CSR has become ESG: but the difference is a big deal for insurers

Environmental, social and corporate governance (ESG) issues have come to the fore in the insurance industry in the last few years—and not just due to fears that climate change could add to natural catastrophe losses. A note from DBRS Morningstar analysts identified “growing momentum” in sustainable investment among insurers.

How seriously are insurers taking ESG, and is it any different from the corporate social responsibility (CSR) discussions in the past?
To find out and consider where ESG might go next, a diverse panel joined Intelligent Insurer’s Re/insurance Lounge, the online, on-demand platform for interviews and discussions with leading players and thinkers in the industry. Representatives from carriers and analysts were present:

Making it count
According to Dugan, there’s little doubt the topic is taken seriously. Helping develop her firm’s ESG strategy is among her key tasks, following the creation of SiriusPoint from the merger of Third Point Re and Sirius Group.

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“I’m leading the ESG effort and interfacing with the board and leadership to make this a board-level priority as well as a management priority,” she explained.

“We think about ESG quite broadly and recognise its importance in not just integrating our business but building a sustainable business for the future.”

That level of attention to ESG is increasingly common, according to Korwin-Szymanowska. Even now, though, there remains some confusion about the terms.

“I’ve been surprised that quite a few people aren’t sure what the E, S, and G stand for,” she said. It’s not uncommon for insurers to think the last letter refers to oversight of the other two elements rather than governance of the organisation as a whole. Much of the initial work is often focused on unpacking the different components.

In part, that confusion is possibly down to the changing terms in this space. When Bruch began his work implementing ESG into the underwriting process of AGCS a decade ago, most of the talk around such issues referenced “CSR”.

The term is a precursor to ESG, said Bruch, but there are some important distinctions. First, CSR is more “qualitative” and “communications-driven”, while ESG is more quantitative, he pointed out.

“CSR had more to do with sustainability reports,” he explained. “It is more about helping employees advance in their careers or donating products or services—all those topics are at the heart of CSR, while ESG is more quantitative, concerning greenhouse gas emissions, pay equity or diversity and inclusion.”

The confusion is also a reflection of the growing importance of these issues, with ESG increasingly considered by a wider audience without a background or prior expertise in the area. “ESG has changed from being looked at by specialists to becoming much more mainstream,” explained Korwin-Szymanowska.

A hard choice
The COVID-19 pandemic has accelerated that trend. The crisis brought home the interconnectedness of the global economy, according to Dugan, and is forcing her newly merged firm to consider some searching questions.

“How do you build a sustainable business being mindful of not just climate risks but also these other exogenous shocks to the broader global economy?” she asked.

“For us, it affects every aspect of our business.”

According to Korwin-Szymanowska, that reaction is not uncommon and is likely to lead ESG issues to become more firmly embedded in businesses.
“COVID-19 has made it real and tangible for people,” she said. “It is potentially going to give ESG the chance CSR never had.”

That will see ESG rise further up the agenda and permeate more widely in organisations.

“It needs board and C suite-level attention so that it’s pushed from the top, but it also must be integrated into everything you are doing,” said Bruch. “Over the years, it should become part of your DNA.”

That will be helped by regulation, with the Prudential Regulation Authority of the Bank of England and others increasingly pressing insurers to show concrete strategies for addressing ESG risks. Such regulation is “going to keep coming”, said Botelho-Young, and insurers need to be prepared. That should, however, be only half the story.

“We try to emphasise that ESG should be thought of not just as a risk but also as an opportunity. A company that has embedded thinking about ESG across the organisation will be in a better place to identify the potential opportunities and capitalise on those,” she said.

For that to happen, many insurers need an epiphany, according to Korwin-Szymanowska.

“When I go through the exercise, I sit in front of the C-suite and often there’s a penny-dropping moment. Someone will say: ‘We need to make a choice; do we have an ESG strategy that sits on the side of our corporate strategy or do we believe in it so fundamentally that we need to revamp our corporate strategy to make it ESG coherent?’,” she said. That’s when it’s more likely to stick, she added
“That realisation makes insurers understand that there is a choice to be made.”

To view the full Re/insurance Lounge session click here.