Insurers, often under pressure from shareholders and regulators, have been urgently progressing their climate risk initiatives, but in many cases, this is being managed separately from any consideration of the social ESG component. The social and environmental aspects may operate as siloed programmes with little day-to-day integration. At the very least this may mean the social implications of climate change are given little consideration. While ‘corporate social responsibility’ has transformed into ‘environmental social governance’ and now, in a post COVID-19 world it may now be morphing into ‘impact’. Regardless, the case for investing in sustainability is all about people, insurer’s own employees and their policyholders.
The sustainability business case for many firms is about attracting and retaining talent. Randstad describe “sustainable employment” as people who want to be proud to work for an organisation with a clear purpose. It’s not just about their own treatment and wellbeing, but the ‘whole package’, in terms of how an organisation is governed and its environmental impact. Their research suggests a third of employee’s place working for a caring and reputable employer as their number one factor when selecting roles, and this trend is indeed increasing within the younger workplace demographics.
As an example of a developing trend, Intact Financial, the owners of RSA put their social purpose at the centre of what they do and now produce an annual impact report.
Who we are and how we work ground us. People are at the heart of our organisation and our success. How we execute on social impact and ESG dimensions is detailed throughout this report, starting with the areas where we can have the greatest impact and that are aligned to our strategy. We are a purpose-driven company based on Values and a belief that insurance is about people, not things.” |
This trend is not restricted to the most socially aware insurers. Private equity (PE) has pivoted significantly on its commitment to sustainability in recent years. Since 2017, the number of PE firms committing to the UN Principles for Responsible Investment has grown fivefold to over 1000. Taking two examples from Apollo and Carlyle who provide useful case studies of organisations that have made significant investments, are appointing chief sustainability officers, have established board sustainability committees and are launching transition funds. Apollo uses changes made at Aspen as part of its corporate reporting. Perhaps the traditional perspective has been reversed and private firms with an average hold periods over five years, are better able to commit, compared to public companies suffering from the tyranny of quarterly reporting cycle. Certainly, these firms are establishing carbon and diversity targets across their portfolio companies and see these commitments are key to themselves in retaining talent. This is mirrored by the level of interest in sustainability shown by the British Venture Capital Association and its members. This is reflected in the nature of due diligence work that Crowe is being increasingly asked to do for its corporate finance clients.
Geneva Association offer a barometer of trends in the sector and are pressing insurers to integrate social issues more into their underwriting and investments. Insurers are certainly under pressure to ensure climate change is being fully integrated into their core operations and are at risk of being scrutinised if they underwrite or invest in organisations with poor employment and ethical standards, given they should be at the forefront of the agenda.
It is widely accepted that the concept of insurance is based on creating social good; the premiums of the many, paying for the claims of the few and putting people and organisations on their feet after misfortune (Geneva Association). What has been lost in recent years, is the recognition of how this is done matters and the importance of having a joined-up strategy. Claiming strong social credentials, while not settling COVID-19 claims, had significant consequences on corporate reputations. (Insurance Times)
The cornerstone of most social agendas is an organisation’s diversity and inclusion programme, as well as its approach to equity and social mobility. The challenge currently is how to weave this into an overall sustainability narrative that adequately expresses a firm’s culture and values, in a compelling way to employees and customers. Living up to the promise of providing an inclusive culture and fulfilling career, is key to ensuring both client and employee retention. In many ways, this is about trust – social trust, employee trust and consumer trust. Perhaps this means that a strong sustainability story aligns to a fully embedded approach to consumer duty.
Providing a clear story about how an insurer is customer-driven in terms of delivering its promises through its claims experience and supporting vulnerable customers makes sense. It also puts into context product innovation driven by responding to unmet needs.
Just as employees and customers are asking challenging questions to insurers regarding their social impact and licence to operate, highlights that organisations are recognising that their reputations are increasingly in the hands of the vendors, suppliers and outsourced partners they choose to work with. Insurers may see early signs of shifts driven by disputes surfacing through inwards employment liability claims. A virtuous circle implies that the entire value chain is provided to strong ethical standards, particularly with respect to third party labour standards.
This brings us full circle to reporting on impact – what is the purpose of this reporting and what social impact are insurers seeking to achieve?
In a world where reputational risk has fundamentally changed, ensuring that your organisation can articulate its social impact and delivers on its promises is increasingly important, and needs board commitment and oversight to ensure it does not tip into a reputational pitfall. Please get in touch with Alex Hindson or your usual Crowe contact for more information.
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