Why ESG as a Business Strategy?
by StaffIASA
Marketing Communications,—
Environmental, Social, and Governance (ESG) is more than the latest hot topic – it’s a core strategy to manage risks that are linked to environmental, social, and governance criteria. These concerns are no longer only important to business executives, investors, and balance sheets. Other stakeholders, including employees, partners, customers/clients, and suppliers, are making decisions about who they do business with and who they work for. Over the past several years, these stakeholder expectations have evolved to focus on more than healthy financial performance alone (although this remains a critical baseline expectation). In fact, in this survey conducted by PwC, “76% of consumers say they will discontinue their relationship with companies that treat the environment, employees, or community in which they operate poorly.”
Adopting sound ESG infrastructure strategies for insurers is no longer a luxury. Industry regulators, such as the SEC and NAIC, are pursuing and adopting guidelines requiring companies to better manage ESG risks and disclose these strategies to protect investors and their investments against high-risk events, including those stemming from climate change. What was once a voluntary disclosure environment is now trending toward a mandatory disclosure environment. However, PwC’s survey reveals that a large segment of the insurance industry isn’t prepared with “49% of insurance CEOs say their company does not have the ability to measure their greenhouse gas (GHG) emissions today despite the SEC’s proposal for new climate disclosure requirements,” as one example of the state of ESG preparedness.
At the end of the day, ESG is becoming more integral to the business climate – from strategy, compliance, investment, risk, and insurance perspectives. It’s best for organizations to stay in-tune with regulatory developments and be proactive with compliance requirements now – even though they may require an up-front investment to put the framework in place. Ultimately, the belief is the investment to address ESG issues now will reap rewards in the long run.