Prioritising culture
A sustainability-focused corporate culture that prioritises ethical practices, encourages insurers to embed environmental and social considerations into their core values and decision-making. Companies fostering a culture of responsibility and strong employee engagement are far more likely to align their commitments with genuine actions.
Is it time to phone a friend?
Industry collaboration is an essential aspect of ensuring the integrity of commitments. Insurers should share best practices, develop industry standards and address common challenges collectively. This approach enhances individual insurers’ credibility and contributes to the overall resilience of the industry in addressing environmental and social risks. Ongoing work to develop insured emissions standards is a prime example of how collaboration can drive accountability around activities covered by insurance policies. Through collective action, the insurance industry can be a key driver of change in sustainability commitments and behaviours.
Advocacy
By actively engaging with policymakers, insurers can use their influence to advocate for stronger environmental regulations and incentives through the development of regulatory frameworks, as insurers have a powerful platform to champion responsible business practices across sectors. However, if insurers do engage in such advocacy, their intentions must be transparent to avoid an integrity gap. The scrutiny on insurers has intensified regarding the policies they provide and how these align with their net-zero commitments. For instance, ahead of the 28th Conference of the Parties (COP28) last year, it was widely reported that some countries used the conference to strike oil and gas deals with various nations, highlighting the significance of maintaining transparency to avoid an integrity gap. Insurers are increasingly scrutinised in terms of the policies they provide, to whom and for what, and how that aligns with their own commitments to the net zero agenda.
Bringing together the 'E' and the 'S'
Alongside environmental commitments, the integrity and effectiveness of an insurer’s social impact are critical to demonstrating authenticity. Supporting community resilience amongst those most impacted by climate-related events and providing accessible and affordable solutions and insurance products to underserved communities, demonstrate the key role insurers can play in promoting financial inclusion. They can help deliver a ‘just transition’, ensuring that the substantial benefits of a green economy transition are shared widely, while also supporting those who stand to lose economically.
The insurance conundrum
There is a pressing need for new technologies and ventures to enable Carbon Capture and Storage, circular economy ventures and renewable solutions. However, providing investment and insurance for pioneering businesses in these areas can be perceived as challenging and risky. Despite the expense and time required for returns, advancing these solutions is crucial in addressing climate risks and their impact on the industry. It is therefore clear that the insurance sector should collaborate, within legal boundaries, to pursue investment and enable the urgently needed transformation.
Regulation continues to dominate so be prepared
The European Union Corporate Sustainability Due Diligence Directive (CSDDD) will add new regulations to the sector’s approach to sustainability. Insurers will be mandated to conduct thorough due diligence on ESG factors throughout their value chains, holding them accountable for environmental and social impacts.
It is a ‘comply or pay’ obligation, with potentially significant financial penalties for non-compliance, compelling insurance companies to integrate sustainability criteria into risk ssessments and coverage decisions. SMEs within the value chain could be notably affected, emphasising the role insurers have to play in supporting them. In addition, the CSDDD requires the publication of a Climate Transition Plan, offering another opportunity to demonstrate commitment to the net-zero transition and the integration of climate risks and opportunities into the broader strategic planning.
Final thoughts
The integrity of environmental and social commitments is vital for addressing challenges on climate change, human rights and their impact on communities. Insurers must go beyond discussion and demonstrate their dedication to sustainability through tangible actions, transparency and collaboration.
The continued advancement of technology and growing regulatory pressure will only increase the awareness of data and reporting shortfalls, readily highlighting any lack of integrity in public commitments that will compromise reputation, and consequently damage future talent pipelines, market share and long-term value.
In our latest sector report, our experts delve into some of the key trends and themes we expect to influence the insurance sector during 2024.
