As calls for unified ESG metrics increase, Guy asks whether this is something that underwriters and the wider industry would benefit from
By Jon Guy
Despite the rise of artificial intelligence (AI) dominating the headlines in recent months, it is another acronym that is causing more concern for insurers and their clients.
Environmental, social and governance (ESG) issues are still on the top of the UK government’s agenda and it is likely that businesses will see a tightening of the rules around ESG in the months to come.
General election aside, the government is keen to enhance the country’s green credentials and, indeed, the most anticipated decision from the Labour Party in the coming weeks is whether its £20bn plus pledge to spend on green investment will make it into its manifesto.
The reason for the uncertainty remains the precarious state of the country’s economy and it is against this backdrop that companies must wrestle with their ESG responsibilities – with the added reputational threat of being accused of greenwashing always present.
Last week, speciality insurer Chaucer and ratings agency Moody’s held a sustainability forum event at which a range of ESG issues were discussed.
The key takeaway, however, was a call for the creation of a set of standardised ESG metrics to be used to record the performance of insureds.
Measuring success
The need for standardised ESG metrics is motivated by the feeling that, without a standard by which insureds can measure themselves and benchmark their performance against their peers, the ability to understand and quantify the risks insurers face will continue to be complex at best – if not impossible.
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James Wright, Chaucer’s chief risk officer, explained: “For ESG reporting to be robust and useful it needs to be consistent. Without that standardisation, our industry’s efforts to measure the ESG performance of our clients carry too much risk for error, inefficiency and frustration amongst customers.”
The insurer also believes that having a standard set of ESG metrics would also reduce the burden on brokers and clients, who are frequently asked to fill in different questionnaires covering different criteria from a range of insurers.
Such a set of metrics may enable brokers and underwriters to create online questionnaires and tools that would support insureds’ ability to understand what work – if any – they needed to conduct to meet requirements, which is likely to become a movable feast in the years to come.
These would better enable insurers to identify how well their clients were meeting the challenges ESG issues will continue to pose while concurrently supporting underwriting decisions.
However, there remains an unanswered question – are the activities and responsibilities huddled under the ESG umbrella possible to record via one set of metrics? Or is this suggestion doomed to create something far too unwieldly to be of benefit to insureds of all sizes?
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