Insurers have been told that ESG will present real opportunity for the future but only for those firms which fully embrace it.
Accountancy firm PwC has issued a new analysis of the sector entitled ESG and Insurance – a chance to rethink strategy, in which is looks at the need for insurers to grasp the need for business-wide approach to the issue.
“ESG presents transition challenges and opportunities to insurers,” it stated. “Narrowly defined, the transition to a low-carbon economy presents risks for insurers who do not adapt their business model and products.
“But it also provides significant opportunities for those in the insurance sector that address these topics. Given their role in underwriting the activities of other corporates, and in addition to considering their own firms’ responses to ESG, insurers are well placed to influence how others respond.”
The report added: “They have a unique responsibility in considering if and how they should influence behaviours and help accelerate ESG outcomes. By doing so, they can reaffirm their role as an essential link in society. For insurers, ESG can only be a good thing.”
The report explained the dramatic acceleration of interest in ESG over the past 18 months has increased awareness of the impact of companies on the environment and society. “Insurers can no longer ignore it, especially given the impact of the pandemic on insurers’ reputations,” it said.
Driven by factors such as climate change, social inequality and the impact of COVID-19, and amplified through social media platforms, ESG has become front of mind for all.
“PwC UK’s 24th Annual CEO Survey shows organisations are increasingly focusing on sustainability,” said the report. “This year, 70% of UK CEOs told us they are concerned about climate change, compared to just 44% in 2019. And there are already positive signs of change, with 60% of UK CEOs planning to increase their investment in sustainability and other ESG initiatives over the next three years.
“Around a third also noted they should be doing more to report on their organisation’s impact on its wider communities. These concerns are further reflected in a PwC survey of UK consumers which found 67% of respondents want businesses to operate sustainably, by minimising their environmental and social impact.
“Contrary to popular belief, older consumers are more concerned than millennials, demonstrating that ESG worries are not limited to younger generations.”
PwC warned companies are no longer answerable just to shareholders but also to a new set of stakeholders: customers, employees, suppliers, communities, the press and regulators. These broader and more vocal groups are increasingly interested in how ESG drives corporate performance. Other topics on the corporate agenda, such as Brexit, while complex and important, are focused on narrower stakeholder sets.
Having considered the multiple ESG dimensions, companies should decide how to integrate ESG into their strategies and operating model, added the firm. To do so effectively, there are a number of steps to take.
First, they should confirm their ESG ambition, assess strategic options and align with their corporate strategy or create a new, ESG-coherent strategy. Where required (for example, if new resources, assets and capabilities are needed) they may have to redesign their business or operating model. Next, they must execute these changes and transform, rolling out the chosen initiatives backed by the support of strong senior sponsorship.
Finally, to ensure success, organisations should set targets, and track and report these back to stakeholders.
“These last two factors are critical. Success in execution will be influenced by the tone at the top of organisations,” the report warned. “It is hard for an executive to divorce their own attitude to ESG from their corporate role. If feasible, they should set an ESG persona for their company that reflects their ESG beliefs and commitment.”