The future of ESG: Why insurers, society should take a broader view
Insurers need to go beyond traditional ESG concerns like climate change and consider other macrosocial and environmental challenges such as global supply chain crises and geopolitical conflicts to act on their ESG-related risks and responsibilities.
When it comes to environmental, social and corporate governance (ESG), insurers have traditionally put their focus squarely on climate change, and rightly so. After all, the risks of a warming climate directly affect our industry—and the world—almost every day.
But the past two years have also ushered in a near perfect storm of additional macrosocial and environmental challenges that are impacting both business and society. Together, seismic events like the COVID-19 pandemic, global supply chain crises, energy concerns in Europe and geo-political conflicts across multiple regions, have shown us how dependent we are on prosperous communities and a healthier planet. Thus, we must think about the ESG-related risks and responsibilities we need to act upon, beyond climate change
As the world evolves around us, so too should the way industry leaders think about ESG topics and broader sustainability strategies. It’s no longer a nicety. Instead, ESG is an imperative for all organizations that want to be future-fit. And because insurance in particular is uniquely suited to evaluate, assess and reduce risks, our industry has a critical role to play in helping our clients develop resilient businesses alongside resilient communities and ecosystems.
Net zero as a social responsibility
The insurance industry has an essential role to play in transitioning our world to a low-carbon or “net zero” economy. The company where I work, AXA XL, is part of the Net-Zero Insurance Alliance, a United Nations-convened consortium of 30 insurers, representing about 15% of world premium volume globally that have made a commitment to decarbonize their underwriting portfolios by 2050.
Reducing global greenhouse gas emissions has clear environmental and social benefits as extreme weather, rising sea levels and increased heat pose threats to lives and livelihoods. But as industries increasingly focus on net zero transition plans, we must also keep in sight the importance of equity in transition plans. As we encourage our clients to develop their net zero agendas, we have also recognized the importance of advocating for a fair and just transition, making sure that the entire world – and not just certain regions – can access and afford low carbon infrastructure and services.
Another often underappreciated but no less important sustainability risk is nature and biodiversity. For a long time, natural capital has been considered free and infinite, but in reality, it’s precious and finite. Many industries rely on natural resources or healthy biodiversity in their operations or supply chain to some degree, but not all industries are considering the economic value of nature in their strategies. The challenge for insurers and our clients going forward is to fully assess the risks related to natural capital, find the opportunities to protect it, and deploy business models that will keep ecosystems more balanced for the longevity of both their business and the planet.
Integrating ESG across business operations
As recently as a decade ago, many sustainability initiatives focused largely on philanthropic giving. And while philanthropy will always play a role in a company’s efforts to be a good corporate citizen, Sustainability and ESG strategies today should be ingrained into every aspect of a company’s operations, from procurement and supply chain to HR, operations, underwriting and claims.
A great first step to inform ESG-related priorities is for insurers of all sizes to engage their internal and external stakeholders - through surveys, focus groups or interviews - to gain their perspectives on which ESG topics are most material for the company. Stakeholders could include employees, clients, business partners, industry associations, NGOs or other key organizations in a company’s value chain. Taking this step will bring clarity on which ESG initiatives your company can influence the most, as well as which topics could impact your organization the most.
We did this at AXA XL when we created our recent “Roots of Resilience” Sustainability strategy for 2023 – 26. We surveyed and interviewed approximately 3,000 stakeholders across the business and regions where we operate. Then we analyzed the results through two lenses: which ESG topics pose the greatest risk or opportunity for our business (or “financial materiality”), and which topics could we best influence through our products, services, operations and people (or “impact materiality”). The result is a strategy that’s focusing on three pillars: valuing nature, addressing climate change, and integrating ESG factors into business operations. Our goal was to ensure that we have the credibility to tackle complex topics such as climate and nature, by underpinning our actions with strong ESG practices across our organization. Our objectives for this third pillar include calculating the carbon footprint related to our supply chain, providing ESG training to all colleagues, and embedding ESG in our talent attraction, management and rewards strategies.
Sharpening ESG skills
I’ve been working in the sustainability space for 18 years, and I’ll always be a lifelong learner, because the field is ever evolving. Thankfully there are a number of resources that are widely accessible for anyone looking to sharpen their ESG skills and knowledge.
Renowned institutions such as Boston College Center for Corporate Citizenship and Harvard Business School offer virtual and in-person programs focused on corporate citizenship, sustainability strategy and the business case for sustainability. McKinsey and Bloomberg offer free newsletters and ESG Today provides frequent webinars on a range of topics.
There are also many networks bringing industry together to improve approaches to common challenges. To help bring insurance industry leaders together on yet another important industry topic, the Insurance Industry Charitable Foundation (IICF) has formed a Sustainability Committee. Its goal is to support ongoing sustainability best business practices and new sustainability initiatives that meet present and future industry needs while promoting the well-being of future generations.
Networking with other sustainability professionals in our industry through IICF and other forums help people hear from others who are developing ambitious projects. I encourage everyone in our industry to attend the IICF’s Inclusion in Insurance Conference in New York City from June 13 – 15 and join this important discussion in-person.
Moving toward the future
People often ask me how to make the business case for ESG. My hope is that 10 years from now, we no longer need to have those conversations. After all, today we don’t ask what the business case is for health and safety. We simply do it because we know it’s essential to our business. And we should do the same with ESG.
I already see encouraging signs that we’re headed in that direction. A decade ago, corporate leaders had to ask colleagues to engage in ESG initiatives. But today, it’s insurance colleagues who are proposing fresh ideas and asking their leaders how they can get involved. It’s a reminder that ESG is everyone’s job, and the more insurers can broaden their views on the business value of ESG, the better a world we’ll create for future generations.