Airmic warns of anti-ESG challenge facing members

Airmic is warning members of a big “challenge” from anti-ESG legislation in the US, while calling for more “consistency” on ESG from insurers. Questions on greenhouse gas emissions and transition plans as part of underwriting submissions is becoming a major “burden” for risk managers, according to a joint survey and report from Airmic and KPMG. Well over half (58%) of Airmic members responding to the survey say they face multiple requests for climate data from insurers, investors, regulators and activists, which can be “onerous”. “In term of making underwriting submissions, Airmic members are seeing that questions from insurers lack consistency as to their focus. For instance, some insurers focus on the climate impact on their operations, while other insurers may be more interested in whether their client is involved in a specific type of product,” says the association. “This means that the process of placing their insurance cover annually can be a major burden on the resources that risk and insurance professionals have at their disposal,” Airmic says in the report, launched at its annual conference in Manchester. Airmic also warned of growing anti-ESG sentiment and legislation in the US, which was blamed for the withdrawal of several insurers from the Net-Zero Insurance Alliance (NZIA). The NZIA is an insurance industry body aimed at promoting a consistent approach to measuring greenhouse gas emissions and setting ESG targets. Only 16% of Airmic members say their organisation has been affected by anti-ESG legislation, but the association has warned of a growing anti-ESG challenge for its members. A number of US states have introduced draft legislation or issued policy guidance indicating that ESG investment approaches may violate fiduciary duties. In May 2023, Florida governor Ron DeSantis signed into law a bill barring state officials from investing public money to promote ESG goals and prohibiting ESG bond sales. “At present, this is predominantly still a US phenomenon, but all businesses operating in the US potentially have an exposure to the rise in anti-ESG legislation. The organisations of some Airmic members have sustainability products in some of the US states impacted and, hence, the phenomenon presents a commercial challenge to them,” warns the Airmic report. Avoiding political controversy over ESG is becoming more difficult, and should be factored into risk management, it adds. “Sometimes, risk professionals find themselves in a position where their pursuit of net zero targets is met with challenges in certain jurisdictions. It is therefore imperative for organisations to be clear about their purpose, risk appetite and strategy, while also being agile in their responses to political controversy,” it says. Organisations are becoming more transparent to combat accusations of greenwashing, with 75% of Airmic members now sharing more information. However, the “onslaught of climate regulations” could have the “perverse effect” of leading to less disclosure and more “green hushing”, Airmic says. According to the survey, concerns over reputational risks trump all other climate-related insurance gaps for organisations. Almost half (47%) of Airmic members said they had coverage gaps for reputational risks, followed by extreme temperatures (34%) and floods (24%). ESG is becoming a bigger issue for risk managers when deciding where to place their insurance, according to Airmic. More than 40% of respondents say they consider the positions of insurers and brokers on ESG issues. “The voice of the customer is becoming more consequential in the insurance industry’s climate transition. Airmic members are increasingly referencing ESG priorities and actions in their insurance renewal presentations. Where their organisation has a captive insurance company, it is likely to connect with the parent on ESG,” Airmic says in the report. Some 43% of respondents say they are seeking more services from insurance brokers, insurers and risk consultants to help with the energy transition. In particular, organisations want data and analytics to help with reporting and decision making. Airmic reiterated calls made in its 2021 study for greater collaboration between (re)insurers, corporate risk managers and brokers. “Risk professionals and insurers need to work together to understand the opportunities and the associated risks that will occur from the climate transition – risk professionals in terms of understanding the new products, technologies, investment and ways of working that their organisations will need to adopt to survive, and insurers in terms of the potential sectoral macroeconomic and physical risks that may occur,” it says. Airmic adds that risk professionals have a role to play in the transition through navigating the impact of physical climate risks, tackling Scope 3 emissions in their supply chains, or addressing intangible risks such as greenwashing or a new wave of regulations. “A disorderly transition may well be a fact of life to be embraced, as the WEF believes. Nevertheless, we need to de-risk the climate transition as much as possible and pre-empt an overly disorderly version of it, so as to deliver the promises of climate action for future generations,” Airmic says. While organisations are making significant progress in setting net zero targets, just over half of Airmic members said they lack clarity about their organisations’ budgets for transition plans. “Climate transition plans matter because action is required at both the strategic and operational level for them to turn net zero commitments into reality,” Airmic says in the report.

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