The Role of ESG in Improving Insurance Programs

June 1, 2022

By Edward Hanna, Kayla Cecchine, and Cassidy Weimer

We live in a world of immediate transparency. Smart phones have given everyone 24/7 access to a camera and social media platforms to voice their opinion, and every one of us has the ability to move a story across the globe – sometimes in the matter of minutes. This immediate transparency can be a risk or a reward to a company, its reputation, and its bottom line depending on its actions.

ESG (Environment, Social and Corporate Governance) criteria has emerged as the set of standards used to measure the relationships, operations, and performance of companies as corporate citizens. Both private and public companies are viewed through an ESG lens by investors, employees, customers, and stakeholders.

What began as investment criteria for large, publicly held companies primarily in industries with an outsized impact on the environment has advanced significantly in recent years. Today, ESG represents the evolution of business frameworks such as Total Quality Management, Sustainability and Corporate Social Responsibility that take a more holistic view of a company’s operations and impact. ESG is fast becoming a business imperative for organizations of all sizes and across industries. Many are recognizing their role as ESG stewards. In fact, 91% of business leaders believe their company has a responsibility to act on ESG issues, according to PWC research. As the ESG landscape matures, middle-market companies in particular are recognizing that formalizing a framework for ESG performance is vital to maximizing potential and growth. Increasingly, employees and potential hires, customers and prospects, and a wide range of other stakeholders are evaluating organizations on factors related to ESG.

Defining ESG as a Set of Risk Parameters

At its core, ESG considerations reflect a dedication to the greater good. The criteria identifies a company’s role as a steward of the environment, the social impact of the relationships and reputations it fosters within the communities it does business, and the corporate processes and policies it puts in place to govern itself. Put simply, the criteria explores a company’s actions and exposures based on a set of risk criteria that looks beyond the immediate bottom line.

Risk management and insurance can and should play a pivotal role in a company’s ESG efforts. ESG initiatives and insurance programs, in many ways, interplay in intent. The alignment of objectives between ESG initiatives and insurance programs allow for leveraged opportunities that create a more cost-effective and comprehensive insurance program while enhancing a company’s ESG performance and reputation.

Incorporating ESG into Conversations with Underwriters

Due to this intersectionality of ESG and insurance, ESG efforts are increasingly playing a vital role as organizations look to secure or renew coverage. Much like investors, insurance companies recognize the relationship between an insured’s awareness of their ESG criteria and profitable underwriting. A company’s identification of this criteria shows a proactive approach to risk management and reputation protection. More and more, carriers are considering ESG criteria in their underwriting, including requesting documentation and details about protocols. ESG metrics and results are even being incorporated into some ratings models and directly impacting pricing.

Directors & Officers Liability underwriters, for example, largely are recognizing ESG as an important consideration in their rating models. As a line of coverage that frequently responds due to litigation from shareholders when an event occurs that negatively impacts a firm’s reputation (and subsequently impacts the company’s bottom line or stock price), Directors and Officers Liability can be greatly bolstered by ESG initiatives to best prevent such an event. Focusing on these ESG initiatives in conversations with markets can differentiate clients and best position their risk, especially in a challenging marketplace. Similarly, the Cyber Liability marketplace has grown to also welcome ESG conversations in underwriting. Corporate Governance criteria of ESG encompasses a focus on cyber security and data privacy. Positioning accounts in an ESG context uniquely positions risks in a complex market, which gains underwriting attention and can lead to a more comprehensive and cost-effective outcome.

At the same time, there’s real value to be found in developing a more robust framework for these conversations that goes beyond traditional risk transfer. More broadly, strong ESG conversations gain the attention of external audiences, like the investor community and Board of Directors.

Supporting ESG Efforts with Coverage and Risk Mitigation

Insurance can also offer significant benefits for companies looking to advance ESG policies and protocols. As organizations look to quantify and plan against their ESG promises, insurance offers coverage and a financing vehicle to ensure those commitments are grounded in real-world data. In addition, parametric insurance products have emerged as a mechanism to transfer ESG risk.

Once again, this enhances an organization’s ability to tell a more compelling and comprehensive ESG story to stakeholders and audiences. It’s a way to show that a company’s efforts go beyond lofty rhetoric and there is a robust financial plan around its commitments.

Finding the Right Risk and Insurance Partner for ESG Efforts

As middle-market companies look to leverage their company’s awareness and dedication to ESG criteria during their insurance renewal season, a good partner can be an invaluable resource. That partner should understand the fundamental connection between ESG programs and risk and insurance. That includes opportunities to secure more cost-effective coverage and bolster ESG initiatives with tangible coverages and policies.

At the same time, the right partner should have an in-depth understanding of the organization and their industry. They should take a holistic approach to advancing ESG efforts, looking beyond individual policies and consider non-insurable risks. Often, realizing these benefits begins with an honest look at current efforts – where ESG protocols are strong, and where there is opportunity for improvement.

At Conner Strong & Buckelew, we offer robust and innovative risk management services for organizations at various stages in their ESG journeys. Our experts have a deep understanding of how ESG policies can create advantages in coverage and in executing a long-term growth strategy.

Get in touch today to begin a conversation around improved renewals and risk management through your ESG efforts.

Click Here for a Printable Download

Practice Leader

Edward Hanna, CIC, CIH

Senior Vice President, Senior Account Executive, Risk Management Enterprise

Kayla Cecchine

Account Manager

Cassidy Weimer

Account Manager