Sustainability in insurance: insuring a brighter, greener future

The challenges posed by sustainability in insurance grow every day, with carriers facing increasing pressure from their members, employees, business partners, and a wide range of state and federal agencies.

Their demand? That insurers have in place a performance-based strategy for addressing what is known as the “Triple Bottom Line” (TBL) – people, planet, and profit.

C-level leaders are feeling the pressure too. According to a Deloitte survey of senior executives, 97% said that external stakeholders have the most influence on a company’s ESG reporting and disclosure policy.¹

The concept of TBL isn’t new to the industry. When it emerged in 1994, it consisted of social equity, economic, and environmental factors. Over the years, the concept has expanded to include business frameworks such as CSR (Corporate Social Responsibility), ESG (Environmental, Social, and Governance), and a variety of increasingly specialized concepts, such as environmental P&L, impact investment, and carbon productivity, among others.

And, there is nothing new in factoring ESG into risk management. Industry leaders have long understood, and been responding to, ESG factors such as the impact that extreme weather and inclusive business practices can have on their balance sheets.

What’s different now?

The growing pressure to go green

Today’s pressure is greater as stakeholders become increasingly concerned, and vocal, about ESG-related issues. The effect of this rising activism can be seen on several fronts, affecting an insurer’s ability to hire top talent, acquire new members, comply with regulations, and satisfy shareholders - and with that, C-level strategic decisions.

While stakeholder perspectives and motives vary, they all have one thing in common: a growing expectation that ESG principles be factored into how insurance companies do business. This encompasses not only implementing ESG-compliant business practices into their own operations, but also supporting those companies and projects that demonstrate a commitment to ESG, such as green building and renewable energy.

Sustainability in insurance: operational “greenness”

Like charity, going green begins at home. And that means operating the business, across the entire enterprise, in a manner that demonstrates a commitment to sustainability. Sustainable initiatives, including but not limited to those listed below, are already yielding a competitive advantage – along with growth in profitability.

In fact, companies across the globe that claim to place an importance on ESG – defined as the company’s assessment of their own practical action over a defined time horizon – saw revenues significantly outperform those companies that openly disregard its importance between 2019 and 2022. Those that did saw a revenue bump of 9.7% versus only 4.5% for those that didn’t.³

Common sustainability initiatives:

• Focus on green IT practices: Consider ESG factors when commencing new projects.

• Reduce, reuse, and recycle: Reduce waste and recycle items, such as paper and equipment.

• Use data instead of documents: Digitize, automate, and eliminate paper documents.

• Print responsibly: It’s reported that as much as 30% of print jobs are never even picked up from the printer and that 45% of paper printed in offices ends up in the trash by the end of the day.⁴

• Better manage cloud resources: Whether managed IT services or internal teams are employed, FinOps (financial operations) evaluates and optimizes cloud computing usage to find the right balance of performance, quality, and cost. The outcome can help reach organizational sustainability goals.

• Choose third-party vendors wisely: Verify that suppliers comply with environmental sustainability standards and regulations.

• Revisit energy usage: Recalibrating thermostats and occupancy sensors, adjusting operating schedules, and rebalancing HVAC air and water flows can save energy. Also consider using clean, renewable energy sources, such as solar, wind, and hydropower energy.

• Make green physical plant improvements: Solar roofs, greenways, trees, native plants, and other green infrastructure help reduce the urban heat island effect.

Is "greenness" enough?

Realistically, taking steps to be green barely scratches the surface for insurers. If a commitment to moving from paper-based processes, recycling, and keeping the thermostat set to 67 degrees in the winter months isn’t enough, what is?

Sustainability for attracting and retaining talent

Industry leaders understand, and research has shown, that with the increasing focus on ESG, it’s imperative that their organization demonstrate a commitment not just to the health and well-being of Mother Nature, but to current and prospective employees, as well. In fact, “71% of workers at sustainable workplaces feel that their workplace culture improves how engaged they feel at work. For some, sustainability is about more than conserving water and electricity, recycling, and other practices. To them, environmental sustainability is existential, equating to healthy, prosperous lives for themselves, their families, and future generations.”⁵

Studies have shown that, when sizing up potential employers, an increasing number of job seekers are hugely influenced by how a business responds to and tackles social issues. “Job seekers aged 25-34 are the most likely (55%) to value ESG commitments from their employer, but 18-24 years olds (51%) and 35-44 years old (48%) are not far behind. One in five respondents (20%) said they had turned down a job because the company’s ESG commitments were not in line with their values, rising to one in three for 18–24-year-olds.”⁶

Sustainability and compliance

In addition to the challenges brought about by an emerging customer – and employee who puts a premium on sustainable practices – carriers are now forced to navigate a regulatory landscape that is continually growing and evolving. These regulatory developments are forcing insurers to meet expectations with actions, especially on climate concerns.

In March of 2022, the Securities and Exchange Commission (SEC) released its climate disclosure requirements proposal. The proposal is the SEC’s response to growing investor demands to understand what companies are doing to manage increasing climate change risks and the transition to a low carbon economy. It requires public insurers to include climate-related disclosures in their registration statements and reporting, including climate-related risks that are likely to have a material impact on the business, results of operations, or financial condition. This would also include disclosure of greenhouse gas (GHG) emissions.

To complicate matters even more, in addition to the SEC disclosure requirements, additional requirements – driven by the National Association of Insurance Commissioners (NAIC) and the Task Force on Climate-Related Financial Disclosures (TCFD) – are forcing providers to place a much greater focus on, and resources against, addressing climate change across their entire business.

Many industry leaders already acknowledge that extreme weather events, a societal transition to cleaner energy, and other consequences associated with a warming planet pose significant business risks. At the same time, many are also concerned that current regulations, as well as those “yet to come”, could burden them with a number of new disclosure requirements and increase their capital requirements, to name just a few. They’re also concerned about the uncertainty around how ESG standards will be defined, benchmarked, measured, and reported.

• What is the best approach to complying with evolving regulations and producing financial disclosures that capture sufficient and reliable data?

• Will there be a need for additional personnel?

• Will this mean an increase in financial exposure?

Next steps

Today’s forward-thinking insurers acknowledge that future growth goals can only be reached by a digital transformation that focuses squarely on meeting the ESG needs of all stakeholders – their members, employees, shareholders, society, and regulatory agencies. This can be accomplished by ensuring that individual business units — from actuarial and risk management to procurement and marketing — embed ESG principles into their daily actions. Leaders also acknowledge that an overarching ESG strategy, one built around setting clear objectives, defining key metrics, and identifying, verifying, and structuring disparate data sources, is essential to achieving their ESG goals.

The key to implementing that strategy? Technology.

Leveraging new technologies is the key to enhancing operating and monitoring capabilities, for instance, addressing the challenge of tracking the many streams of sustainability data coming from the news, government regulations, social media, and company reports. Automated workflows can collect and analyze data on sustainability-related factors such as scope 1, 2, and 3 emissions, supply chain performance, and energy and resource use. This data can then drive the insights that will guide sustainability initiatives, improve resource efficiency, aid in the development of relevant products, and enhance the organization’s ability to report on its climate-related efforts.

The industry, however, still has some distance to go before it fully embraces automation.

One certainty remains. The sooner insurance organizations embrace the fact that automating technology solutions offer much more than “significant potential,” the better prepared they’ll be for future growth.