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ESG to become a critical success factor, finds market study

16th December 2020 - Author: Matt Sheehan

A new study by management consulting firm Synpulse has explored how environmental, social and governance (ESG) considerations are developing in the risk transfer market, and how they could become a critical success factor in future.

Synpulse undertook a market survey in collaboration with our ILS focused sister pulication, Artemis, to look at how ESG is increasingly being incorporated into both investment decisions and overall business operations.

While the integration of ESG currently remains in the early stages, the study concluded that there is a lot of potential in further operationalizing these factors and many possible benefits for companies that do so.

Among the key findings, respondents strongly indicated that ESG is a major topic in the risk transfer market and is expected to become a critical success factor in the future, with investor demand, reputation, and risk management all viewed as key drivers.

The study by Synpulse and Artemis, which is available to download here, questioned representatives from 41 companies across Europe, Middle East and Africa (EMEA), North America including Bermuda (NA), and Asia Pacific (APAC) to understand the extent to which insurers, reinsurers, dedicated and non-dedicated ILS fund managers as well as institutional investors, incorporate ESG into their strategies and operations.

The structure of the survey followed a dedicated ESG framework, built by Synpulse based on project experience and market research, to help companies to incorporate ESG in their business model and execute it in a holistic approach.

Important areas for ESG improvement included implementing a framework more thoroughly and sustainably, defining tangible ESG key performance indicators (KPIs) and measurable ESG goals as well as enabling target oriented external and internal ESG reporting.

Respondents also expressed interest in embedding ESG into operating models across the risk transfer market, with non-dedicated ILS fund managers and insurers presenting as best organized from a resource perspective.

But on this point, many said that measurable ESG goals are currently either not defined clearly enough, or the goals themselves are considered unsatisfactory, and company’s in NA were found to lag behind EMEA and APAC when it came to assessing their ESG footprint.

Additionally, most survey participants said that they offer ESG-friendly insurance services & products, but only a small fraction of fund managers were found to offer ESG-friendly investment products.

Training was seen as integral to creating awareness of ESG topics, but almost half of those who engaged with the survey noted that they do not offer any form of training at present.

ESG trainings held currently cover a wide range of topics, generally including elements from all three aspects of ESG, such as diversity & inclusion, respectful workplace, climate change and governance.

“For market participants in the risk transfer market there are great opportunities in investing in the topic of ESG,” said Patrick Roder, Associate Partner and Global Head of ILS at Synpulse.

“Given the growing importance of ESG, driven by investor interest and risk management considerations, it is promising for market players to scale up their ESG activities in 2021 and beyond,” Roder continued.

“An individual assessment is needed to precisely define the focus for development, but despite these differences, we believe that an overall ESG framework can serve as a guide to enable companies to understand ESG holistically – from strategy definition to operationalization.”

The full study of the survey responses can now be downloaded here, with more in-depth commentary on what the future of ESG could mean for the risk transfer market.

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