THE insurance industry was still in its infancy when it came to most environmental, social and governance (ESG) concerns, according to Santam’s Strategic & Market Intelligence Manager Thabiso Rulashe.
The manager in the financial services company said that while there was much work to be done, he believed that for insurance to meet its mandate to make a meaningful contribution in people’s lives was a marriage made to last.
“Right now, it’s about embedding a strong ESG framework and agenda, and working with all stakeholders, in particular the regulator and reinsurers,” Rulashe said.
He stressed that management of risk has always been a cornerstone of insurance.
“Insurers have always viewed strong governance as key part of understanding and pricing of risk. Managing stakeholders’ expectations has and continues to be a key element in doing business.”.
However, in the last 24 months, Covid-19 and the 2021 United Nations Climate Change Conference (COP26) really brought ESG to the fore, especially with regards to people management, climate change and regulatory requirements.
“In some ways the insurance industry is quite advanced, but in others the industry is in its infancy – especially in terms of its response to climate change and biodiversity loss. There’s a lot of understanding that needs to come around the ‘E’ of ESG, especially,” he said.
In South Africa, where the broader ESG landscape was said to be in its elementary stages, Rulashe said a balanced approach was best.
He said some choices were obvious – for example, taking a business off the books that participate in criminal activities.
Other incidents were far less obvious, for example, opting to exclude companies that deal in fossil fuels.
Rulashe said it was a difficult call to say you would support these companies because South Africa was in dire need of energy and by excluding fossil fuel producers, you were potentially jeopardising the economy–and people’s lives and livelihoods.
“I think it’s important that insurers take a measured approach. Insurers, at the heart of it, are risk managers, so should guide their clients on the journey to improve their risk behaviour.”
Rulashe said ESG oversights could definitely cause losses to businesses.
“From reputational and talent risk to financial risk, ESG impacts can be extremely costly. A lack of governance in an organisation may be indicative it doesn’t take other aspects seriously. In an age where employees want to work for businesses that take care of society and the environment, this could mean top talent chooses other opportunities.”
On the other side, Rulashe believed that ESG-led companies should benefit from better pricing.
“They’re taking a holistic view in terms of how they can better manage their risk. This behaviour should be incentivised. We’re not there yet but, maybe one day, hybrid car manufacturers and eco-efficient building developers could receive cheaper premiums. During Covid-19, people who didn’t drive a lot could apply for reduced premiums. Their risk reduced and so did their carbon emissions. Their policies were changed accordingly. So, this kind of principle should apply.”
Rulashe to integrate ESG practices, insurers needed to report accurately to their stakeholders on the impact of ESG on their performance and other related aspects, their leaders must take accountability for implementing and driving strong risk management strategies aligned to positive ESG outcomes, received independent oversight from board members and the Board and management teams need to show diversity, disclose remuneration, and how votes happen.
In addition, he said insurers needed to fully appreciate the evolving ESG risk landscape.
“Insurers have a meaningful, influential role to play in championing ESG. Part of this means making some big decisions about whether to participate in certain key risks. For example, a business can make the call to exclude any organisation involved in human rights violations or environmental degradation. On a more positive note, maybe an insurer takes proactive steps to include organisations that are ESG-led, and accelerate renewable energy adoption, for example. It’s about operationalising ESG,”
Rulashe said insurers needed to be creative and innovative to come up with solutions that made policies more accessible and affordable. He said ESG, ultimately, should be a great thing for insurance, because it enhanced the societal and risk management role moving forward.
BUSINESS REPORT