At a recent DWF InsureInsight event, industry experts gathered to discuss the critical role of sustainability in the insurance sector. The panel focused on three key pillars of sustainability: people, nature and climate and illustrated the connection between the ‘E’ with the ‘S’ and ‘G’ in ESG.
Speakers Tracey Groves and Nadine Robinson from DWF, alongside Rebecca Lea from the Association of British Insurers (ABI), explored how these elements are shaping the future of sustainable business practices in insurance.
Creating a sustainable insurance industry is not easy. The challenge lies in implementing new practices and fostering a collective mindset that recognises the intrinsic value of our natural world. This journey towards sustainability demands innovation, collaboration and a willingness to challenge long-standing norms, ultimately aiming to forge an industry that balances profitability with responsibility to both people and planet.
People: The heart of sustainable business strategy
The discussion began by emphasising the importance of people in building sustainable businesses. While Diversity, Equity and Inclusion (DEI) remains crucial, the conversation expanded to broader social and human dimensions of sustainability.
The panel highlighted the leadership role of the ABI members in promoting DEI initiatives. The association published its DEI blueprint in 2022, setting out a comprehensive framework centred on three overarching principles: attracting a diverse range of talent to the sector, nurturing an inclusive environment that fosters personal and professional growth, and harnessing data to measure and understand progress.
The ABI is committed to championing DEI initiatives and continues to advocate for widespread adoption of these principles, recognising that transformation requires a change in behaviours that will subsequently drive positive cultures.
Next on the agenda was the implications of the new EU Directive on Corporate Sustainability Due Diligence (CS3D), which extends beyond DEI to encompass wider social and human aspects alongside environmental impacts. The directive requires firms to foster sustainable and responsible corporate behaviour and adopt risk-based due diligence processes and policies across global value chains that set standards and behaviours within companies and across employees, clients, suppliers and communities and other business partners.
The speakers also addressed the industry's proactive steps to minimise non-financial misconduct risks, emphasising the role of allyship in fostering a positive workplace culture. This discussion underscored the insurance sector's commitment to creating inclusive and ethically sound work environments, citing the Treasury Select Committee's report on ‘Sexism in the City’ as an example.
Nature: The undervalued asset
The focus then shifted to the critical importance of nature in business and sustainability efforts, emphasising nature's ability to increase business opportunities and resilience and reduce risks. Speakers highlighted the intrinsic link between people and nature, noting how nature is arguably the most valuable asset on earth given its role in critical infrastructure and how a sustainable environment underpins the health and wellbeing of humankind.
It was highlighted that three-quarters of land and two-thirds of oceans are now impacted by human activity. Despite this, needs of humans continue to rise, and these are not being met sustainably; the UN predicts that we are on track to meet just 16% of the UN Sustainable Development Goals (SDGs) by 2030.
The panel explored the drivers behind the focus on nature and its connection to climate change. Global events such as the UN Convention on Biodiversity Conference of the Parties (COP15) serve as a call to action for all stakeholders to ‘be nature positive’ and support projects to tackle nature loss.
DWF's True Diligence report on the CS3D offers valuable insights collected from 1,200 C-suite leaders of companies with turnovers exceeding €150 million across Europe. The results highlight that while 72% say the environment is embedded in their core strategy, various challenges in implementation highlight a gap between what companies commit to and what they deliver. Yet, only 47% measure nature and biodiversity loss.
Discussions looked at how insurers can assess nature-related risks, anticipating further developments in this area in the coming months and years. The ABI Guide to Action on Nature seeks to help firms understand their impact and design nature-positive strategies to manage risks and prioritise actions. The Task Force on Climate-related Financial Disclosure (TCFD) framework also sets out recommendations for more effective disclosure of climate-related issues built around governance, strategy, risk management and metrics, and its core elements were adopted in a parallel Task Force on Nature-related Financial Disclosures (TNFD).
The dialogue emphasised nature's role as an essential ally in combating climate change, with natural ecosystems acting as carbon sinks. The speakers stressed the urgent need for nature restoration alongside climate action, particularly given that 80% of Europe's natural habitats are currently in poor condition.
Furthermore, research published in 2023 shows that just over half (55%) of global GDP – equivalent to $58 trillion – is moderately or highly dependent on nature and, therefore, exposed to material risks without enhancements to natural ecosystems.
Climate: Transition planning takes centre stage
The final segment focused on climate transition planning, an area of increasing emphasis in the insurance sector. Attention was given to the growing focus on transition plans, with initiatives like the Transition Plan Taskforce developing standards in the UK private sector and guiding insurers. The collective success of these plans is central to the UK Government meeting its commitments made at COP26 to become the world’s first Net Zero-Aligned Financial Centre. The requirement to adopt and put into effect a climate mitigation transition plan is also central to the CS3D.
In its 2023 State of Play report on climate transition plans, CDP (The Carbon Disclosure Project) presents an overview of 20,000 companies worldwide efforts in this area. While the report reveals a growing recognition of the importance of transition plans in addressing climate change, only 21% of companies had a plan. The findings underscore the need for businesses to accelerate their efforts to develop and execute robust strategies to meet growing tide of climate and nature-related regulation and to contribute to the UN SDGs.
The discussion concluded by touching on greenwashing risks and the potential consequences of failing to implement robust climate transition plans. Speakers also addressed expectations for future government and regulatory guidance on transition plans, referencing the recently launched UN Forum for Insurance Transition to Net Zero.
Impact on the insurance sector
Throughout the event, it became clear that these sustainability pillars are reshaping the insurance industry in several ways:
- Regulatory Compliance: New regulations such as the EU's CS3D are pushing insurers to undertake a holistic approach to sustainability encompassing both people and planet.
- Risk Assessments: Insurers are beginning to incorporate nature-related risks into their assessment models, recognising the financial implications of biodiversity and nature loss and ecosystem degradation.
- Product Innovations: The focus on climate transition will likely drive development of new insurance products that support businesses transitioning to low-carbon operations.
- Stakeholder Expectations: Increasing emphasis on sustainability is raising stakeholder expectations, requiring insurers to demonstrate tangible progress in areas such as DEI, conduct and ethics, nature and climate action.
- Strategic Planning: Climate transition planning is becoming a crucial component of insurers' long-term strategies, influencing everything from investment decisions to underwriting practices.
The event highlighted that sustainability is no longer a peripheral concern but a central driver of business strategy and value creation in the insurance sector. By focusing on people, nature and climate, insurers mitigate risks and position themselves to thrive in an increasingly sustainability-focused world.
As the industry continues to evolve, these pillars of sustainability will likely play an even more significant role in shaping the future of insurance, driving innovation and contributing to a more resilient, low carbon and sustainable global economy.
