Environmental, Social, and Corporate Governance is the new definition of corporate social responsibility. The pressure is now on to how to make ESG data robust, comparable and reliable when investors and regulators assess it. For example, the European Commission is consulting on having a European Single Access Point for ESG data.
What are the implications of wider interest in ESG for UK insurance companies and how might they be affected by the European Commission’s plans? Will McAllister, Vice President EMEA Operations & General Counsel at Guidewire Software has some answers:
“The fact is UK insurers have already been looking at ESG very seriously and recent UK legislation, that introduces mandatory reporting on climate risks for large companies and financial institutions by 2025, has created potential reputational and business risks for organisations that do not have ESG identified as a priority. Having proper ESG practices in place makes good business sense; as it will lead to better customer relations, healthier investments, and a more robust approach to risk.
Unless they are operating in the EU, UK insurers will obviously be out of the purview of the European Commission’s proposals, however, it is likely they will be looking at the Single Access Point and wondering whether a reciprocal system could be set up in the UK, too. At a time when ESG reporting frameworks are still being standardised, having a database of databases would clearly make it easier to understand exactly what is going on in individual companies and would likely be welcomed by the UK insurance market.
With legislation guiding the process and clear business benefits to being able to demonstrate you have good ESG practices it is entirely realistic that the Single Access Point for ESG data could be created, although it will clearly take time.
The fact that there is not a single common approach to, or framework for, ESG reporting could be seen as a complicating factor when understanding who is taking the proper approach, but at a time when we are still working out the best indicators of ESG risks, having a range of contenders is no bad thing. Inevitably, over time preferences will emerge and practices will become standardised.
Before we discount data sources, we should remember that, as data analytics continues to develop, we are going to get better at measuring certain criteria and thus bring new risks into the scope of ESG reporting or gain a better understanding of existing issues.
We are probably not yet at the point where widespread consumer pressure is having a material influence on insurers adoption of better ESG reporting and measurement, but there is growing pressure from the business community. Nobody wants a bad apple in their supply chain and everyone, including insurers, should be alive to that fact. Quite simply, good practices around ESG point towards a well-run organisation – which in the long run is less likely to pose a risk to your business.
Over time, and particularly with the requirements for greater disclosure of risk, consumer pressure is going to become a more significant factor. Not only will changing opinions across society mean that consumers demand better practices of industry, but also consumers are unlikely to trust their personal insurances to an insurer that is known to have risky investments on its balance sheet, through companies with less than stellar approaches to ESG.”