In this article we discuss the importance of a well thought-out ESG strategy, taken from the original article by Alison Waters at Aston Lark, “Is Environmental, Social and Governance on your agenda?.
There’s no avoiding the global climate, sustainability, and socio-economic concerns that businesses face in a post-pandemic world, and Environmental, Social, and Governance (ESG) is the current hot topic that should be on everyone’s mind.
While it’s commonly acknowledged that immediate change is required to safeguard the environment, what about the human components of ESG? And, while we’re all aware of these high-level issues, what is the practical impact of implementing an ESG strategy from an insurance standpoint, and how does this affect the perception of an organisation from the outside?
What constitutes a good ESG strategy?
The corporate culture of a company will reveal how seriously the company is taking its duties in developing and implementing ESG policies. A clear approach must be implemented, as well as an openness to review and modify.
Environmental issues are widely publicised, and companies can easily demonstrate their commitment to them. How do the social and governance elements stack up, though? A clear message from the top of an organisation that filters down to all levels of employees will undoubtedly improve employee stability and demonstrate to competitors, investors, and potential insurers that this is a topic that is critical to your company’s long-term goals.
Buyers and customers are also growing more ethically conscientious, opting to buy from greener companies and those devoted to ensuring their suppliers follow decent workplace standards, rather than from companies with questions about working conditions or pollution. A well-publicised corporate culture can attract new consumers, employees and investors. How your business is viewed from the outside plays a huge part in its success.
How ESG can positively impact your insurance
Profitability has always been the primary concern of underwriters. While it’s still critical that a company manages its finances appropriately, ESG decisions taken at Board level are expected to become the most prominent emerging D&O risk for companies, with the possibility of diversity and equality-related lawsuits being one crucial risk area.
Insurers want to see examples of proactive risk management. Those organisations who have already incorporated ESG into their DNA will be seen as more positive than those that are slow to change. A resilient firm that is well positioned to withstand future change and has a healthy level of investor and shareholder value will definitely attract more insurance market possibilities and, more importantly, a lower insurance premium than one that does not have the ability to demonstrate these crucial behaviours.
One thing is certain: when it comes to purchasing your D&O insurance, insurers are asking for greater detail in their risk assessments.
We’re here to help
This article comes courtesy of Aston Lark, they can help your business navigate the D&O market and help you implement an effective risk management strategy. Contact their dedicated team on 020 7543 2807.