Recent Reports Highlighting ESG in the Insurance Industry

Reports in the first month of 2002 by accounting firms and academics are highlighting key ESG issues for the insurance industry.  Deloitte released its 2022 CxO Sustainability Report, which offers a glimpse into the key ESG issues companies should consider this year. The survey was conducted amongst 2,000 executives in 21 countries. Key findings of the report include:

• 79% of executives surveyed stated that climate change was at a tipping point; this is up 20% up from the 2021 study.
• 97% of companies have felt the negative effects of climate change.
• 8 in 10 executives stated they have been personally impacted by climate risks in 2021.
• Shareholders are pressuring executives to act.

However, only 19% of the executives surveyed admitted to implementing four of the five following measures:

• Developing new, climate-friendly products or services;
• Requiring suppliers and business partners to meet specific sustainability criteria;
• Updating or relocating facilities to make them more resistant to climate impacts;
• Incorporating climate considerations into lobbying and political donations; and
• Tying senior leader compensation to sustainability performance

To read the Deloitte 2022 CxO Sustainability Report click here.

On January 18, 2022, Lloyds released a report using geopolitical scenarios to model climate change transition risk.  The report highlights the following three possible geopolitical reactions to the coming climate change transition:

1. ‘Green Globalization’ (Cooperation): where “world leaders collaborate towards a stable and global transition driven by a shared belief that decisive and focused action is needed to tackle climate change.”
2. ‘Climate Anarchy’ (Chaos): where “state interests prevail as actors struggle to mobilize on the scale and speed needed to shift the dial on climate change.”
3. ‘Green Cold War’ (Competition): where like-minded states coalesce around major powers to form ‘climate blocs’, with competition between blocs for energy, technology, and market dominance.”

The report also described four opportunities for insurers in response to these scenarios:‎

1. ‎Improving Understanding of future policy classes associated with future geopolitical ‎clashes and developing new ways to share “uninsurable” risks.‎
2. ‎Closing the “Geopolitical Protection Gap” by providing needed coverage in growing ‎economies with insecure political institutions.‎
3. ‎Develop Parametric Solutions, especially for supply chains, while limited capital ‎exposure.‎
4. ‎Becoming Data Stewards for assessing supply chain exposure.

‎To read Lloyds the Shifting Powers report click here.

The journal Nature Climate Change on January 31 published a paper by a team of ‎academics with findings that will have significant implications for both property and casualty insurers and life insurers.  The researchers found that, even with significant greenhouse gas emission reductions in the near ‎term, annual losses due to flooding in the United States will increase by 26% by the year 2050 due to climate change alone, not accounting for inflation, ‎and that this increase will disproportionally impact Black communities while remaining ‎concentrated in the Atlantic and Gulf states.‎

See Wing, O.E.J., Lehman, W., Bates, P.D. et al. Inequitable patterns of US flood risk in the ‎Anthropocene. Nat. Clim. Chang. (2022) available here.‎

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