Risk management making steps forwards on ESG

In a world of interconnected risks, the need to comply with environmental, social and governance (ESG) regulations, not to mention social expectations about sustainability, ranks high among the priorities of French companies. For this reason, participants in the French leg of our Risk Frontiers Europe survey backed risk managers becoming more involved in their companies’ ESG strategies and urged the insurance market to provides more support for their clients to support such a move. “The risks linked to a company’s ESG strategy are becoming more important. There is less opportunity for greenwashing and more demand for transparency on ESG,” said Oliver Wild, president of France’s risk management association Amrae. “Although companies have been working on their climate change strategies for some years now, it is not always easy to comply with regulation that tries to fit everything into a framework. There is also the risk of being understood incorrectly on the ESG strategy.” “The main risks today are cyber and digitalisation, social responsibility and climate change, which is in fact linked to the social responsibility of organisations too,” said Frédéric de Serpos, a member of Amrae’s board. “In terms of social responsibility, the risks evolve faster than the ability of insurers to innovate. Organisations are increasingly the target of financial punishments due to ESG regulations, often with fines that are applied immediately, and obviously it is not possible to cover that [with insurance],” he added. And De Serpos noted that ESG compliance risks do not exist in a bubble and are closely connected to other risks, such as disruptions to supply chains, where the insurance market has not follow the pace of change imposed on clients. “Climate change creates changes to the provision of commodities, and for retailers that means much impact on suppliers. For the moment, the insurance market offers no solutions for that risk,” De Serpos said. “At the same time, there has been plenty of innovation on the management of supply chain risks.” Wild pointed out that French companies have been forced in recent years to up their supply chain risk management game. “Supply chain is definitely not a new risk, and there was a crash test with Covid on how resilient one’s supply chain is,” he said. “Plenty of adaptation was made during Covid, and many lessons were learned from that crisis." The most careful companies are doing what they can to mitigate such risk, though. “Half our supplies are from Asia and half are sourced in Europe, so we already have a supply chain safety back-up. But we increasingly work on the relocalisation of part of our production closer to home,” said Camel Sekkai, the head of Amrae’s northern section and legal director at car parts group Mobivia. “We are looking at more alternatives to find suppliers in Europe so that we can have a plan B if necessary. For example, we have started to produce our own tyres at Béthune, here in France. We would love to do the same with car batteries.” “Insurers are starting to ask questions about our supply chain. Two or three years ago, they showed no interest whatsoever in it, which was quite surprising. But now there are ever more discussions, which are becoming more interesting too,” he added. One of the main causes of supply chain disruption are the increasingly frequent and severe climate events that have hit the global economy over recent years. This is another point of contact with ESG risks. For Amrae board member Marie-Elise Lorin, the confluence between those risks justifies a broader risk management involvement in the formulation and implementation of corporate ESG strategies. This is already happening, in her view. “We are moving that way. At the moment, regulation says that we must include durability risks in our risk maps. So the board has asked me to talk about how to deal with durability risks under three approaches: legal responsibility, physical damage and the energy transition,” she said. “As the risk manager of my company, I am very much involved in the implementation of the Corporate Sustainability Reporting Directive (CRSD), and also in ESG issues linked to our investments. We must pay much attention to make sure that we invest in companies that have a good ESG rating.” “We see the ESG trend as a very positive one, and we redistribute part of our profits to companies or organisations that work for biodiversity. We make sure that there is no greenwashing involved,” continues Lorin, who is also the risk manager at insurer SMACL Assurances. François Malan, another member of Amraes’ board, and Sekkai are examples of heads of risk management who are already engaged in this process. “I work closely with the sustainability department and my added value is the risk mapping of ESG risks, the insurance coverage, when it is possible, and the internal control monitoring of extra financial data collection and KPIs,” Malan said. “I am part of the company’s ESG steering committee. It enables me to have a voice when we discuss our choices and priorities,” Sekkai explained. “And we help the committee to identify ESG-related risks and how to mitigate them.” De Serpos, who is also the head of insurance and risk manager at retailer Groupe Casino, added that risk managers have much to contribute when it comes to defining ESG strategies. “ESG directors are extremely aware of the impact of risks linked to the implementation of ESG strategies on their company’s reputation. But they are not necessarily used to have a risk mapping-based approach, which is the main strength of risk managers,” he said. “The two must work together.” But Malan, who is head of risk management, compliance and group internal controls at construction firm Eiffage, pointed out that it would be helpful if insurance companies were more supportive of their clients’ efforts to transition to a greener economy. “We do not receive any direct credit for our ESG efforts, and we must prove that we are compliant with bribery, embargoes etc,” he said.

Risk management making steps forwards on ESG

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