Belgian risk managers concerned about mounting EU regulation

Leading Belgian risk managers we spoke to as part of our Risk Frontiers Europe survey fear that regulatory reporting requirements have gone too far, especially from EU directives around sustainability.

While the risk managers are supportive of regulators’ intentions and the principles behind the new rules, there is concern that the reporting will become burdensome and produce reams of data that will never be properly used. We may end up “producing endless reports that no-one will ever read”, one risk manager warned.

This is also concern about the rising amount of information demanded by insurers. Again, while risk managers are in favour of more accurate underwriting and the opportunity to demonstrate the extent of their risk management, this only works if their work is reflected through lower premiums or more capacity.

Companies may face many of the same risks the world over, such as cyber, climate change and geopolitical tension, but from a regional perspective, companies within Europe face a challenge from regulatory overkill, warns Carl Leeman, chief risk officer at Belgium-based international logistics firm Katoen Natie. “Europe is killing its own industry to some extent,” he said.

“Increasing reporting requirements around sustainability means that firms have to employ more people to compile reports that no-one is going to read,” added Leeman. “This is especially true for private companies that are not used to the current level of reporting. The EU does not seem to understand that it is killing the competitiveness of the trading bloc through its ambition to be the most regulated trading bloc in the world.”

It is a very different picture when it comes to sustainability in the US, said Leeman. “ESG has become very politicised. If you support sustainability, you are seen as a Democrat and if you do not, you are seen as a Republican. Different audiences see the same issues in different ways. So if you are in New York or California, it is not a problem. But ESG is not very well perceived in Texas. And you have all of this on top of the rules and regulations.”

Leeman is not alone in his concern about regulatory overkill, especially when it comes to supply chain oversight. The Corporate Sustainability Due Diligence directive (CSDDD) is a huge subject in its own right, said Nathalie Vandenbroucke, risk and insurance business partner at infrastructure investment firm Invesis. “At Invesis, we are currently busy setting up to be compliant when we come under its scope of application. This has not prevented us from implementing the necessary vigilance measures to ensure compliance with our own rules of compliance and ethics by our internal and external stakeholders, as this respect is paramount for us.”

“However, as the CSDDD, double materiality assessment and so forth approach, companies are faced with an avalanche of regulations, often very complex. I think that while the intentions are entirely legitimate, EU legislators should aim for a simplification of the processes,” she said.

The CSDDD was a topic discussed at Commercial Risk’s Risk Frontiers Benelux conference in November when Dorien Rookmaker – member of the European Parliament, co-rapporteur of the CSDDD and a former risk manager – said the directive may cost companies time and money to implement but will give risk managers an opportunity to get the attention of senior management.

“Most boards don’t like risk management reports and don’t like risk management at all,” she said candidly. But Rookmaker said the CSDDD will give risk managers the chance to turn this around, not least because the CEO’s bonus may depend on compliance with the regulation.

“If the company is not compliant, you could be in a situation where the CEO has to hand over their bonus,” said Rookmaker.

Leeman’s is also concerned that insurers are still failing to recognise the value of ESG in their underwriting. For example, Katoen Natie is a heavy user of solar power and in recent years has provided as much as 25% of the electricity in Flanders. But when it comes to insurance, solar panels are seen as an additional risk.

“We are engaged in a battle of sorts with insurers on ESG. They claim to be greener than green in terms of ensuring that all employees use electric cars or bicycles, but if you want to use a wind turbine or a timber frame for your new factory, it will be seen as an additional risk. The insurers are keen to publicise the sustainability of their own internal initiatives but are not factoring the same concepts into their technical underwriting,” said Leeman. “Most insurers have not refused cover but when the fire audit comes, you are treated as a big risk.”

Risk managers are looking for more credit for their ESG efforts from insurers, said Vandenbroucke. It is a topic that she has brought up regularly over the last two years, including at our Construction Risk Management Europe conference two years ago in London.

“I had already raised the question about the market’s willingness to consider ESG criteria in pricing. At that time, the response had been rather evasive,” said Vandenbroucke. Thankfully, there has been some progress since then. “Today, some insurers openly display a new underwriting policy that takes into account the ESG profile of their clients. However, to be able to truly claim to consider objective criteria for setting rates, we will need to wait for the combination of mandatory reporting with AI. In my opinion, it is just a matter of time,” she said.

The rising importance of sustainability and ESG is another development that presents more work but potentially more responsibility for risk managers, said Gaëtan Lefèvre, head of professional ethics risk and insurance management at Belgian engineering firm John Cockerill.

“As a risk manager, I am involved in ESG but am not in charge,” said Lefèvre. “My role is to support the process. I am involved in ethical leadership and we have appointed a member of the board.”

Lefèvre feels that this growing involvement is more of a headache than a positive trend, but expects things to change. “With the reporting requirements, it is difficult to find the figures, as is often the case for non-financial reporting. But in time it will be a positive trend.”

Lefèvre also said there has been little engagement so far from the insurance market on ESG and sustainability, but he expects this too will change. “At the moment, it is more about ethics and compliance. But while we are not getting many inquiries from the insurers or banks yet, it will become more important in the future, so we will have to prepare for that. The number of figures that insurers ask for at renewals to assess your risk continues to increase and that will only increase as a result of ESG,” he said.