Capitalise on ESG opportunities

by Resolve Editor Kate Tilley

Is your insurance organisation doing enough to meet its environmental, social and governance (ESG) obligations or to capitalise on the opportunities they present?

That’s a question Alan Dayeh, Sydney-based Partner, Sustainable Strategy and Financial Services, at ERM Group company Point Advisory, asked delegates to consider in a presentation at WICA2023.

In a pre-congress interview, he said insurance organisations must be aware of broader ESG factors around their business models and ensure they are “walking the talk”.

“Every insurer has its own business model and must look at risks and opportunities in light of its commercial strategies.”

Mr Dayeh said insurers must consider the risks they’re underwriting and what they mean strategically and reputationally.

“For example, if other insurers are stepping away from a sector, do they want to be the last one standing?

“These are challenging internal questions that should inform every insurer’s practical responses and strategic approaches to a range of ESG-related topics.”

Resilience outcomes

Mr Dayeh said the insurance sector had some good examples of organisations that are “leaning into ESG by embracing the original purpose of insurance – managing risks across society and contributing to broader economic and resilience outcomes”.

However, he said underinsurance was a potential reputational risk for general insurers because some stakeholders expected them to provide an essential service that should be accessible to all.

With current high inflation, many people may choose not to insure assets like homes and vehicles. “What’s the ripple effect of that, how will regulators respond, will other players come in to fill the void?”

Mr Dayeh said the ability to obtain more granular data could make insurers more competitive. For example, digital tools can enable insurers to get property data at a more individualised level than postcodes. “How insurers can better capitalise on their data is part of their commercial strategy.”

Sustainable investment

He said insurers must also consider ESG factors in their investment strategies. The latest biennial 2020 Global Sustainable Investment Review (GSIR), to which Point Advisory contributed, shows global sustainable investment reached $US35.3 trillion in five major markets in early 2020, a 15% increase over the two-year reporting period.

“Insurers must be cognisant of their sustainable investment approach in this ever-growing market. Activist shareholders will keep them to account.

“There’s already a big focus from shareholder activists in the financial services sector, particularly about climate change and, increasingly, human rights.”

Mr Dayeh was disappointed that “in some parts of the world ESG has been politicised by those who seem to lack understanding of what it is and how it encourages organisations to examine ESG factors that affect their commercial success and stakeholder relationships”.

He encouraged all insurance organisations to examine themselves “in deep and meaningful ways” to respond to the key question: “Is your organisation doing enough?”

In his WICA2023 presentation, Mr Dayeh said sustainable development meant meeting present needs without compromising future needs.