Companies that have been in existence for more than two centuries tend to be founded upon core values. In the business of insurance, which is predicated on the customer’s trust that the insurer will be there to make them whole in times of need, trustworthiness and reliability can be competitive advantages.
Executive SummaryOpinion: Max Messervy of Ceres explains some of the reasons why The Hartford is one of only 13 P/C insurers to earn Ceres’ top “leading” rating for climate risk governance practices and the only P/C insurer identified on a scorecard of climate risk management strategies. Messervy also shares insights from Alan Kreczko, former general counsel for The Hartford.
In the lobby of the 205-year-old Hartford Financial Services Group headquarters, a showcase displays an original property insurance policy for Abraham Lincoln, complete with hand-drawn diagrams of the buildings covered. In 1920, The Hartford provided baseball legend Babe Ruth disability coverage against a loss of income due to injury or illness.
Along with this long history of risk transfer, The Hartford has made a deeper commitment to environmental stewardship as an integral piece of its overall sustainability efforts, which are a part of the company’s core values. At Ceres, we have recognized that effort. The Hartford was the only U.S. property/casualty insurer identified as a leader in our 2014 Insurer Climate Risk Disclosure Survey Report & Scorecard, which examined insurers’ climate risk management strategies.
In 2007, The Hartford publicly committed to improve its disclosure of prospective risks the company faces from climate change, as well as its strategies for mitigating those risks. The company adopted a formal climate and sustainability strategy, including reporting corporate greenhouse gas emissions to CDP, and issued a Statement on Climate Change (updated in 2014) that set out commitments for action. Specifically, those commitments were to advocate for improved land use planning and building codes, to promote environmentally responsible activity through product development and the company’s investments, and to continue to measure and reduce the company’s energy consumption. Given the broad scope of action envisioned in those commitments, senior management formed an environment committee comprised of 17 leaders from across key business units, including risk management, operations, investments and real estate.
General Counsel Alan J. Kreczko was appointed to chair the environment committee in 2007, a position he held until this past May when he retired from the company after 12 years of service. Reflecting on his unique role as both a top corporate executive and chair of the environment committee, Kreczko said, “Everybody is encouraged to think about doing things differently to promote the environment…They are encouraged to bring ideas to the table” knowing that senior management has broadly endorsed environmental responsibility and is committed to improving the company’s environmental performance.
Exemplifying the success of the company’s efforts, The Hartford was one of nine leading global insurance and reinsurance companies Ceres identified in its 2014 Insurer Climate Risk Disclosure Survey Report & Scorecard and one of only two U.S.-based insurers in that top nine. (Life insurer Prudential Financial was the other U.S. insurer.)
I spoke with Kreczko at The Hartford’s corporate headquarters about the lessons he learned over eight years of organizing the company’s climate and sustainability strategies and the opportunities he sees for the insurance industry in addressing climate change.
The All Hands on Deck Opportunity
In Kreczko’s view, committing to the Statement on Climate Change “impacted every aspect of The Hartford—as an employer, insurer, as an owner of real estate, as a community actor and as an investor.” The environment committee’s mandate was to figure out how to bring those commitments to fruition while enhancing the company’s competitiveness and operating efficiency. Particularly in terms of real estate, technology and operations, the committee discovered that many of the environmental initiatives enacted were what Kreczko calls “win-win-win: good for the company, good for the environment, and employees like it.”
Kreczko noted that bringing together a diverse set of 17 business unit leaders made the environment committee a team effort. “The environment is not something that is owned by the law department or is solely the responsibility of the real estate people; it’s a joint accountability. Everybody has an interest in it.” This team effort has led to some significant changes in the company’s operations, as well as a 50 percent reduction in the company’s greenhouse gas emissions since 2007 and recognition from the Dow Jones Sustainability Index, CDP and the U.S. EPA.
In terms of insurance products, in 2010, The Hartford established a Renewable Energy Unit focused on meeting the insurance needs of the rapidly growing solar, wind and fuel cell energy industries. That unit has a strong growth outlook for the coming years, as the costs of renewables have dropped precipitously and government policies have been enacted to reduce greenhouse gas emissions from electric power production. In fact, the recently adopted COP21 Paris Agreement to address global climate change could unleash trillions of dollars of low carbon investments worldwide in the coming decades, offering insurers new markets and product development opportunities. Uniquely among U.S.-based P/C insurers, The Hartford publicly supported a strong global climate deal by joining the Low-Carbon USA coalition of major corporations, which ran a full-page ad in major publications in December.
Another example of The Hartford’s sustainability focus is that, at the urging of environment committee members, the company committed that by 2016, 15 percent of the company’s claims department auto fleet will be made up of hybrid-electric vehicles that provide both fuel savings and reduced environmental impact.
Consistent Support From Leadership
Ceres’ research has shown that many insurance companies have sustainability committees, and companies often claim they monitor climate change as one of a number of emerging risks. The Hartford environment committee’s holistic approach combining climate risk management and sustainability is, however, fairly unique. It’s also a successful approach: Ceres’ analysis found that The Hartford was one of only 13 P/C insurers (out of 193 total) that earned the top “Leading” rating for their climate risk governance practices. That rating indicates that senior management and the board of directors are directly involved in both establishing and monitoring the company’s climate risk profile and are getting regular briefings regarding the latest relevant climate research.
Kreczko highlights the support for the environment committee from three consecutive CEOs—Ramani Ayer, the late Liam E. McGee and current CEO Christopher J. Swift—as critical to realizing the company’s success on its climate goals. In order to keep top decision-makers regularly informed about the prospective climate risks and opportunities facing The Hartford, Kreczko briefed a committee of The Hartford’s board of directors annually on relevant issues, and a committee member (under Kreczko’s direction) briefed the company’s executive leadership team twice annually.
According to Ceres’ research, it is unusual for a company’s general counsel to have a role on an environment committee, let alone to serve as chair. But in Kreczko’s view, having a very senior executive as chair helped to “legitimize” the environment committee. “It puts a stamp of approval from the top of the company that ‘we want to be environmentally responsible.'” Kreczko’s successor as general counsel, David Robinson, is carrying forward the tradition of the company’s top corporate counsel serving as chair of the environment committee.
Winning Over Current and Future Employees
An added benefit Kreczko observed is that taking strong action on climate change and the environment aided employee recruitment and retention and also increased engagement. As with most insurance companies, The Hartford is actively recruiting from the millennial generation, a cohort that, the company noted, generally cares strongly about the environment. Kreczko sees the company’s strong environmental commitment as a core element of its appeal in competing for new, top-quality talent.
Once The Hartford has recruited new hires, those recruits can join The Hartford’s Environmental Action Team, or HEAT, which was started and is led by employee volunteers, as a way of demonstrating leadership on climate and sustainability issues. HEAT organizes various initiatives, from encouraging employees to commute by bicycle or public transit to electronics recycling drives. These programs have proven popular with employees, and the environment committee recently added a HEAT representative as part of the committee, ensuring that the group’s efforts are recognized and supported within the broader corporate leadership team.
Leading Into an Uncertain Future
A frequent concern Ceres has heard from insurers that are reluctant to publicly acknowledge the reality of climate change is that doing so could expose companies to additional liability risks. Kreczko disagrees. “From a liability perspective, as a lawyer, I almost would say I don’t understand the hesitation. Most companies affirmatively want to acknowledge risks, if you look at their SEC filings, because if something happens, they want to be able to say ‘we disclosed that there was a risk.’ So we disclosed in our 10-K the risks related to climate change, and I don’t really see a legal downside from acknowledging the risks that we think are out there.”
Kreczko also noted that in his time with The Hartford, he’s never heard of shareholders complaining that the company is “too green.” Kreczko argues that over the longer term, the company’s climate action has increased The Hartford’s competitiveness as a result of the committee’s efforts to identify initiatives that are good for the company, good for the environment and appreciated by employees. The environment committee’s cross-functional structure is well suited to stimulate creativity and collaboration, which helps identify such triple-win programs.
Every insurance company has its own view of risk and strategies in place for managing those risks. The Hartford’s example of taking focused action to both address prospective climate risks as well as to seize climate-related business opportunities shows that there is a significant upside to addressing climate change robustly.
Based on The Hartford’s example, Ceres believes that adapting the environment committee model in your own company could yield greater operational efficiencies, product innovation and employee engagement. Who would refuse those benefits?