The industry consensus is that there will be more scrutiny around ESG for insurers, which begs the question of what type of reporting, data and disclosures are important to make sure that there is transparency.
The answer is not so simple, said Saoirse Jones, Transformation Manager, Zurich Insurance Company, who emphasised that the tricky issue credibility must also be considered when discussing decarbonisation.
“Data and reporting are important because if we say that we are going to do
something, we also need to be able to show that we are doing it."
Jones was speaking at the Insurance Asset Management DACH virtual event, hosted by Clear Path Analysis, which had speakers from Allianz, UNIQA, AXA Venture Partners, and Swiss Re present from the German-speaking regions of Europe. Jones discussed the challenges of ESG implementation especially around using data effectively and transparently.
“Data and reporting are important because if we say that we are going to do something, we also need to be able to show that we are doing it, which requires measuring and reporting on what we do,” she said, explaining the importance of this field.
These issues were highlighted in a Deloitte paper last year, “Identifying and mitigating Greenwashing Risk: Considerations for Insurance Firms”, which laid out the pain points in the area. “A lack of data can also impede the innovation of products that have ESG or climate-friendly goals. A lack of available historical data, such as claims performance for new renewable energy technologies creates significant challenges for firms to underwrite and price new products.”
ESG, as a relatively new area, is still requiring trial and error to get the results it hopes for and Jones said she hoped it could learn quickly and make the issues public to keep trust levels in the process high.
“As we are learning and going through this process, people are also realising that there are certain gaps, potential lack of understanding, and people taking advantage of ticking a box and making sure that they fulfil the bare minimum of requirements,” she said.
“This is how we get that common alignment: by sharing our understanding and
influencing the regulators and the regulatory changes that are coming up."
This, Jones added, was where insurers need to be clear on the transparency, the definitions they are using, and how they are being interpreted, as well as then sharing those learnings with people in the industry.
“This is how we get that common alignment: by sharing our understanding and influencing the regulators and the regulatory changes that are coming up,” she said.
The issues around lack of definitions and other ‘earning curves’ was a large issue.
The Deloitte report also specified this, noting that “The absence of a common definition of what constitutes an “ESG product”, and a lack of verification of product claims provides the opportunity for concerns to arise over the credibility of ESG product credentials.”
It added that insurers should take care in circumstances where existing products are rebranded as ‘green’ or ‘climate friendly’ without robust process and review, per their risk management framework and urged them to monitor upcoming regulatory developments and the developments of ‘green’ taxonomies.
Jones said that the danger is that if everyone in the industry is fulfilling the reporting and disclosure requirements with no interest in doing more, then regulators will not be pleased because this isn’t going to have the impact that the regulations were intended to have. “If we are only doing the reporting and not taking any real action behind that, you could get accused of greenwashing,” she said.
This was backed up by regulators – a call for submissions on insurance regulations by Insurance Europe in January 2023 noted that “Currently, the lack of clarity and inconsistency in the EU SF regulatory framework is creating diverging interpretations and confusion for consumers and investors, which can lead to unintentionally flawed information from financial market participants,” it said.
“A whole host of additional regulations and requirements came up that hinder
our business rather than help us to grow [and] engage.”
Jones warned that this could have far more than already serious reputational risks. “As we saw after the financial crisis, a whole host of additional regulations and requirements came up that hinder our business rather than help us to grow [and] engage more with our counterparties.” She added that this also hurt the implantation of strategies needed to foster long-term sustainable investment and underwriting strategy.
The process of how to achieve this is convoluted and not without controversy but Jones believes there are ways of achieving easy wins.
“To me, transparency is key,” Jones said. “If you say that you are doing something or you are not quite fulfilling something, then be more conservative about your interpretation of the data requirements and definitions and be clear about why that is.”
This can be a dangerous because companies then may have an additional list of requirements being forced upon them that they have very little influence over and which could hinder business.
There is also a reputational risk that businesses are facing so there is a need for engagement with the regulators to better understand what the challenges are in the implementation. “The regulatory changes, personally, I believe, are a good thing because they have moved things on. They are getting people to consider sustainability more seriously, so things are moving in the right direction, but implementation is key,” said Jones.
She concluded by saying there are many elements behind the implementation that the industry needed to share back to the other stakeholders and to be more transparent about what the challenges were, “so that we avoid the issues of overregulation that may come down the pipeline.”
In the end, Jones said it was worth putting the effort into. “You don’t want the risk that you are being held accountable for what you said you’ve done but people don’t believe you anymore.”
