Multidisciplinary and collaborative approach for ESG risk management

Companies are facing a new risk environment that will require a more proactive, resilient approach, which will need to be a multidisciplinary approach with increased cooperation and collaboration. This was the message from a session on the impact of ESG on renewals at the recent Risk Frontiers Benelux Conference 2023 in Antwerp, in association with Belrim and Narim.

The scene was set by Adriana Cavaliere, senior manager risk, skeyes, and European Risk Manager of the Year, who noted that the combination of geopolitical risks, economic risks and environmental risks is shaping a new risk landscape, where business leaders and organisations are no longer facing just one crisis but multiple crises coming together and enhancing each other.

“It is a new reality for which organisations are not fully prepared and where organisations are also finding themselves in front of a risk management approach that is no longer really serving the current situation,” she said.

Cavaliere added: “Companies are facing a new environment that they are not really ready for, so the classic reactive risk and insurance management approach is no longer enough. It is about evolving towards a more resilient approach, with ESG risks that are very complex, long term, and come with a lot of unknowns. It is asking for a different approach – a multidisciplinary approach working together and a more scenario-based approach.”

She noted that ESG should be considered as a lens that can aid the forward-looking risk managers and risk leaders help their organisation understand what’s coming their way and the impact on the company in the long run, and find ways to strategise accordingly and be prepared. “So it’s really about that next step towards visionary risk management and towards sustainable value creation,” she said.

She said the role of the risk manager, with all of these multiple disciplinary risks and approaches, is one of facilitator, “but we have to go a step further and we should consider ourselves as the corporate glue really connecting the dots. It’s really about cooperating and not operating in isolation. ESG management requires alignment and communication across the organisation and a multidisciplinary approach.”

When asked what role insurers should be playing in this area, Gabrielle Durisch, global head of sustainability solutions, Allianz Commercial, said it is about partnership: “One of our obligations is to support our customers and understand the risks they are facing, how to report on them, and how to underwrite them ultimately. But the big part with all the focus on ESG is: What can we share with our customers, what do we see across the industries, across the regions that we work in, and how can we show that information to make sure our customers are best informed?”

She added: “What we see is different approaches, different strategies, different types of use of data, and we can bring all that together because we’re in a unique position where we can see what everybody is doing, and we can leverage our own internal risk management to support our customers in those areas. As a carrier we can bring these insights together to our customers.”

Rosalie André, head of insurance and risk management, Signify, said: “I think there is a lot of knowledge and a lot of data coming from the insurance industry in general that can be better leveraged within corporates in order to report on ESG in a structured way, especially when it comes to calculating the financial impact. I think the huge opportunity for insurance teams internally is to share that knowledge with our internal stakeholders. Also, my appeal to the insurance industry is to not create new services out of it but give it as part of the current products. For example, by providing more transparency on rating models and their view on locations that are driving natural catastrophe ratings, or as part of the risk engineering auditing services by providing more hands on advise to mitigate natural catastrophe exposures. It would help to start today in preparing for tomorrow and it would add value to existing insurance servicing proposition.”

William Bruce, global managing director, climate risk consulting, Aon, said the job of the broker is to try to future proof and fully present a client’s risk profile to the underwriters. But he said underwriters are struggling with how to reconcile a 12-month insurance policy and a 20/30/40-year time horizon for physical climate scenarios. “Ultimately, insurers are interested in climate risk and I think the correlation between climate risk and premium will start to become stronger, because at the moment I think it’s unclear and difficult to quantify.”

He added: “With regards to transition risk, insurers are unable to rely on previous loss data to forecast and price premium when first-of-a-kind technologies are employed. Consequently, for new and emerging technologies, there can be an inherent barrier that needs to be overcome before insurers are able to facilitate the transition.”

Bruce said the market is going through a period of flux, pointing to the raft of directives and regulations: “There’s going to be a period of disruption where everyone is trying to figure out how much information do we need. But it will standardise over time.”

Durisch acknowledged the challenge over data requirements. “We are aware that every carrier is coming with questionnaires, and brokers have their questionnaires, so there is a lot of demand for data… I think there is a rush to get as much information as possible because everyone talks about how important data is. But the problem is that if you are not getting data that is comparable, it’s not that useful.

She added: “The carriers need to work with the brokers to make sure the requests are being streamlined. If we’re asking for one thing and peers are asking for something slightly similar but different, maybe the broker can step in. I think there’s a lot of work to be done between the brokers and the carriers to manage these types of requests.”