Rating agency AM Best has released a new report suggesting that insurers in Europe and Asia Pacific are at different stages of their journey to integrate environmental, social and governance (ESG) factors into their businesses.
Reportedly a large majority of respondents recognise that proper understanding and integration of ESG factors is increasingly critical to the long-term viability of their businesses.
However, there is an overall marked lag between recognition of ESG risks and action being taken to mitigate those risks.
The report also suggested an increase of awareness of ESG factors, along with an acknowledgement that these factors require special attention.
AM Best notes that insurers and reinsurers occupy a unique position in the ESG space, as both risk carriers and institutional investors.
Therefore, ESG factors have the potential to affect both sides of their balance sheets and impact their results, throwing the spotlight on the importance of integrating them in to underwriting and investment activities.
Each of the survey respondents generally acknowledged that failure to act on stakeholder pressure around ESG issues could lead to long-term reputational challenges for their organisation and the insurance industry at large.
Larger respondents were more likely to make the link between failure to act and the longer-term reputational consequences. Reducing their reputationial risk was the most-cited reason behind integrating ESG factors in investing mandates by survey respondents.