The other ESG

2023 has finally arrived! The start of a new year always brings with it some anticipation, a sense of a fresh start and often some resolutions to do things differently or better. If you work in life insurance, this year is particularly significant as it brings with it the go-live date for IFRS 17, and I’ll have more to say about that in my next post. Today, keeping with the theme of renewal, I thought I’d discuss the other ESG—Environmental, Social and Governance.

Why “the other ESG”? Well, as an actuary, for years if someone mentioned “ESG” in my presence I automatically assumed that they meant “economic scenario generators,” and we would be having a nice discussion on stochastic modeling. However, in recent times, they are more likely to be discussing the world of environment, social and governance issues that make up a comprehensive organizational ESG strategy. As various standard-setters and regulatory bodies set out their expectations around related disclosures, more and more people are talking about it. ESG is the next wave of corporate reporting and regulatory change and it promises to be even bigger than IFRS 17 accounting change. Given that a big part of my work is helping other actuaries to respond to these changes, I’ve realized that I’ll probably have to adjust my default assumption of what “ESG” means!

In my last post, I talked about my plans for KPMG’s 2022 Summer Splash, a wonderful employee benefit of additional paid vacation days off over the summer months. Although I was able to enjoy some of the best of summer, a considerable amount of my time was spent in attending a two-month course on climate risk and sustainability specifically designed for actuaries. I learned a great deal, some of which has had an impact on my daily behaviours and choices that I will carry forward into this new year. I’m currently thinking through more ways I can support my personal sustainability goals. One resolution was to never leave home without a re-useable shopping tote, a move that was quickly justified by the recent announced and implemented removal of single-use plastic bags by several retailers.

ESG is such a broad topic, so here’s the specific question that interests me the most right now: Where can actuaries best support their organizations on their ESG journeys? For life insurers, I think the answer involves a key skill that actuaries bring—risk management for insurers and in particular the quantification of associated financial impacts. Actuaries use models to understand the potential range of outcomes arising from future uncertainty, and there are well-established techniques to deal with uncertainty arising from insurance and economic risk in insurance policies. How does climate risk interact with insurance risk and economic risk and how should life insurance actuarial models reflect this, given the long modeling horizons? Fellow partner Eric Levy recently held a webinar on the hot topic (forgive the pun) of potential implications of climate change for mortality assumptions. (If you would like to be informed of future webinars, please contact Eric to be added to our mailing list.)

Moving away from the “E” in ESG, we just saw the end of another February, a month that has special significance for me because it is Black History Month. As an executive sponsor for our firm’s Black Professionals Network, I’m really proud of the work that has been done to line up a series of educational and inspiring events that celebrate Black achievements and the culture of the Black diaspora. Moreover, for the second year in a row, KPMG conducted an externally administered survey of Black Canadians on their experiences in the workplace and as consumers. You can view the results of that survey here.

Shifting the dial on anti-Black racism, and indeed racism in general, is not a sprint but a marathon and so the ability to measure progress is critical. As they say, what doesn’t get measured doesn’t get done. As an actuary, I applaud the data-gathering; after all, the informal motto of the actuarial profession is a quote from John Ruskin: “the work of science is to substitute facts for appearances and demonstrations for impressions.” Building on last year’s survey results, the message is clear—while the experiences of Black employees and customers continues to improve, a significant amount of work remains. Companies making meaningful progress to combat racism in their workforce, supply chain and customer experience will be demonstrating that they “walk the talk” on the “S” of ESG. And, crucially, reaping the benefits from improved employee retention as well as a wider recruitment pool and customer base.