Risk managers urged to get involved in ESG risk

Risk and insurance managers have been urged to get out of their comfort zones and become more involved in tackling environmental, social and governance (ESG) risks, as research by Ferma earlier this year shows just a third currently play a role. Bart Smets, head of insurance and risk at global materials technology and recycling group Umicore, pointed to a survey of Ferma members carried out during the first three of months of this year, which found that just 27% play a specific role in managing ESG-related risks. A further 13% said they plan to get involved, but the remaining 60% are not involved, or do not plan to be. Mr Smets said these findings are “worrying” and responses to further survey questions suggested risk managers don’t feel sufficiently equipped to manage these risks. “But even more worrying is the large number indicating a lack of support from the board… this is all very worrying as the WEF’s 2020 Global Risk Report finds environmental risks as the top concern of risk managers,” he said. According to the survey of 763 Ferma members across 34 countries, the biggest hurdle to integrating ESG risks into the risk management process is difficulty scoping sustainability risks (81%), followed by limited knowledge of sustainability risks (70%). Next comes lack of opportunity to be involved (55%), then limited collaboration between ESG and ERM specialists (51%), and lack of support from the board and top management (43%). Mr Smets doesn’t think the fact that only a third of Ferma members surveyed are currently involved in ESG risks means companies aren’t taking them seriously. The real story is that risk managers just aren’t part of the process, said Mr Smets, and he urged them to find a role. “It’s important that risk managers are involved one way or the other, not necessarily leading the project but as a stakeholder, giving input to discussions and coming up with ideas,” he said. Carl Leeman, vice-president of Belgium’s risk management association Belrim and chief risk officer at international logistics firm Katoen Natie, agreed. He said it is important that insurance managers, in particular, get out of their comfort zone and get involved with ESG risks. “For some insurance managers it is about moving out of your comfort zone and walking into another world. If you don’t learn, change knowledge and take on new activities, you will be put aside and the younger generation or other people will take over from you,” he said. It is important to look more broadly than insurers and brokers for support on this topic and access a wide range of expertise, added Mr Leeman. The two risk managers also stressed it is crucial organisations can evidence what they are doing to tackle ESG risks and disclose actions to a range of stakeholders. “It is more and more important. Investors increasingly require companies to communicate and disclose on these topics and include it in their strategies. The job you are doing [on managing ESG risk] is becoming as important as what you are disclosing externally,” said Mr Smets. Mr Leeman works for a privately owned firm so shareholders aren’t an issue, but he said clients wants to know about ESG risk management. “Clients wants suppliers that are conscious of these issues. They want to know what activities we take to sustain the climate’s future and keep their supply chain running in the toughest conditions caused by climate change,” he added. Mr Leeman has commissioned studies by external experts to show how investment in ESG risk management, and measures to mitigate the current impact of growing ESG risks, can save money in the longer term. These can then be used to help get buy-in and backing. “Studies that show how you can generate a return on investment are a key tool. So you can go to top management and say, ‘if we invest we can save many times over if something goes wrong’… returns on investments are things top management will listen to and this is a good chance to get their attention,” said Mr Leeman. Mr Smets agreed that practical studies that show the financial and non-financial benefits of ESG risk management are always helpful. And he said communication is vital to ensure risk managers can wield influence over ESG risks. “It comes down to the same thing, as in so many other areas of risk management, and that is communication. You have to communicate very well internally. You have to use your internal network. You have to educate people and specifically your management team… It is crucial that board and top management are involved. It is not easy to convince them if not at that stage. The key is repeat, repeat, repeat the message,” said Mr Smets.

Risk managers urged to get involved in ESG risk

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