June 2021 Edition: 3
The monthly dedicated environmental, social and governance briefing Industry has opportunity to step up as political momentum builds
Political focus on climate action has escalated over the past month with the insurance sector positioned to play an increasingly prominent role in creating solutions to enable a more sustainable future.
Within this latest edition of The ESG Insurer we hear from Ekhosuehi Iyahen, secretary general of the Insurance Development Forum (IDF), who believes the emergence of a clear policy signal from governments has created an opportunity for the industry to step up and showcase the role its tools can play in building societal resilience.
The shift in political momentum has been driven by renewed engagement from the US following Joe Biden’s victory in the US presidential election and his decision to reverse his predecessor Donald Trump’s intentions to pull the US out of the Paris Agreement.
3 4-5 6-7 15-17 18-21 Beazley and COP26 brings Looking ahead The ESG Aon’s chief Parhelion opportunity for to the UK Interview: people officer target ESG industry to show climate stress Axa’s Thomas Lisa Stevens on underwriting leadership tests Buberl diversity and
CONTENTS launches inclusion
ESG partners:
From the publishers of theinsurer.com Comment
During May, President Biden’s executive order on Climate-Related Financial Risk highlighted the extent to which the policy agenda was shifting. Ahead of this latest edition going to press, the G7 group of countries revealed plans for mandatory climate disclosure for corporates while also pledging greater regulatory scrutiny of companies’ environmental impacts.
As Axa CEO Thomas Buberl outlines in this month’s ESG interview, insurers can play a pivotal role in addressing biodiversity challenges through the right protection and prevention mechanisms.
Moving forward, the ability to build industry-wide initiatives and public-private cooperation will be key to maximise the sector’s collective impact, the Axa CEO believes.
E is not the only component in ESG, however. In this edition we also hear from Aon’s chief people officer Lisa Stevens on the broker’s efforts with regards to diversity and inclusion, as well as examining QBE’s approach to mental health and wellbeing.
As ESG issues increasingly permeate the corporate agenda, all company activities will increasingly be viewed through this lens. Acting in the best interest of shareholders will no longer be sufficient justification if these actions are to the detriment of other stakeholders, both within and external to an organisation.
The rising focus on ESG also presents opportunities for the sector, as demonstrated by two key announcements over the past month.
“The emergence of a clear policy signal from governments has created an opportunity for the industry to showcase the role its tools can play in building societal resilience”
Plans by Parhelion to raise $500mn for a dedicated ESG insurance vehicle, as well as Beazley’s plans for an ESG consortium and dedicated syndicate in a box, are high- profile examples of carriers making dedicated capacity available for companies that adhere to ESG principles.
This momentum will continue to build over the coming months. As ESG issues move further up the political agenda it will present regulatory hurdles for the industry to cross, but alongside this smart insurers will recognise their opportunities to deliver solutions for a more sustainable future.
Scott Vincent News editor, The Insurer
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Beazley and Parhelion plans highlight ESG’s rise up the underwriting agenda
The notion that firms that adhere to ESG principles represent a better risk is one that has been gaining traction, and market recognition of this has been demonstrated by two announcements of the creation of dedicated capacity for strong- performing companies.
As this month began Beazley revealed it was creating an ESG consortium, with plans for a syndicate in a box (SIAB) to provide dedicated follow capacity. And energy and climate risk finance company Parhelion revealed it had brought in TigerRisk Capital Markets & Advisory to work alongside Howden Capital Markets as it targets a capital raise of $500mn ahead of a 1 January 2022 underwriting launch.
Parhelion’s vision is to help clients start ‘greening’ their insurance spend by acting as a lead market on ESG products to allow other insurers to coalesce around.
Beazley’s planned launch will see it assess clients both through its own responsible business team and against external ESG metrics as it seeks to build out its portfolio.
Speaking to The Insurer, Will Roscoe, Beazley’s head of alternative portfolio underwriting, said the planned SIAB would be backed by both Beazley and third-party capital and would give investors “an opportunity to access responsible business and help their own ESG credentials”.
While capacity will initially be Beazley-led, Roscoe said over time he hoped to introduce additional co-leaders and follow capacity.
“We are looking in the first instance to prove that the model itself works,” he said.
Both the Parhelion and Beazley initiatives will be watched closely by the wider market. While both have hurdles to negotiate before launch, the announcements highlight the extent to which ESG considerations are rising up the underwriting agenda during 2021.
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COP26 brings opportunity for industry to show leadership Insurers can play a prominent leadership strong political signals emerging around role at the COP26 climate talks in the urgent need to address climate Glasgow this November, with the change into practical solutions. emergence of a clear policy signal from governments creating an opportunity “Some of the risks we are seeing will for the industry to step up and showcase require deeper levels of public-private the role its tools can play in building collaboration to drive more robust local, societal resilience. global risk management architecture.” This is the key message from Ekhosuehi The IDF was officially launched at the Iyahen, secretary general of the Insurance COP21 Paris climate talks in 2015 and Development Forum (IDF), ahead of the serves as a public-private partnership upcoming UN talks. seeking to extend the use of insurance to build societal resilience. She told The ESG Insurer the COP26 talks provide an opportunity for insurers to Iyahen was appointed as the IDF’s apply and enhance their existing risk first secretary general in 2018, and the metrics and management tools to support following year the forum entered a the climate transition process and help to partnership with the UN Development drive resilience. Programme and the German Federal “This will require expanding the toolbox Ministry for Economic Cooperation with innovative solutions to support the and Development (BMZ) which aims to aspiration we all have for a well-managed introduce risk management solutions to and just transition,” Iyahen said. benefit 500 million individuals by 2025. Over the past month there have been The fruits of that partnership have been further indicators of the building policy seen with the announcement of two agenda around climate action, most projects over the past year, working notably in the US through President alongside the insurance sector. Joe Biden’s executive order on Climate-Related Financial Risk. The first project under the Tripartite Agreement – to design an insurance “This is a tremendous opportunity for the program for Peru’s public schools – industry to step up and demonstrate how was launched last September to be its core tools are relevant at this time,” delivered by a consortium including she said. Axa XL, Munich Re, the Peruvian “Risk management is at the core of what Association of Insurance Companies, the insurance industry does and can help risk modellers GEM Foundation and JBA to translate some of the very clear and Risk Management and insurtech Picsure.
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And the second was unveiled in May, with Increasing awareness Hannover Re and Willis Towers Watson working together to develop a parametric Governments are increasingly open to the flood and earthquake product as well as role insurance can play in helping build indemnity landslide protection for the resilience against disasters, Iyahen said, city of Medellín in Colombia. based on her experiences of working with developing countries. Iyahen said other projects are in development, including one to reach “Prior to the pandemic, there was some small farmers in Mexico as well as flood awareness but not a full acknowledgment risk projects in Nigeria and Ghana. of the scale or magnitude of some of the risks being faced and in turn a less- “Beyond this, we have also embarked on than-proactive approach in terms of risk an ambitious risk modelling agenda with management,” she said. the hope of announcing a major initiative at COP26,” she said. “These positions are of course the result of a number of factors, including difficult “There is a need for a common set economic contexts and trade-offs that of metrics that enables consistent are often made and should not be taken international comparison of risks, simply as a lack of ambition or desire regardless of territory or peril. to act.” “Such standard financial metrics, such However, she said the experience of as annual average loss and probable Covid-19 had raised the importance maximum loss, are useful to international of proactive risk management out of finance institutions including sheer necessity. development banks, investors and asset managers. At sovereign level such metrics “I am witnessing greater interest in are a helpful start point from which exploring ways in which they can better more locally tailored risk analyses can understand these risks and ultimately be developed. build greater resilience,” she said. “Similarly, there is a need to actively invest in capacity building programmes to accelerate risk insight to build resilient finance and risk capacity across public and private sectors, for the benefit of the countries and communities that need it the most. “We are working actively with partners and with the support of the COP26 private finance team to launch this endeavour.” Ekhosuehi Iyahen
“There is a need for a common set of metrics that enables consistent international comparison of risks, regardless of territory or peril” Ekhosuehi Iyahen, secretary general of the Insurance Development Forum
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UK climate stress test a sign of increasing scrutiny of insurer climate risk
The Bank of England’s climate stress “The CBES is just the latest development test is a sign that central banks and in a long line of activity by the bank.” international regulators are looking to The CBES exercise – announced in “ramp up” oversight of insurer climate November last year – is designed to test risk, according to Guy Carpenter’s the resilience of the largest banks and managing director of catastrophe insurers against transition and physical advisory Jessica Turner. risks associated with different potential In the latest interview in The Insurer climate scenarios, and the financial TV’s Close Quarter series, Turner sector’s exposure more broadly to said the Bank of England’s Climate climate-related risk. Biennial Exploratory Scenario (CBES) – It builds on the Bank of England’s 2019 launched this month – is indicative of Insurance Stress Test and places six UK a changing attitude among regulators general insurers – including Aviva, Allianz, to the assessment of the sustainability Axa, Direct Line and RSA – and 10 Lloyd’s challenges facing insurers, including managing agents under the microscope. climate change. “It’s a challenging exercise,” Turner “The Bank of England’s activities really explained. “The ambition and the scope ramped up under Mark Carney, the have expanded relative to the 2019 previous governor of the bank, who General Insurance Stress Test. [The bank] placed particular importance on climate is looking at both the asset and the change,” Turner said. liability side of the balance sheet so
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that means that they’re stressing both a spike in activity with the Securities transition risks and physical risks from and Exchange Commission and the New climate change.” York State insurance regulator calling on insurers to disclose the long-term impact Turner explained that the UK regulator is of climate change on their operations. looking to assess the magnitude of risk Turner predicted that scrutiny will that climate change poses to UK insurers continue to “ramp up” under the Biden and lenders, what impact it may have administration, adding that insurers face on business models and how change in pressure not only from national regulators access to insurance may – particularly but also increasingly from ratings around residential properties – impact agencies and shareholders. banks’ credit risk. “Increasingly shareholders are demanding It is also looking at ways it can better for there to be climate change risk “encourage” insurers to embed climate disclosures,” she said, pointing to growing change into risk management processes, awareness across the sector of the she said, although these will not lead to requirements listed under the Task Force any new capital requirements for firms – on Climate-related Financial Disclosure. at least not yet. “It’s currently voluntary, but there are a “Solvency requirements are still geared number of governments talking about towards the short-term outlook, but putting this into law,” Turner continued. of course regulators are continuing to think about climate change, so that is The executive noted that greenhouse gas potentially on the horizon,” Turner added, emissions only decreased by 7 percent noting that the European Insurance and in 2020 despite international lockdowns Occupational Pensions Authority is now during the Covid-19 pandemic, highlighting consulting on whether changes to capital the magnitude of the climate threat. levels are required in the face of But Turner was bullish on the a changing climate. opportunities for (re)insurers and Growing regulatory intermediaries offered by the climate focus on ESG change challenge. Turner noted that the French regulator “The firms that get this right are going – Autorité de contrôle prudentiel et de to have better risk management than résolution – has already completed a their competitors, they’re going to be stress test exercise similar to the CBES for better prepared,” she said. “There’s also a both banks and insurers which concluded reputation element. Those insurers that that firms need to accelerate their respond well will have a good reputation preparedness and their quantification that’s going to attract clients and is going of climate change. The US is also seeing to attract talent.”
“Increasingly shareholders are demanding for there to be climate change risk disclosures” Guy Carpenter’s managing director of catastrophe advisory Jessica Turner
7 ESG is woven into the fabric of everything we do at Conduit, from the day to day behaviour of our team, to the way we do business.
Neil Eckert Executive Chairman conduitreinsurance.com May news recap
MAY PRA plans to further build out climate 25 focus in regulatory strategy The UK’s Prudential Regulation Authority (PRA) has said it will further embed supervision of climate risk into its routine supervision throughout 2021 and 2022, ensuring that its regulated firms treat it as a priority. Outlining its agenda for the period, the PRA said it will continue its work setting out expectations for firms and building internal expertise on climate change. This will include issues around climate disclosures, climate-related policy and ensuring the delivery of the Bank of England’s Climate Biennial Exploratory Scenario, which is scheduled for June. “We will also continue to actively engage with firms and other stakeholders through the Climate Financial Risk Forum, and internationally through our leadership of the Sustainable Insurance Forum, the International Association of Insurance Supervisors, and the Network for Greening the Financial System, for all of which the PRA currently holds chair roles,” the regulator said.
EU insurers warn on “overly complex” 19 ESG disclosures requirements Europe’s insurers have urged financial regulators to rethink proposed reporting templates designed to improve disclosure on ESG risks, arguing they are currently too detailed, overly complex and a burden for customers. Trade body Insurance Europe welcomed proposals by the EU to develop a single template for product disclosures which takes into account climate change-related and ESG risks under a new Taxonomy Regulation. But in a response to a consultation by the European Supervisory Authorities, the lobby group warned that current ESG product templates are already “overly complex and long” and said any additional requirement from regulators would increase this burden without adding value for customers or investors. It said the insurance sector has recognised that the availability and reliability of ESG data is insufficient, especially taxonomy-related information. “Such information is limited at this stage. Insurers should therefore be allowed to comply using reasonable best efforts, so that they are not exposed to unnecessary liability risks,” Insurance Europe said.
9 May news recap
CSRC introduces consultation 10 over strengthened ESG disclosures China’s Securities Regulatory Commission (CSRC) has launched a consultation over plans to ask listed companies to include separate ESG reporting within annual reports. The consultation is set to run until 7 June, with the CSRC also launching strengthened rules on the corporate governance, management discussion and analysis and corporate bond-related sections of financial reports. The goal of the changes is to improve ESG reporting in China. ESG disclosures are currently listed in the “important matters” section of Chinese company reports, alongside other issues such as the cash dividend distribution policy, external audit information and substantive connected transactions. CSRC introduced mandatory disclosure of ESG risks associated with companies’ operations as of the end of 2020.
Lloyd’s broker AHJ achieves carbon 17 neutral accreditation Alwen Hough Johnson (AHJ) has become the first Lloyd’s (re)insurance broker to be recognised as a climate neutral company. AHJ has been awarded this status by international climate protection solutions provider ClimatePartner. It means the broker is able to calculate and monitor its greenhouse gas emissions, or corporate carbon footprint (CCF), and can prove that its operations are contributing to offset projects to balance the remaining emissions. The CCF calculation includes emissions from sources such as energy and heating, business travel, employee commuting, office supplies and all other possible emitters used in the day-to-day operation of the company. The calculation also showed the broker where it needed to reduce carbon emissions. Each year this will be updated to monitor progress and identify additional areas for improvement. AHJ will offset any unavoidable carbon emissions by supporting projects from the ClimatePartner portfolio. All of these projects are independently assessed and monitored in accordance with the UN Sustainable Development Goals.
10 May news recap
Ascot and Argo partner with Tierra on 12 green credit insurance offering Ascot and Argo are providing up to $40mn of combined capacity to Tierra Underwriting Limited to write credit insurance in support of green project finance transactions. Ascot is contributing up to $15mn of underwriting capacity through its Lloyd’s platform, with Argo adding up to $25mn to support the MGA. The capacity will support transactions that have carbon abatement at their core, or otherwise provide environmental benefits to society, Ascot said in a statement. Tierra will work with leading green capital providers to provide a risk transfer mechanism to help promote the growth of financing in the sector. Specialty (re)insurer Ascot explained that the insurance mechanism will be used to support the financing of a range of infrastructure projects, including those in the renewable energy field such as wind and solar, storage projects and other energy efficiency investments.
Talanx to phase out underwriting 4 carbon-intensive industries by 2038 Hannover Re parent Talanx Group has outlined plans to cut the carbon intensity of its investment portfolio by 30 percent by 2025 and to phase out underwriting carbon-intensive industries by 2038 as the firm accelerates moves to combat climate change. In addition, the German holding company said it intends to make its entire global operations climate-neutral by 2030. It has already achieved this goal in Germany – home to more than 45 percent of Talanx’s workforce – according to the firm’s sixth sustainability report, published last month. On the underwriting side, Talanx intends to phase out providing insurance not only for carbon-intensive industries but also for oil and tar sands by 2038. The group said it would continue to monitor other fossil fuels and the companies in the Talanx Group are adjusting their underwriting policy in line with the risks involved, taking all relevant factors into account.
11 May news recap
MAY AIG, Lloyd’s and Tokio Marine targeted 27 by climate protesters over Climate activists have continued their campaign against insurance for fossil fuels with campaigners calling on AIG, Lloyd’s and Tokio Marine to immediately stop insuring and investing in coal. Campaign group Insure Our Future criticised the “insurance laggards” for continuing to provide cover for firms involved in the production and mining of coal. The network placed a full-page advert in the Financial Times calling out the trio as climate groups in Japan, South Korea, the US and UK held physical protests demanding the three insurers “Insure Our Future, Not Fossil Fuels”. Lloyd’s insurers have provided cover to controversial projects including Adani Group’s Carmichael coal mine in Australia and the Trans Mountain tar sands pipeline in Canada. The projects are being opposed by environmental campaigners and indigenous groups.
Adani mine contractor faces insurance 17 crisis as carriers refuse to provide cover A major contractor for Adani Enterprises’ controversial Carmichael coal mine in Australia has revealed it could ask the country’s government to provide it with insurance having failed to secure cover in the private market. BMD Group, a construction firm building a section of the rail line at Carmichael, said it was declined by at least 33 underwriters for public liability insurance for the project. In a submission to a parliamentary inquiry on the prudential regulation of investment in Australia’s export industries, BMD said “very few” contractors would be willing or able to undertake work on the mine without some form of cover in place. BMD said it had also been refused environmental liability insurance by 10 carriers it had approached, with the company’s D&O insurer also stating it would not respond to any claims related to the mine. The construction firm told the inquiry it had been targeted by climate change protesters and anti-coal groups over its proposed role on the project.
12 May news recap
MAY Liberty ends Baralaba South plans as 5 pressure mounts on carriers to exit coal Liberty Mutual is facing calls to rule out providing support for coal expansion anywhere in the world after indicating it will not move forward with its proposed Baralaba South coal mine in Australia following sustained activist pressure. The carrier – the sole owner of Mount Ramsay Coal Company, which was looking to build the proposed mine – did not file the necessary Environmental Impact Statement by the 30 April deadline which would have allowed the project to proceed. Local community groups had battled to block the plans for close to a decade, arguing that the mine would have catastrophic impacts on the rights of the Woorabinda Aboriginal community, local agricultural land and ecosystems – including nearby emu habitats – as well as the global climate. Reports had suggested Liberty could be delisted from the United Nations’ Principles for Responsible Investment if it pushed ahead with its plans for the mine. “Liberty Mutual should now withdraw its application entirely, publicly state that it is cancelling the project, and rule out support for coal expansion anywhere in the world,” said Paul Stephenson, a member of the Baralaba-based Save the Dawson community group.
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The ESG Interview
Axa’s Thomas Buberl on meeting climate and biodiversity challenges What role can an insurer play in helping protect natural capital and reduce biodiversity loss? A significant part of our economy relies directly or indirectly on nature. From the food industry to advanced chemistry or medicine, many production processes require healthy ecosystems. These “ecosystemic services” are critical because they would require considerable investments if they were to be provided artificially. For instance, alternative pollination could cost up to €153bn, far exceeding any economic viability.
However, with more than one million species under threat of extinction over the next decades, biodiversity loss endangers “ecosystemic services”, which threatens both society and businesses that depend on them, and in turn investors and insurers that rely on a well-functioning economy. Global warming is accelerating this trend, adding pressure on ecosystems through droughts, ocean acidification or more frequent severe meteorological events.
Addressing biodiversity-related risks and opportunities is therefore a natural extension of Axa’s climate efforts. As early as 2013, we divested from unsustainable palm oil producers, which are known to cause massive disruption to ecosystems through deforestation. In 2019, we committed to funding biodiversity preservation projects through a dedicated €350mn impact fund. As insurers, we know healthy ecosystems are also key to mitigate some of the effects of climate change. Axa XL is leading the way through its “Ocean Risk Initiative” and the development of nature- based protection mechanisms for coastal areas.
A lot still needs to be done to curb environmental losses, but I am confident insurers can play a central role through the right protection and prevention mechanisms. Moving forward, the ability to build industry-wide initiatives and public-private cooperation will be key to maximise our collective impact.
15 The ESG Interview
What are the next steps in your efforts towards enhancing biodiversity protection? A lot still needs to be done to provide a common framework for action. I see three main areas requiring extra efforts: coalition-building, metrics and political frameworks.
Regarding coalitions: back in 2019, we partnered with the WWF and published a joint report which reframed the biodiversity crisis as a financial risk. Our main recommendation, endorsed by the G7, was the creation of a Task Force on Climate- related Financial Disclosures-like “Task Force on Nature-related Financial Disclosures”, the TNFD. Since then we actively supported a large group of stakeholders crafting the TNFD. We are now fully focused on the launch of this coalition in close coordination with our industry peers, several governments and the UN.
“We have entered what some call the decade of action”
Once created, the main task of the TNFD will be to develop a framework enabling financial institutions to identify economic activities that have a material impact on biodiversity. This will allow investors to further incorporate nature conservation objectives into their asset allocation strategies.
2021 will be an important year for biodiversity with the upcoming COP15 on biodiversity in China this fall.
What are the key messages you will be taking to the COP26 climate talks and what are your hopes for outcomes? We have entered what some call the “decade of action”. These few years that we still have ahead of us are crucial to try to curb global warming trajectories. This COP may be an opportunity for the US to reinforce the commitments made in Paris and to set new grounds for renewed multilateral climate cooperation, possibly in the form of a “Glasgow Agreement”.
COP26 is also an occasion for us all to acknowledge the concrete political progress made in recent years. The EU has ramped up its regional commitment to -55 percent by 2030 compared to 1990.
Last year, China committed to achieve climate neutrality by 2060. And the US is now back in the Paris Agreement framework with new ambitious climate neutrality commitments. Of course, a lot still needs to be done, but we are going in the right direction.
Lastly, private finance is expected to play an important role in a successful transition to a net-zero carbon economy. In particular, the COP26 Private Finance Agenda is designed to mobilise action from the financial system to help achieve the 1.5°C goal of the Paris Agreement, notably through frameworks for financial reporting, risk management and returns. We fully support this agenda – indeed we already practice it.
16 The ESG Interview
In what ways does Axa link sustainability and ESG performance to remuneration for senior executives? For several years, ESG performance and corporate responsibility have been taken into account in the remuneration of Axa’s executives. This year, we decided to go one step further to ensure alignment with our purpose, “Act for human progress by protecting what matters”.
Our purpose acts as a compass, and we want to make sure it is reflected in every aspect of the business. To do so, we developed a specific set of indicators, the “Axa for Progress Index”, which we presented during our last shareholders’ meeting.
The index is based on seven mid-to long-term engagements that all Axa entities must follow such as carbon neutrality in our operations, the development of inclusive insurance solutions as well as our position in the Dow Jones Sustainability Index. Results of the Axa for Progress Index will be integrated in the calculation of compensation packages, with a growing impact as we move forward.
How do you establish the ESG criteria that apply to both your investment and underwriting portfolios? Do you have the same criteria for both? Our main focus today is to support the twin agenda of climate and biodiversity and inclusive protection. We always act both as an insurer and investor whenever we take a decision on an ESG or climate concern. However, these apply differently, and the dynamics are different.
For example, we do not have the same kind of relationship with a corporate when we engage with them as an investor or their insurer. Also, as an investor, we necessarily have an opinion on a company – whereas as an insurer we can be nuanced and choose to support, or not, only specific aspects of their business.
What steps would you like the insurance industry to collectively take on these issues? The insurance industry has done a lot over the last few years to protect populations from the consequences of climate change and to drive the transition of our economies. But we know a lot still needs to be done.
Looking to the future, we believe insurers can play an equally unique role by integrating carbon-neutrality objectives in their core insurance underwriting activities. Together with leading insurers and reinsurers, we recently announced our intention to create an UN-convened Net-Zero Insurance Alliance (NZIA). Axa will chair this new coalition, which should be launched later this year.
We are at the beginning of an ambitious journey, which can set new standards in the way insurers evaluate and select risks with growing attention paid to the impact of insured activities on climate change. The NZIA will provide a platform to further encourage “green” clients to thrive and carbon-intensive clients to shift to low-carbon business models. We know these are not easy commitments for insurers, but we believe they can represent a milestone in our industry’s involvement in the fight against climate change.
17 Diversity and Inclusion
Aon’s Lisa Stevens on the diversity challenge Lisa Stevens, chief people officer at Aon, outlines how the broker is addressing ESG challenges and steps the industry can take to be more inclusive In what ways can the industry enhance its efforts around social class and where have you seen the benefits of bringing in people from different backgrounds? It’s long been known that an inclusive and diverse workforce improves business performance, innovation and creates a culture where employees want to be. Although this finding isn’t new, there’s still more we can do to bring people from all backgrounds into the industry. To build tomorrow’s inclusive workforce and drive the strongest outcomes for our clients, we believe it’s important to reexamine the hiring process. At Aon, we found that when it came to recruiting and attracting talent, there was an opportunity to reimagine how we approached all levels of positions. At the entry level we launched our US apprenticeship programme, which provides our apprentices the opportunity to learn on the job at Aon while pursuing an associate’s degree. Apprentices spend 40 hours in the office and in the classroom combined while Aon covers their tuition, books and fees in addition to providing a full-time salary and benefits. After two years, apprentices graduate from the programme, complete with an associate degree, a Department of Labor certificate and a promotion into a full- time position comparable to those available to students graduating from a bachelor’s degree programme. We worked with our business leaders to determine which jobs currently required a four-year degree when it wasn’t really necessary, and it opened up the possibilities of how we could leverage an apprenticeship model to fill these roles while
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expanding our talent pool and even improving retention in these roles. After seeing the success of the programme, we doubled down with an investment of $30mn over the next five years to lead the development of a nationwide network of employers to create 10,000 apprenticeships across the United States by 2030. Outside the US, we have different variations of our apprenticeship programme in several countries. We are also expanding our recruitment partnerships in seeking experienced candidates. In addition to recruiting alumni from Historically Black Colleges and Universities, we have a partnership with the NFL focused on the recruitment of current and former players – giving them an opportunity to consider Aon as a career path after their football career. We are tapped into the organisation American Corporate Partners, which helps veterans and their spouses secure employment and careers. In order to truly see the benefits of a diverse workforce, it is key to touch on all levels of the organisation.
How has operating in a Covid-19 environment added to challenges around inclusion and diversity (I&D)? It really hasn’t created challenges, and in many ways, it has enhanced our I&D efforts. Prior to the Covid-19 pandemic, Aon made investments to become a more digitally enabled firm to prepare for a more mobile workforce. That investment paid off as we were able to shift 98 percent of our workforce from across 500 offices to remote work environments in five days after global shutdowns happened, enabling the safety of our colleagues while keeping them connected to each other and our clients. Thanks to the ease and speed of this shift, we have actually identified new opportunities to accelerate inclusion The prevalence of video calls is giving colleagues additional exposure to clients, peers and leaders. More colleagues are participating in client presentations than before. Our leaders are regularly connecting with colleagues to engage on I&D topics and sharing what actions we are taking. I’ve been inspired by the resiliency of our colleagues this past year and by actions we have taken to make progress on our I&D priorities in this new working environment. We launched a Global Inclusive Leadership Council and they are championing I&D at all levels of the firm. Our Business Resource Groups have increased participation and expanded their programming thanks to technology, and they are working more collaboratively to support each other’s events along with new groups forming at a rapid pace.
What governance measures need to be in place to help foster an inclusive working environment? It starts with strong leadership buy-in and accountability to ensure inclusion moves beyond words into action. In 2020, our board of directors created an I&D sub-committee.
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That subcommittee is directly linked to the Global Inclusive Leadership Council. The council includes 21 colleagues who bring a diverse array of backgrounds, experiences and perspectives. This group is responsible for providing advice, recommendations and accountability for our I&D strategy and related actions. By establishing a group of diverse, global leaders who are driven to make meaningful change, we can implement actions that will benefit colleagues at all levels of the firm. We also believe to truly impact I&D that all leaders must be their own chief diversity officer – in their region, their solution line or function – we all own making Aon a more inclusive and diverse organisation for our colleagues and our clients.
What three steps forward would you most like to see the industry take as it enhances its ESG profile? When it comes to the environment, we all have an important role to play. There is an opportunity to bring more visibility to the steps we are taking as an industry to protect our planet. Earlier this year, Aon made a commitment to reaching net-zero emissions by 2030 and many other organisations in our industry have made similar commitments. Those in our industry know first-hand the increasing impact of natural disasters around the world. Our Weather, Climate & Catastrophe Insight: 2020 Report found that significant natural disasters caused more than $268bn in economic damage. The more we can all share about our efforts to protect the planet, the better. Another step is to share our learnings and best practices when it comes to I&D with those outside our firms so the industry can benefit. That’s why we are proud to be a partner of the global Dive In Festival, which focuses on supporting the development of inclusive workplace cultures in the insurance sector. Dive In is helping the insurance industry prepare for the future, highlighting the business case for inclusive and diverse workplaces while allowing those in the field to share practical ideas and inspiration for how to bring about positive change. We also need to be focused on the broader social impact – including mental and physical wellbeing. Finally, I would also include corporate leadership and transparency. This is our entry ticket into ESG and our industry needs to be leaders in this space. In the last year, organisations globally have had to navigate the Covid-19 pandemic, respond and reflect on social justice issues and reckon with long-tail risks that were once on the horizon but have become more relevant, such as climate change, cyber risk and the health/wealth gap.
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We have used our expertise to assist clients in maintaining operations and mitigating risk during the pandemic – and believe we have a responsibility to play a larger role in helping the private and public sector navigate the recovery.
How can a strong ESG focus help attract new talent into the industry? While ESG is primarily the lens for which we are viewed by investors, it has become a key focus for how existing and potential talent view organisations. Our colleagues and prospects want to know what values their employer stands for, how the company contributes to society and how their potential role plays a part in the company’s impact. As we look to build the workforce of the future, a strong ESG focus and track record of action will be essential to recruiting and retaining top talent.
Without a focus on their environmental and social responsibilities, what are the risks facing carriers and brokers? One of the biggest threats to firms that choose not to address their environmental and social responsibilities is that over time they will lose their relevance, and if they lose their relevance, they will find that their market position begins to suffer. As with many other sectors, the insurance industry has moved far beyond engaging with these areas merely as part of a ‘box-ticking exercise’; insurers have realised that it is vital that they take their environmental and social responsibilities seriously in order to create the more stable and equitable world being demanded by their colleagues, particularly the next generation. It is also vital that companies demonstrate that they can take the lead, rather than being pushed to enact change through regulatory or stakeholder pressure. Those that fail to take the necessary steps will quickly become obsolete, as the best and brightest talent will gravitate to those companies that can evidence the positive impact they are making in the world.
“It is vital that companies demonstrate that they can take the lead, rather than being pushed to enact change through regulatory or stakeholder pressure”
As a global population, we all face serious and ongoing challenges in areas such as climate change – challenges that we can overcome, but only with a collective effort. Firms that are not seen to be world team players will be left on the bench.
21 Visit theinsurer.com/esg for more exclusive market intelligence Penney Frohling, EY-Parthenon ESG viewpoint Partner and EMEIA Financial Services Strategy Leader
Four metrics for tracking the near-term value of ESG strategies
The right metrics can accurately gauge the impact of ESG strategies and progress toward goals. As insurers navigate a period of immense change and the need to serve a broader set of stakeholders, the EY insurance team believes the following four metrics represent the most accurate and holistic barometers of exposure to climate-related risks and perceptual issues that threaten insurers’ value during the next 18 months.
Total shareholder return (TSR) This metric incorporates time horizons from minutes to decades and is comprehensive in incorporating the long-term growth prospects of a company, its resilience and reputation, commitment to innovation, ability to address consumer, societal and environmental issues and meet governmental regulatory requirements. As more investors introduce ESG criteria into portfolio management, demand and supply will drive up share prices of the firms that meet those criteria.
Brand value Intangible but measurable, brand value may be the ultimate long-term value metric, with direct positive correlation to shareholder value. In the insurance sector, brands have typically emphasised perceptions of financial strength, stability and longevity. ESG principles geared toward a sustainable, long- term perspective are excellent complements to traditional positioning.
Economic net worth (ENW) ENW growth over time provides a good barometer of whether a firm is adding to its long-term value or depleting it. The introduction of IFRS 17 in 2023 will allow investors to infer a GAAP measure of ENW. We are seeing important changes in the risk and return profile on both the asset and liability sides as a result of ESG considerations and expect the approach to ENW evaluation will further evolve.
Return on capital (ROC) ROC measures the ability to underwrite, price and manage risk effectively to generate positive returns. As momentum builds towards including climate risks in insurers’ internal capital models, we expect ROC to become an increasingly important indicator of an insurer’s success in managing its exposure. Tomorrow’s market-leading insurers will be those that do the necessary and deep strategic thinking and take the right measured actions today, and EY’s insurance team believes these are the most sensible metrics to gauge stakeholder views of the industry’s approach to ESG in the near term.
23 The Insurer TV
ILS managers call for more enhanced progress metrics to better attract ESG investors
ILS managers are eyeing opportunities Richard Lowther, managing partner at presented by the rising number of ESG Integral ILS, said there was a need for a investors, senior industry executives framework to measure progress against have told The Insurer TV. ESG objectives. But there remain challenges around the “An independent framework to score ESG current lack of ESG performance metrics for would be extremely helpful, as right now the asset class – something which will need it is largely a self-certification process,” to be addressed if ESG investors are to fully he said. embrace the investment potential of ILS. Lowther said it was “extremely Without these metrics in place, one of the important” some form of structure major challenges for the asset class is was put in place that enables better conveying to investors its value from an assessment of ESG performance within ESG perspective. the asset class. In an interview with The Insurer TV Paul “We think that will be a win for investors Schultz, CEO at Aon Securities, described and the ILS asset class as a whole,” ESG investments as a “great opportunity” he said. to attract capital to the asset class but Several ILS fund managers have recently said it was still in its infancy around taken steps to embrace ESG investing. ESG disclosures. Markel’s ILS fund manager Nephila “The question is how we position this introduced an ESG impact fund earlier for investors who have an ESG mandate,” this year, while both Twelve Capital and he said. “We are spending a lot of time Leadenhall Capital Partners have stepped thinking about the best framework to up their ESG focus within investment make all of this happen.” portfolio management and risk selection.
24 The Insurer TV
(Re)insurers can help educate on climate and change behaviours (Re)insurers have the opportunity to be a positive force in changing the current path towards catastrophic climate change impacts, according to Swiss Re’s head of Western and Southern Europe Nikhil da Victoria Lobo. In an interview as part of The Insurer TV’s Close Quarter series, da Victoria Lobo highlights the important role the industry can play in helping reduce the impacts of climate change. “When I look at the power of the insurance and reinsurance mechanism – our ability to put a price tag on risk and give people incentives to change behaviour – I believe we have an ability to be a positive engine in this story,” he said. Da Victoria Lobo said the (re)insurers could play an important role in “awakening people’s understanding on climate risk and incentivising people to change their behaviours”. “In doing so I believe we can help put our economy back on track and reduce the risk climate will pose to income equality, GDP growth and political instability,” he said. “We as an industry have an opportunity to change the current negative track into something much more beneficial.”
“We as an industry have an opportunity to change the current negative track into something much more beneficial”
25 Enhancing conduct, culture and capital in a changing environment
ESG risk management lawyers: financial services and insurance markets
Jeremy Irving Partner +44 (0)20 7337 1010 [email protected]
Helen Simm Partner +44 (0)330 045 2652 [email protected]
Kirsty Finlayson Associate +44 (0)330 045 2356 [email protected]
Jeniz White Associate +44 (0)330 045 2226 [email protected]
Sebastien Ferriere Associate +44 (0)330 045 2935 [email protected]
Visit theinsurer.com/esg for more exclusive market intelligence brownejacobson.com ESG viewpoint Jeremy Irving, partner and head of financial services at Browne Jacobson
Technology’s role in climate-related financial risk management
While climate change is already creating risks for financial services firms, an expanding global market for carbon-neutral products and outcomes is also offering opportunities. Technology has an important role to play as financial firms take action, enabling businesses to upgrade current data and systems to create entirely new systems with the specific purpose of climate-related financial risk management (CRFRM). Developments in artificial intelligence, blockchain, cloud computing and big data have clear potential to enhance or replace current methodologies. Examples of where these technologies may enhance CRFRM include in the design of environmental/carbon metrics in relation to physical and financial assets, the aggregation and sharing of open data, portfolio screening and media keyword-tracking to monitor public or social viewpoint trends. These technologies can also facilitate the launch of specialist climate-related products, such as green bonds, as well as climate-related services and businesses. However, a recent Financial Conduct Authority report into technology change management has highlighted the challenge in integrating these technologies with legacy systems. “ required for CRFRM so that technology can be put in place to ensure it functions. A report by the Bank for International Settlements (BIS) last month highlighted how technological improvements will be needed for effective data capture and analysis of climate-related financial risks. The BIS report explains that the systemic nature of climate change might imply many interconnections and feedback loops, non-linearities and tipping points. “Areas of methodological work warranting further investment include granular climate risk exposure analysis…[and] enhanced scenario analysis capabilities bridging climate science with financial modelling.” For BIS, the future holds “both the prospect of climate-related hazards and possible policy and technological shocks and shifts in both market and customer sentiment” which could result in a range of climate-related financial risks and exposures which financial services firms will need to manage. In other words, effective CRFRM will involve a synthesis of responses to both the action of climate risks and the reaction of climate risk management. The complexity of this synthesis makes effective technology vital for financial services firms.
27 Case study
QBE takes steps to address mental health and employee wellbeing QBE last month unveiled a customer self-assessment tool, developed in collaboration with Mind, which enables companies to assess and enhance their mental health and wellbeing strategy. The partnership is one of several initiatives developed by the insurer to address mental health and employee wellbeing. “While there is an abundance of information available on mental health and wellbeing, most organisations struggle to create a definitive mental health plan with clear goals and priorities,” explained Steve Field, underwriting manager at QBE Europe. “There are few standards or frameworks for businesses to follow and benchmark their mental health policies and practices.” Field said QBE’s tool uses a self-assessment which is structured into systematic strategic sections that enables customers to record their progress through the development process.
“While there is an abundance of information available on mental health and wellbeing, most organisations struggle to create a definitive mental health plan with clear goals and priorities” Steve Field, underwriting manager at QBE Europe
“This includes reviewing organisational culture and responsibilities, monitoring of wellbeing, effectiveness of employee engagement, impact of workplace design and organisation, quality of training, availability of supporting tools and networks which are all underpinned by relevant transparency and accountability.” The carrier has also implemented several measures to address employee wellbeing within its own operations. Emma Higgins, chief human resource officer for QBE Europe, said: “It was very important to us that we challenge workplace stigma about mental health and to make it easier for those who need help to feel comfortable asking for it.
Emma Higgins Steve Field chief human resource underwriting manager, officer, QBE Europe QBE Europe
28 Case study
“Our dedicated mental health network, Open Mind, plays a key role in promoting the message that it’s OK not to be OK and helps to provide the right support to all our colleagues.” This includes the creation of People Leaders to play an integral part in normalising the conversation around mental health, with programme leaders equipped with the skills and confidence to understand different issues, spot the signs of when people may be struggling and provide support and signpost for help. Regular webinars and workshops on topics surrounding mental health are also held to help to raise awareness and Higgins said the company also provides more practical support through a network of trained mental health first aiders. During the pandemic, Higgins said there had been a need for an even greater focus on employee wellbeing with several internal initiatives put in place to provide support for staff. “Communication has been so important during this period and with the shift to home working and all of us navigating through the uncertainty of a pandemic we wanted to have regular check-ins with our people to understand how they were feeling, understand what was going well and where there may be opportunities to enhance our support for mental wellbeing,” she said. “We recognised that some employees have had additional caring responsibilities, with many having to combine homeschooling with their working day. “Therefore, in January we offered our employees emergency paid parental leave to assist parents and carers who were responsible for homeschooling because of government-mandated school closures.”
“We want to embrace the positive learnings and benefits of virtual working, while evolving our offices to become a place for Emma Higgins purposeful collaboration and personal chief human resource officer connection”
In addition, she said the carrier has hosted regular workshops and issued a weekly newsletter dedicated to wellbeing, as well as encouraging employees to take part in wellbeing challenges and pledges as part of an internal campaign to prioritise wellbeing. “Looking forward we’ll be adopting a more flexible approach to work and introducing hybrid working as part of our Flex@QBE programme. We want to embrace the positive learnings and benefits of virtual working, while evolving our offices to become a place for purposeful collaboration and personal connection,” Higgins said.
29 ESG tracker
May’s key ESG actions and initiatives Several companies took steps towards addressing environmental, social and governance issues during April. n During May carriers and brokers launched several initiatives to help meet their environmental, social and governance goals. n As detailed earlier in this month’s edition, QBE introduced a partnership with Mind to enhance the tools it provides for customers to assess the mental health and wellbeing of their employees. n Jap anese carrier MS&AD became the latest among several large global carriers to enhance its net zero planning in 2020, with the insurer adding interim targets for 2030 as part of its latest commitments. n And Hannover Re’s parent company Talanx has committed to phase out underwriting of carbon-intensive industries by 2038, with the German holding company also committing to cut the carbon intensity of its investment portfolio by 30 percent by 2025.
Company actions and announcements May 2021
Company Date Action 20 May Japanese carrier outlines accelerated targets to achieve net zero by 2050 which include a new target for a 50 percent reduction in carbon emmissions by 2050 17 May Alwen Hough Johnson recognised as a climate nuetral company by international climate protection solutions provider ClimatePartner – understood to be the first Lloyd’s broker to receive the accolade 17 May Hannover Re and WIllis Towers Watson to partner on Insurance Development Forum project to create parametric flood and earthquake product as well as indemnity landslide protection for city of Medellin in Colombia 12 May Ascot and Argo provide up to $40mn of combined capacity to Tierra Underwriting Limited to write credit insurance in support of green project finance transactions 10 May Carrier partners with Mind to develop a customer self- assessment tool to enable companies to assess their mental health and wellbeing strategy 4 May Talanx Group outlines plans to cut the carbon intensity of its investment portfolio by 30 percent by 2025 and to phase out underwriting carbon-intensive industries by 2038
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