of the awareness of the crucial role ESG risk management plays. Few
organisations can ignore ESG in this day and age, she said, as clients,
investors and stakeholders all hold certain expectations of what businesses can,
should be and are doing.

“Insurance firms are all about risk management so this hits them right in their
core business,” she said. They’re known to be long term thinkers, long term
investors, they’re a part of all key infrastructure, and all that happens around
the world is facilitated by the insurance industry. A lot of those things
present very severe potential ESG risks.

“So, it affects their core business in a way that is no longer about
reputational risk anymore but really about the bottom line implications. If the
risks are not managed properly, it could hit them on their bottom line, but also
their access to capital to grow further when their investors or other
stakeholders see that they’re not keeping up the pace when it comes to these
topics.”

RELATED STORIES:

 * Insurers face greater pressure to manage ESG risks
 * How can insurers kick start their ESG investment journey?

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