Climate change pushes insurers to adopt ESG practices

21.6% believes climate change is the main driver for ESG practice adoption.

Managing the long-term risks of climate change is the main driver for the adoption and integration of environmental, social and governance (ESG) practices in the insurance sector according to data and analytics firm GlobalData.

An industry poll from August to November 2021 revealed that 21.6% said that mitigating long-term risks caused by climate change is the main driver for adopting ESG practices in the insurance industry. 20.2% said it is a key part of their companies’ values and ethics whilst 19.2% said this is a way for them to differentiate themselves from their competitors.

The rest is divided between those who said that ESG practices is good PR opportunities (14.1%), customers expect them to have ESG practices in place (10.8%), it is a legislation driven requirement (7.5%) and employees and management expect their firms to have ESG practices (6.6%).

GlobalData Senior Insurance Analyst Beatriz Benito said that the insurance industry faces a future of escalating costs and the consequence of ever-increasing severe weather events and natural disasters, which will only worsen with climate change. 

“An increasing volume of claims – more often than not associated with big payouts – will eventually make some areas of land uninsurable.,” Benito said.

Benito added that this challenging outlook will continue to encourage those insurers who have not yet embraced ESG into their corporate values and operations to adopt better ESG practices in the future. Benito emphasized that ESG is a double-edged sword for some insurers.

“With countries striving to meet emissions targets, insurers can facilitate the shift towards a low-carbon economy by adapting underwriting and investment policies. For example, by withdrawing from insuring carbon-intensive industries. However, some insurers make significant revenue from fossil-intensive industries, and will be less inclined to take the actions needed with tighter legislation only accelerating their disengagement in these areas,” Benito said.