Insurers’ Risk Mitigation And Return Opportunities Through ESG/Sustainability

Insurance companies are in an interesting position when it comes to ESG/Sustainability.  Like with other sectors, it appears as though especially midsize-to-smaller U.S. carriers are late to the party in competitive ESG/Sustainability positioning.  But that might be changing.

As we frequently read these days, ESG is here to stay and is solidly in the mainstream.

Related: ESG Investments Reach All-Time High

How might we conclude that U.S. insurance companies are behind?

Many reading this blog are familiar with the Dow Jones Sustainability Index (DJSI), UN Principals for Responsible Investing (UNPRI) and what was previously called the Carbon Disclosure project but now just goes by CDP.  Chances are that fewer may be likely aware of the Principles for Sustainable Insurance (PSI) initiative. Pertinent information from these organizations and a few AlphaSense and internet searches include:

• DJSI, CDP and UNPRI have been around since 1999, 2000 and 2005, respectively. PSI was more recently launched in 2012.
• As of July 2018, the PSI has over 80 signatories, including insurers representing approximately 20% of world premium volume; however, there is not one U.S. domiciled insurance company among the signatories.
• DJSI includes in its North American Index 5 large U.S. and 2 Canadian insurance companies, European Index 9 UK and European companies, and World Index 16 global companies (7 are non-North American. or UK/European).
• AlphaSense searches on ESG + Sustainability across press releases, company presentations and SEC filings for all cap sizes in the sector over 12 months, found just 8 large U.S. companies communicated inclusion in DJSI, CDP rankings, or reference to their company sustainability report or sustainability governance, including:

Aflac [$AFL], AllState [$ALL], American Financial Group Inc. [$AFG], Everest RE [$RE], MetLife [$MET], Travelers [$TRV], The Hartford [$HIG] and Torchmark Corporation [$TMR].

How might we also conclude that U.S. insurance companies seem to be catching-on?

According to MIT, “The insurance industry as a whole has taken note [of ESG/Sustainability] and begun to make strides in identifying and addressing these challenges.”

Quick scan of a list of U.S. insurance trade associations suggests more than a few are including ESG/Sustainability in their body of knowledge material, e.g. American Risk and Insurance Association (ARIA), American Society of Appraisers (ASA), National Association of Insurance Commissioners (NAIC).

Final Word

From an insurer’s risk standpoint, think about exposure to subscribing companies that might occur in environmental, social and/or governance claims situations. From an insurer’s company return standpoint, think about missing competitive positioning opportunities to grow business by ignoring increasing B2B and consumer stakeholders’ attention to ESG-related communications and inquiry responsiveness.

It appears to be time for more U.S. insurance companies’ leadership to catch up and harness ESG/Sustainability for your company’s competitive advantage.

Pamela Styles is principal of Next Level Investor Relations LLC, a strategic consultancy with dual Investor Relations and ESG/Sustainability specialties.