Leading insurers see environmental, social and governance (ESG) as an opportunity to further reinforce their position and drive positive change — not only through products and investments, but also within their own organisations, across their customer base and throughout the broader ecosystem. Yet many are struggling to set goals, prioritise activities and cascade their vision across every division and function.
In this report, KPMG professionals explain how insurers can design and deliver an ESG strategy that not only meets compliance requirements, but also delivers significant competitive advantage. We highlight key challenges for insurance organisations, demonstrate examples of where businesses are getting it right, and offer some insights to help compose an ESG strategy that is purpose-driven and tied to overall business objectives.
Why ESG is strategically important for insurers
Investor, customer and employer sentiment is shifting. And insurers understand there is a cost to taking a wait-and-see approach to ESG, both from a financial and a reputational perspective. Many are facing increasing pressure to deliver on commitments they’ve made, particularly on the climate agenda.
At the same time, regulation has also been a key driver for many insurers. As regulators increasingly start to focus on climate and ESG risks as prudential risks, a series of new ESG regulations are being developed and issued around the world. In Singapore, the Monetary Authority of Singapore (MAS) has developed a roadmap for issuers to disclose ESG matters from 2022.
44% of insurance CEOs agree that ESG programmes improve their financial performance
How insurers are making strides in ESG
While many insurance organisations are at different stages on their ESG journey, significant activity can be seen across two main focus areas:
Insurers are using an ESG lens to enhance
how they conduct their own business
- Governance: Insurers are putting mechanisms in place to measure and review progress on ESG objectives and investments.
- Asset management: Insurers are creating methodologies for assessing ESG risks and opportunities for investment purposes.
- Delivering net zero: Insurers are setting ambitious yet measurable goals to manage future risk, reduce costs and enhance efficiency.
- Workforce of the future: Insurers are using data and modelling to create a fairer, more equitable workplace for employees.
Insurers are using ESG capabilities and experience to help their clients and stakeholders on their own ESG journeys.
- Product innovation: Insurers are using technology and gamification to encourage risk reduction for policyholders and members.
- Better risk awareness: Insurers are embedding ESG elements into existing models to help clients better understand their risk.
- Enabling employees: Insurers are creating innovative programs to help their employees reduce their own carbon footprint.
- Incentivising portfolio companies: Insurers are using their investment power and ESG insights to help encourage portfolio companies to decarbonize.
Tips to accelerate and enhance your ESG strategy
While much of the focus in ESG tends to coalesce around the environment pillar, the reality is that many topics are interlinked. Pulling one lever could have a positive or negative effect on another.
For some, making the connection between ESG and their role within the insurance entity might be difficult. Ensuring your talent feels connected to the journey can be key to success.
Besides the investment portfolio, insurance companies have an opportunity to support their clients in setting their ESG strategy and helping them transform towards a sustainable business model.
The consequences of getting things wrong or being accused of greenwashing likely keep many executives awake. Making sure that data is reliable, processes well designed and controls robust will be crucial.
The ESG strategy is based on the organisation’s ESG ambition. But don’t let ambition stall you. And it is perfectly reasonable to have higher goals in certain areas.
10 considerations to ask yourselves as part your ESG strategy
A guide for insurance organisations
Do you want to be an ESG leader, follower, or simply meet requirements?
Which markets, segments and industries pose the greatest growth opportunities for value creation?
What are the challenges and opportunities in your current portfolio?
What are the expectations of your clients and distributors?
How do the current processes in your organisation support your ESG ambition in terms of underwriting, handling claims and investments?
Do you have the infrastructure and capabilities needed to achieve your ambition?
Do you have access to the right data and analytical tools to generate actionable ESG insights?
Is your structure and governance fit for purpose and do you have robust frameworks, reporting and controls in place?
Are your strategy, values, purpose and culture aligned? Are employees supportive?
Do you have the ESG data needed to accurately track progress, meet your reporting needs and incentivise outcomes?