ESG Investing

Insurance Industry Drawn to ESG Risk Management


The insurance industry is built upon risk: quantifying, assessing, mitigating, and managing the potential for sustaining losses due to a variety of factors, from malfeasance and operational problems to natural disasters and systemic issues.

Given this relationship, it is unsurprising that the insurance industry has a vested interest in environmental, social, and governance (ESG) analysis and ESG risk management.

ESG and Sustainable Insurance

The Principles for Sustainable Insurance were introduced in 2012, at the same conference that marked the introduction of the United Nations’ Sustainable Development Goals (SDGs).

The Principles for Sustainable Insurance were developed as part of the UN Environment Programme Finance Initiative. These Principles present four overarching themes:

  1. Incorporating material ESG issues into decision-making
  2. Collaborating with clients and business partners to raise the profile of ESG factors, manage risk, and find solutions
  3. Working with governments to spur societal action on ESG issues
  4. Disclosing progress on the Principles in order to maintain accountability and transparency

Seven years after the Principles were launched, the group released Underwriting Environmental, Social and Governance Risks in Non-life Insurance Business. Avoiding mandates, the report offers guidelines for approaching ESG risk management, information access, and materiality issues while elevating such matters with communities, investors, and governments.

Accountability on sustainability from company management and boards is gradually improving, although underwriting emerging risks continues to be a challenge.

Room for Improvement on ESG Risk Management

Of course, the ambitions of robust policy suggestions can diverge from day-to-day marketplace realities.

While insurers such as Allianz and Zurich actively point to the role ESG integration plays in their operations and investments, others are lagging behind. According to a 2018 study of 159 insurers by international ESG research firm Vigeo Eiris, the insurance industry ranked 23rd out of 39 industries surveyed for reporting and integration.

The report said that insurers in Europe, where ESG risk management historically runs deeper, lead the way on climate risk management and overall corporate social responsibility matters. It added that accountability on sustainability from company management and boards is gradually improving, although underwriting emerging risks continues to be a challenge.

Leeway is shrinking, however. In early 2019, the UN’s Principles for Responsible Investment produced an update to its 2016 ESG in Credit Ratings Initiative. Although 20 credit rating agencies, which hold large sway over insurers’ businesses, have signed on to the 2016 pledge to incorporate ESG factors into credit ratings and analysis, the 2019 posting pressed for even more rigor, transparency, and communication.

As the challenges of meeting the Paris Climate Accord and the SDGs remain high, the role of insurers will likely gain in prominence, given the industry’s oversight of the intersection of impact and finance. In turn, as stakeholder interest rises, each company’s commitment to ESG risk management will be more illuminated as well.


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