In the year that the UK co-hosts COP26, colleagues in Insurance can expect to hear a persistent and consistent stream of narrative from insurance firms about their contribution to the Climate Emergency (a big part of the ‘E’ in ESG) – and sales pitches from data and solutions providers piling into what has been described to me as a ‘feeding frenzy focused on Lime Street!’
For GreenKite, our starting point is working out what matters for Growth Resilience in the 2020s, and how can we play a useful part in supporting colleagues involved in Delegated Authority to navigate and achieve their best growth. Quite apart from anything else, ESG joins a growing list of to-dos for the ‘Data’ pile: how can the professionals and leaders whose day-job is running and growing Insurance firms ask, learn, and do to ensure that they are appropriately involved in how people, process and technology is augmented, built, changed to ‘…integrate ESG within their own underwriting and risk management procedures’?
Specific guidance from Lloyd’s on the ESG targets is expected to start coming out from June. But Insurance professionals will want (and I argue, will need) to establish their own baseline understanding of some of the key language, activity and ideas NOW: if nothing else, Lloyd’s will need to understand where you really need/want guidance to be able to generate relevant and useful support first time out. Given that some of those underwriting targets come into force on 1 January 2022, every minute counts.
ESG Insurance data in the spotlight: but, where to start?
It’s very easy to get completely swamped in the world of ESG data, and then in what Insurance is doing. There are at least 3000 standards/metrics/indices to choose from, and a plethora of initiatives and groups (just for Insurance, never mind for ESG-savvy sectors like Real Estate and the Built Environment).
A good starting point for underwriting is the Underwriting Environmental, Social & Governance Risks in Non-Life Insurance Business Guide from the Principles for Sustainable Insurance (PSI) initiative. Because it was written by actual insurance firms, this really is a guide, not a set of standards or philosophical musings; it’s written for underwriters, not ESG experts, and explicitly for Insurance firms with little experience of ESG (which is the majority). The writers have tried hard to make it user-friendly: it’s still pretty dense, but definitely worth persevering with.
Especially useful are two pieces of analysis (a) a (very) select list of standards and technical guidelines for key ESG risk areas including Climate, environmental degradation, unsustainable practices, and Humans Rights – sadly no hyperlinks in this doc SEE pages 24-25 (b) the ESG risks heatmaps, for sectors and business lines that also includes examples of risk mitigation measures. SEE pages 18 onwards.
As part of the heatmap analysis, the table relates themes, criteria and specific risk mitigation elements to 4 ‘families’ of principles which have become standard in Insurance Corporate Governance, Sustainability and Net Zero reporting.
The 4 ‘families of principles in ESG reporting for Insurance
SDGs: The SDGs, created by the UN, are 17 sustainability-based global goals with 169 associated targets, to which companies can align their corporate strategy. The overall aim is for the global community to contribute to achieving these goals by 2030.
UN Global Compact: The UN Global Compact is a voluntary framework for companies to publicly commit to ten universal principles related to human rights, international labour standards, environmental protection and anti-corruption. Organisations from all sectors are invited to demonstrate their commitment to these principles each year through the publication of a report outlining the progress made in developing ideas and deepening their commitment through corporate social responsibility initiatives.
PSI: The United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Sustainable Insurance (PSI) serve as a global framework for the insurance industry to address ESG risks and opportunities.
PRI: The PRI Initiative, a non-profit organization created in conjunction with the United Nations Environment Programme Finance Initiative and the UN Global Compact, is a network of institutional investors, asset managers and service providers working together to put the Principles for Responsible Investment into practice and to share and promote best practice in responsible investment.
You may work for a business that is signed-up to at least one or all of these initiatives: a growing number of the largest insurers and reinsurers are already signatories. In any case, amidst the large (and burgeoning) number of expert sources, methodologies, technologies and suppliers for the various ESG arenas, these 4 ‘principles families’ are an established part of the evolving Insurance landscape. And the SDGs, Global Compact and PRI are arguably already a staple in standard annual reporting for your larger corporate customers.
ESG underwriting heatmaps: sectors, business lines, risk mitigation
What’s really useful about the heatmaps is that they relate specific risks (and risk mitigation options) to specific targets/elements for each of the 4, albeit you’ll have to look up the references (again, no hyperlinks provided). As an example of the data available in the table:
Air pollution, greenhouse gas emissions, and transition risks
Risk Mitigation & Example of Good Practice
Disclosure of climate-related emissions in operations and/or products (e.g. CO2, CH2, N20, HFCs, PCFs, SF6)
Business Line Heatmap rating for D&O: Orange
Principles: SDG 13; UNGC 8; PSI 4; PRI 6 … so you’ll need to look these up, SDG 13 is Climate Action, for example.
To note that the Governance list in this Guide here is short – in reality, Governance is becoming more of a focus with regulatory activity playing a big part (as always) in getting things on the agenda, and moving them up it. AI Governance was not the very live and well-recognised issue it is now when this report was written in 2019/2020: for the upcoming GreenKite webinar panellist Charles Radcliffe will be explaining how EU legislative activities here will be driving change that affects all sectors involved in designing, using and selling AI technologies. For Insurance, that will impact how we price and mitigate risk for our customers, as well as how we measure up ourselves to the scrutiny of e.g. EthicsGrade, and the investors (and others) who will use those ratings in their decision-making about us.
I’d be really interested to hear back from colleagues in underwriting and elsewhere what you make of the Guide.