We spotted some interesting predictions surrounding ESG for 2022, which is bound to cause extra work for insurers and brokers alike. Here are some extracts from the blog from Oxbow Partners. You can read the full post here by the way.
ESG has dominated corporate discourse in 2021 and this is set to continue as we move into the new year. With there being so many ESG topics for executives to consider, it is challenging to know how to best divide your time. To help executives narrow their focus, Oxbow Partners have identified 10 ESG trends that executives should be paying close attention to throughout 2022.
Scrutiny over ‘greenwashing’ ramps up
As stakeholders around the world become increasingly aware of the impact of their daily choices and purchases, many businesses are taking action to implement more sustainable business practices to gain favour with consumers. On the face of it this appears to represent progress, yet to date many companies have started to talk a good game whilst continuing to engage in activities that cause environmental harm.
Financial sector regulation and guidance increases focus on insurance
Until now, regulation intended to mitigate ESG risks in the financial sector has largely focused on the activities of large multinational banks, with insurers having mostly escaped the attention of regulatory bodies. Notably the industry has thus far taken a ‘carrot’ approach to ESG issues, with companies integrating ESG principles into their operations to reap the potential reputational advantages. However, in 2022 expect to see regulators start to bring out the ‘stick’, with companies being issued fines for failing to comply with ESG regulation.
Insurers rush to appoint Chief Sustainability Officers / Chief ESG Officers to lead ESG initiatives as part of other ESG-related governance changes
A sign of the growing importance of ESG & Sustainability issues to global corporations is the appointment of Chief Sustainability / ESG officers to executive management teams. Whilst some of the world’s largest insurers have already moved to installing these roles – for example AXA & AIG – in 2022 we will likely see other industry players following suit.
ESG-specific data (internal and external) will develop and start to be embedded into processes
At its core, any ESG strategy is underpinned by data and analytics. Growing mandatory ESG disclosures across the entire operating model represent a significant challenge for many companies. External data sources are likely to develop significantly with ESG scoring tools and international standardisation leading the way. Insurers’ own internal ESG-related data capture during acquisition and renewal will supplement these external sources.
ESG considerations grow in procurement and supply chain decision making
It is no longer satisfactory for the world’s largest companies to focus solely on their own operations when it comes to mitigating ESG risks – global corporations are expected to lead in tackling our most pressing ESG concerns. These companies are therefore under pressure to ensure their ESG principles are consistent throughout their distribution network/supply chain. To assist with managing ESG risks across their entire ecosystem, several third-party ESG risk management propositions have begun to emerge.
Insurers start to advertise their ESG credentials to win personal lines customers
ESG has already started to take a central role in companies’ annual reports, investor presentations and corporate strategies, as insurers market their credentials to ESG investors. Moving forward, expect to see ESG increasingly form a part of insurers’ direct customer marketing and communications efforts, acting first as a market differentiator but ultimately as a hygiene factor to winning business in personal lines.
Carbon offsetting increases in popularity as a short-term solution to net-zero targets
Companies around the globe are facing pressure from stakeholders to not only set net-zero targets for carbon emissions, but to demonstrate their progress towards meeting these targets. One solution that many companies have started to implement is carbon offsetting, or the process of compensating for CO2 emissions by participating in schemes designed to make equivalent CO2 reductions from the atmosphere. Examples of such schemes are reforestation, methane capture at landfills, wastewater treatment facilities and investing in energy efficiency technology.
A combination of oil price volatility and falling cost of technology makes renewables a genuine alternative to fossil fuels for a greater number of businesses
The effects of the recent spike in oil prices serves to highlight just how exposed the world economy is to disruptions in the oil industry and the geopolitical volatility of many OPEC member nations. A combination of these factors together with the falling cost of renewable sources of energy, such as wind or solar, means that as we head into 2022, a genuine commercial argument can be made in favour of businesses transitioning from fossil fuels to renewables.
ESG investment funds push capital flows into Asia and emerging markets
ESG investing has dominated the world of finance over the past few years, with a total of $51.1 billion of net new money being invested into ESG funds in 2020. ESG investors believe that integrating ESG factors into company valuations enhances traditional analysis by identifying newfound risks and opportunities that go beyond fundamental metrics.
Global insurers push affordable microinsurance to increase coverage in emerging economies
An initiative that benefits society whilst increasing demand for insurance products and promoting brand identity in new markets… It’s not surprising that one of the most popular social initiatives for insurers to be involved in is providing affordable microinsurance to low-income people in emerging markets.
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