As sustainability has become more of a corporate priority, insurers have increased their commitment to Environmental, Social, and Governance (ESG) policies. This can include including ESG factors into investment policy as well as divesting from environmentally damaging investments or investing in renewable energy projects.
Insurance providers are working closely with local communities to educate them on climate risks and mitigation strategies, while some embrace ESG advocacy efforts in support of global efforts for sustainable living.
Environmental Benefits
Insurance industry companies can play an essential role in driving sustainable business practices and policies. They can provide environmental risk analysis, data, reporting; promote green products and services; as well as lead or participate in green community service initiatives – ultimately strengthening brand loyalty while showing value chain stewardship.
Insurance companies are shifting toward aligning their investments with their sustainability goals due to both regulatory changes and investor pressure, which require insurers to disclose ESG factors and measure them accurately. Examples of insurer investments could include direct equity investments in companies with effective ESG practices; green and social bonds; private equity and venture capital funds that invest in impact-driven startups; real assets such as renewable energy projects or green infrastructure assets.
Swiss Re has undertaken significant steps towards shifting their investment portfolio towards green infrastructure with the intention of reducing emissions and supporting a global low carbon economy. Furthermore, they have created a risk assessment tool designed to assist customers in identifying and mitigating exposures related to climate-related risks such as heat waves and wildfires.
Insurance industry members are working collaboratively with other sectors to reduce climate change impacts and other long-term risks such as natural catastrophes or political instability. A number of leading insurers and reinsurers have signed the UN Principles of Sustainable Insurance Initiative (PSI).
Social Benefits
Long-term investments and risk management activities provided by insurers provide an ideal vehicle for promoting economic, social and environmental sustainability. By including ESG considerations into business processes and policies, insurers are creating resilient communities, mitigating climate change risks and contributing to a more sustainable future.
One example is the development of green or “low carbon” insurance products, which incentivize customers to purchase energy-efficient buildings and utilize renewable energy, while offering coverage if any losses arise as a result. Another trend includes parametric insurance products which quickly payout in case of natural disaster, aiding vulnerable populations recover and rebuild faster.
As well as including ESG factors into their products and operations, many insurance companies are joining collaborative initiatives and platforms dedicated to fostering responsible practices – such as Principles for Responsible Investment (PRI), the U.N. Environment Finance Initiative’s Principles for Sustainable Insurance, or even joining groups like Net Zero Asset Owner Alliance – in order to advance and share best practices. These platforms include Principles for Responsible Investment (PRI), U.N. Environment Finance Initiative’s Principles for Sustainable Insurance or Net Zero Asset Owner Alliance.
Insurers are investing in building teams and tapping external experts to better navigate the ever-evolving field of sustainable and impact investing. Sometimes this means teaming with reinsurance providers with advanced modeling capabilities and global insights; other times it means engaging with companies directly to promote positive change – an increasingly common alternative to divesting certain sectors (such as fossil fuels). Many interviewees noted the need for an independent insurance association that could bring together sustainability leaders so they could share experiences and best practices among themselves.
Economic Benefits
The insurance industry plays a vital role in speeding our progress toward a net-zero economy and sustainable future. Acting as a global risk manager with its scale and long-term horizons associated with underwriting and investment businesses, insurance can shift our economy away from solely focusing on short-run profits and job prospects towards one that offers more sustainable solutions with equitable outcomes.
Integrating sustainability is an opportunity to provide value to policyholders, shareholders and society at large; yet insurers face numerous roadblocks to fully embracing sustainability, such as perceived costs and regulatory restrictions.
To overcome these hurdles, insurers must commit to incorporating environmental, social and governance (ESG) considerations into their operations and products. In doing so, they should hire CSOs who are both data-driven and business minded while giving them sufficient resources for leading sustainability efforts across their organization.
Sustainability initiatives provide insurers with many ways to generate new revenue streams. Green building and infrastructure projects, for example, reduce environmental footprints and operational risks while offering insurers attractive exposure. Investments in sustainable agriculture and timberland may reduce environmental damages and depreciation on assets while potentially lowering claims costs and increasing asset values. Likewise, impact investing funds which seek measurable social or environmental returns provide insurers with a simple way of including ESG considerations into their portfolios.
Policyholder Benefits
Insurance carriers’ roles as risk managers, custodians of trillions in premiums, and managers of long-term investment funds offer them an extraordinary opportunity to promote environmental, social, and economic sustainability. Their vast capital flows and long-term horizons can help redirect non-sustainable business practices toward solutions that protect societies, communities, and economies for generations.
Many insurers have already taken steps to incorporate ESG considerations into their operations, by adopting sustainability-related policies and practices into core insurance products, as well as by investing in ESG/impact investments such as sustainable agriculture, responsible timberland management, sustainable water resource projects and clean energy projects that offer both financial and environmental returns.
Some insurers have also revamped their business to incorporate additional lines of business that provide greater exposure to sustainability-related risks such as the development and growth of low carbon technology or other innovative risk solutions, opening them up to new market opportunities while creating innovative risk products more appealing to customers, investors and regulators.
Insurers must increase their commitments by creating internal structures to support their sustainability efforts, such as assigning responsibility for ESG issues and designating Sustainability Liaisons throughout their company. This will enable them to communicate their sustainability goals and achievements to customers, investors, and other stakeholders while further solidifying the credibility of their business.
