Asset Management & ESG
Focus on ESG Expands Beyond Environmental, Energy
Diversity, equity and inclusion along with sustainable investing are top of mind in the insurance industry.
- Lori Chordas
- May 2022
While climate change has dominated many of the discussions around ESG, social issues are increasingly becoming more prominent. As environmental and governance components of ESG remain top of mind, the “S,” or the social aspect, of sustainable investing is quite broad and often has been misunderstood and harder to grasp. That's changing as the pandemic has placed a renewed spotlight on the importance of sustainability and social issues such as human rights, labor rights, health and safety, and diversity and inclusion.
Christie McNeill, associate partner, McKinsey & Co.; Kerri Hamm, head of business development, Munich Re US; Julia Oltmanns, director of diversity, equity and inclusion services, Zurich Resilience Solutions, Zurich North America; and Kevin Gaffney, deputy commissioner of the Vermont Department of Financial Regulation's insurance division, participated in a panel discussion with AM Best TV concerning the social aspect of ESG investing. Following is an edited transcript of the panel's discussion.
What's driving the rising emphasis on social issues among companies today?
McNeill: Overall, we see major and growing momentum for ESG as a whole. It's a board topic at almost every insurer and major corporation. There's now more often than not a chief sustainability officer, in many cases reporting directly to the CEO.
In terms of capital flows, ESG funds are continuing to grow rapidly and are on track to reach about a third of global assets under management by 2025. When we look at consumer sentiment, Gen Z and millennials care deeply about sustainability and ESG topics. We see a continued shift toward ESG in customer demand that continues to grow.
On the social aspect in particular there is growing focus across stakeholder groups. Many employees are expecting more from their employer in our current labor market where talent attraction and retention is critical. There's an expectation that the focus is not just diversity, but true equity and inclusion.
“We feel DEI ... is a must-have. We’ve started educating all the customers and brokers that we work with and other stakeholders on how DEI should be viewed as a risk if you have a lack of DEI commitment and you’re not progressing on your DEI journey.”
Zurich North America
From an asset social perspective, how are insurers thinking about the reach, access and affordability of products and new coverages and solutions to expand societal impact?
McNeill: What we see is that the insurers who are really doing this best are addressing their vulnerabilities and capitalizing on their superpowers. They understand what is their market share among underrepresented populations? Are they able to reach via all the channels that are necessary the populations that they aspire to serve? And what are the unique capabilities that they have, that if they really applied focus to could generate significant value both in terms of the societal benefit and the opportunity for growth and profitability?
For a life insurer, that might be a focus on financial wellness, increasing savings. For a P/C insurer, it may be around community-level resilience and public-private partnership on that dimension.
What are some business opportunities related to sustainable investments and solutions?
Hamm: Even in a wealthy country like the United States, there are still insurability gaps. One of Munich Re's “superpowers” is to use our risk knowledge to help close those insurance gaps. A great example of this is homeowners who are exposed to loss from flash flooding due to intense rain events. Those events are becoming more common as a result of climate change. We've used our risk knowledge of pluvial flooding to develop a turnkey solution for inland flooding exposure. Our clients can fully adopt our solution under their own brand without taking on additional risk. It works to address and close that insurance gap.
Another example for us is public-private partnerships. We are bringing our risk knowledge to the local government level where we are working with them in very specific ways to help develop affordable solutions for communities to become more resilient in the face of natural disasters.
McKinsey & Co.
What impact has the pandemic had on the social aspect of sustainable investing?
Hamm: From a reinsurance perspective, Munich Re naturally has to have a very long-term investment horizon and a conservative investment strategy. We refreshed our corporate strategy during the pandemic. Part of that comprehensive strategy addresses investments. We plan to double our commitment to renewable energy to €3 billion, as well as achieve net zero in our investments by 2050. Those are moves that we have to start making now in order to achieve those goals due to the long-term horizon of our portfolio.
More businesses are now recognizing that their ESG concerns need to include diversity, equity and inclusion. What has been Zurich's approach to that?
Oltmanns: Earlier this year, Zurich decided that, in addition to focusing on what we're doing internally with our employees, we really wanted to start helping customers on their DEI journey. We feel DEI is not a nice-to-have any longer; it really is a must-have.
We've started educating all the customers and brokers that we work with and other stakeholders on how DEI should be viewed as a risk if you have a lack of DEI commitment and you're not progressing on your DEI journey. We are starting to help our customers on that journey with an assessment tool and consulting resources so we can help them progress in their DEI maturity.
Munich Re US
Are there risks or pitfalls for businesses in the quest to make progress in DEI?
Oltmanns: Yes, absolutely. I specialized in the legal advice related to DEI for the last 14 years. What we want to do is to make sure our customers understand there's a risk of a lack of DEI commitment. But there's also risk if you approach DEI in the wrong way.
We are seeing an increase in reverse discrimination claims. We're seeing an increase in shareholder derivative lawsuits for boards and organizations with senior leadership that did not take the right steps to make sure their organization was on the right track with DEI.
There are claims against organizations who've made a public statement, who've made some kind of a commitment but then didn't actually put the right actions and process in place to implement what they said they were going to do.
Vermont Department of Financial Regulation
How are insurers in your state using gender?
Gaffney: There are several states that no longer allow gender as a risk classification. Those decisions were not necessarily made because of what we are encountering now with adoption of non-binary driver's license classifications. We are engaging with industry and sharing what we see on the horizon as potential societal headwinds challenging them to continue with that convention. For someone to walk in an insurance agent's office, the assumption that they're male or female is no longer an appropriate convention. It's something that we potentially see on the horizon that industry should start preparing themselves for, no longer relying on that risk classification.
This is at a time when insurers are developing a variety of sophisticated rating models that allow them to rely on more appropriate and more direct risk-related classifications. This as an evolving issue that should be monitored.
What DEI-related outreach opportunities is your department currently working on?
Gaffney: In Vermont, each agency has a DEI liaison with the DEI director at the state. Within the insurance division also, before the establishment of the DEI liaison, DFR had an outreach program for a number of years.
That outreach program is designed for two primary areas of focus: financial literacy for young adults and protecting the vulnerable population, usually the elderly, from fraud and other activities. Now we see DEI activities as a third component and an opportunity to incorporate into our outreach. Our outreach, because of the pandemic, has been virtual. We look forward to moving forward with more in-person outreach and education.
AM Best TV
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