During the past year, “ESG” (or Environmental, Social, Governance) became a more familiar acronym in boardrooms, customer conversations and even in day-to-day internal discussions. This is rightfully so, given the topics that fall under ESG have major implications for business strategy and execution within and beyond the insurance industry.
Executive SummaryPartnerships with customers and governments will be important strategies for driving ESG initiatives ahead, according to Liberty Mutual’s Chief Sustainability Officer Francis Hyatt. In addition, beyond strong governance, individual carrier ESG successes will require connecting workforces to ESG goals and investing in the well-being of employees and communities.
As the discipline continues to gain prominence, here are five related trends that I think will take center stage in our industry this coming year:
(1) Both strong governance and broad employee engagement will be critical to ESG success.
ESG issues are rapidly evolving, and as expectations rise for companies to keep pace, so too will the expectations for executive ownership. Strong corporate governance and oversight are critical in ensuring ESG integration across the business.
At the highest level, a company’s board should bring together qualified members of diverse backgrounds who can anticipate the impact of potential environmental, social, and economic factors and provide a wide range of perspectives that guard against risk and promote sustainability.
While board and executive leadership is vital, so is the growing need to bring employees along. When employees understand a company’s ESG strategy and their connection to it, they are more likely to engage by putting forward new product ideas and suggesting operational improvements that address customer needs and enhance overall performance. In addition, since ESG is about addressing some of society’s toughest environmental and social challenges, making sure employees understand the company’s impact in these areas can lead to better retention and higher levels of commitment to their work.
(2) Advancing the energy transition will require collaboration and innovation with customers and partners.
Society’s shift to a low-carbon future will result in the largest reallocation of capital in history, which comes with risks and opportunities for underwriting and investing.
P/C insurers are already known for their role as risk advisers, but the industry must take an inclusive approach that supports customers as they navigate their own transition journeys. An inclusive approach means partnering with customers to develop a deep understanding of the challenges they face, sharing information to help them make decisions, and creating and providing products that help them manage and mitigate the risks this transition will have on their operations.
Trillions of dollars will be spent annually in new renewable energy technologies and greener infrastructure, creating enormous opportunities for growth and prosperity. Insurers can enable this transition by not just insuring these sectors, but also investing in them. In doing so, the industry can play a major role supporting “green” growth, helping the world become more sustainable.
(3) More public-private partnership and customer education on the need for climate resiliency.
Focusing on emissions reduction is crucial, and in 2022 we’ll also see more conversation about the equal importance of resiliency. This is because climate change impacts, like sea-level rise, are already baked into our future. According to NOAA, there were 20 weather or climate disaster events in the U.S. in 2021 with losses exceeding $1 billion each.
Equity will continue to play a significant role in resiliency efforts, as we need to ensure that our most vulnerable communities – who are already feeling the impacts of climate change – receive greater attention and consideration.
To that end, the insurance industry needs to push for more public-private partnership that can help secure governmental support and funding around more inclusive resiliency, and also encourage general customer education about the ROI of resilient building.
(4) Fulfilling our social contract to protect our employees and communities.
The challenges of 2021 reinforced the need for businesses to continue to operate under a “social contract.” People expect companies to do their part to make progress happen in a socially responsible manner. I’ve heard that the “S” (social) in ESG feels less tangible to some, but I believe it cuts across all elements of a business. The “S” is for people, and in the insurance industry, we are selling a promise—for protection for the unexpected, delivered with care. Our promise starts with our employees. After all, if we can’t keep our promises to them, how can we keep it to our policyholders?
That’s why we’ll continue to see a focus on employee well-being. Development programs to help employees prepare for the future of work, how we emerge from the pandemic, and employee mental health are great examples. And given that the communities where we live and operate play a crucial role in our success—a key part of the social contract—we’ll continue to see a need for more economic development, strategic philanthropy giving, and volunteer opportunities.
Finally, the “Great Resignation” has created an opportunity for companies to continue to create a diverse, inclusive culture. However, companies can’t just talk-the-talk, they need to live Diversity, Equity, and Inclusion (DEI). While most have created an enterprise-wide DEI focus, in 2022, we’ll see a stronger ask for companies across sectors to hold themselves accountable to meeting their commitments.
(5) More transparency and data across the enterprise and down the value chain.
Accountability and transparent reporting will be critical factors in illustrating progress made and the change needed for the future. These factors span across business operations (like emissions reduction and diversity in the supply chain) and human capital (such as board and greater workforce representation).
However, particular to environmental-related reporting, we will see continued dialogue about what level of data is reasonable and meaningful to share. Our industry needs to contribute to this discussion.
Learn more about Liberty’s approach to ESG here.