The importance of a top-down effort to implement ESG strategies whilst taking a holistic approach, is second to none, said Catharina Richter, Head of Regulatory Management, Allianz SE.
Richter was speaking at the recent Insurance Asset Management DACH virtual event, hosted by Clear Path Analysis, where she discussed the challenges of ESG implementation in the German-speaking regions of Europe, which feature in a new report.
“It is of the utmost importance that there is a credible tone from the top,” said Richter. “Top management must decide to what extent it is important to them and how they want to move ahead to create this energy and internal credibility so that colleagues can see that embedding sustainability in the corporate strategy is wanted.”
“It would be helpful for a credible allocation of responsibility for
sustainability to be reflected at the board level.”
A top-down approach that incorporates views and feedback from all levels has been encouraged by many investment professionals. Many have said the E, S, and G must be thought of as equal and in conjunction.
Richter says ESG strategies and their implementation in insurance are a fundamental change to the way business and financial services have been done so far. “It is therefore important that such top management commitment is well explained and that senior management, along with the supervisory board, understand and agree that sustainability is embedded into the business strategy of the corporation,” she said. “It would be helpful for a credible allocation of responsibility for sustainability to be reflected at the board level.”
The idea of senior executives being firmly – and publicly – behind ESG strategies and using their prestige to drive them into every corner of a business is one that some may dislike. In a recent Pwc study, the firm said that the narrative of [an ESG] journey “must demonstrate considerable coherence, which can emerge only as companies find their best-fitting strategic stance on ESG and tie it explicitly to value creation.” Without these ideas, it risks not being taken seriously enough by more junior colleagues.
“Ideally, the Board would appoint a Chief Sustainability Officer (CSO),” Richter said when she discussed ways of implementing the holistic approach. “This has been done by many firms already, to give the approach a name, and place, and create a function.”
For this period of transition, Richter said, the insurance industry needs to ignite ideas around ESG – and that when incorporated into organisations, the CSO could have a key function. “Also, such a sustainability function should have the mandate to interact with all pre-existing functions of an organisation and to discuss with them how they have to transform their respective activities to advance sustainability,” she explained.
The idea of making sure the CSO is not an “idle threat” or window dressing but a valued and essential part of the business mirrors other ideas around making sure ESG-umbrella ideas such as Diversity and Inclusion are part of a measured department that has key performance indicators and annual goals like all other sections of the business.
“How is this reflected in, for example, our products, coverage,
underwriting, and investment strategy.”
“[This idea] then moves across the entire organisation, along the value chain and processes, building methodologies and criteria,” said Richter. “The same is true for insurance companies and how we do the risk assessment, our underwriting strategy, how we set limits, and what we would prefer to insure in the future.”
Richter added that all of these factors are important and that it comes down to retail product development – as well as marketing and distribution – for it to be wholly successful. “It is the latter where we come into communication with the customer and have to be able to hold credible conversations about decarbonisation and how it plays a role in our business activities,” she said. “How is this reflected in, for example, our products, coverage, underwriting, and investment strategy.”
The challenge, she added, is whether the insurance industry has the right tools to hand to achieve this. “We have seen over the past couple of years greenwashing concerns popping up, because people have asked whether what is being done is doing the trick and how it is being done exactly.”
“Because we are insuring and enabling business activities that may or may
not decarbonise our economy and help invest to mitigate climate change.”
She said that to combat these fears, “the work that is being done has to be science-based. There are experts who are needed because we are still struggling to have broad enough methodologies as well as acquiring the data to steer this transformation across the value chain.”
There are myriad issues around ESG data; depending on the jurisdiction, only larger public companies are required to report ESG data, which is published in their annual reports, said Accenture. “This limits the data pool to what these companies self-disclose. There is no universal system to verify reported data.”
Richter said there is a lot of work ahead of for the industry and they must be aware that the financial industry is a strong enabler. “Because we are financing, insuring, and enabling business activities that may or may not decarbonise our real economy and help invest to mitigate climate change,” she said.
