The risk connection: Why ESG matters for insurers

The evolution of the discussion around environmental, social and governance and insurance reminds me of the Ernest Hemingway quote describing how someone went bankrupt: "slowly, then suddenly." It shouldn't be a surprise, because both ESG and insurance examine risk and plan for resilience.

When you peel away the current noise and rhetoric, ESG is concerned with business fundamentals: identifying and managing risk. It’s a tool and strategy that creates value and drives long-term business performance because deeper clarity on material environmental, social and governance issues (ESG) builds a resilient business.

As experts in understanding risk, insurance industry leaders are obligated to integrate ESG into their business model and operations. Yet ESG data are considered non-financial indicators, leading one to ask how these aspects of performance impact the bottom line. The answer in short: Businesses abhor uncertainty, so they look for strategies that reduce risk and build resilience.

Insurers must go beyond standard activities and methods up and down the financial value chain and explore nonfinancial data that provides measurement of critical issues that include the environment, labor and safety, human rights, ethics, policies, procedures, and stakeholder demands that may affect your company’s risk and opportunities for sustainable growth. The need for resilience has never been greater, and integrating ESG boosts resilience by mitigating risks associated with that data. Your company's ESG performance will be particularly critical in times of external calamity – think natural disasters, or pandemics or social crises.

When risk is your entire organization, mitigating ESG is smart, sensible business. When it’s integrated at the organizational level it makes your company more resilient, enhancing performance at every level. Insurers know this but may not be looking closely enough at their own ESG risk the way they do for their clientele, which can hurt insurers' competitive edge.

How to approach ESG

To begin, you must identify and prioritize your company’s material issues from among the large universe of ESG issues.  Not all of them will be relevant to your business, and some will be higher or lower priorities. Therefore, conducting a materiality or double-materiality assessment is an essential first step to developing an integrated strategy, and is required by most ESG reporting frameworks. The process includes research and analysis of industry trends, benchmarking, internal and external stakeholder engagement and workshops.

After you have determined your material risk, you will need to measure performance. Setting the right targets is essential – as business professionals like to say, "what gets measured gets managed.” Keep the SMART acronym in mind as you go about establishing measurement protocols: benchmarks and targets should be specific, measurable, achievable, relevant and timebound. As points of reference, it can be helpful to study examples of disclosure standards from groups such as the International Sustainability Standards Board, even if your company is not required to comply with new ESG regulations.

We also recommend creating an internal ESG taskforce or working group to lead development of goals, data and reporting methods. This group can also be tasked with identifying a long-term mission and vision for the overall integrated strategy, outline a structure of roles and responsibilities to be adopted at the organizational level, and draft policies and initiatives designed to meet ESG goals. The “long-term” aspect is important. ESG isn't a "one and done" strategy. It is a long-term investment that builds value and protection for the future. To optimize your investment, you must review targets, policies, and implementation regularly, and adjust as needed when performance misses the mark.

It is worth mentioning that effective integrated ESG strategy is fundamentally about identifying and managing opportunities as well as risk. It’s a form of futureproofing for the insurance company, ensuring it continues to perform well in periods of disruption and change. Furthermore, the main drivers behind ESG are three critical stakeholder groups: the investor base, policyholders (i.e. customers) and regulators. Their expectations of your company’s best practices and performance create a strong incentive to integrate ESG strategy.

As you develop your ESG strategy and targets, the most important thing is to get in front of risks quickly. Waiting for the right time or ignoring ESG completely means falling behind. It’s a risk mitigation strategy that improves performance at the organizational, portfolio and asset levels.

Although you can never eliminate unpredictability and unknowns, a robust and integrated ESG strategy incorporating cyclical analysis and regular adjustment can boost operational efficiency, enhance reputation, and attract investment, talent and customers. Integrating ESG across your organization delivers measurable benefits for your business, the insurance industry and beyond.

© Entire contents copyright 2025 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.

Jane P. Madden is global lead ESG partner with Buro Happold in Chicago. Contact her at [email protected].