What do your company’s Environmental, Social and Governance (ESG) guidelines say about you? If they’re clearly linked to how you do business and who and what you support – they demonstrate that you take your responsibilities seriously. And this is important to insurers who are weighing up your risk.
This, of course, means that your business needs to make a demonstrable and measurable commitment to ESG. Sticking a list of generic values on your website is not enough. But with ESG covering so much moral ground – from your supply chain to your boardroom – how do you demonstrate your strategy?
Why insurers care about ESG action
For Craig Watson – Head of Financial Risks at RSA – seeing a solid, actionable strategy that brings those values to life is vital.
“These days, ESG should just be part of the DNA of any organisation,” says Watson. “And we need to see that a company, from board level down, is taking its moral obligations seriously. And that is the counterbalance between accepting a risk or saying, ‘Look, this is not a risk for us’.”
Watch out for moral platitudes
Watson is only too aware of the increasing pressure on businesses being able to demonstrate and, essentially, live their company values.
“I think the overriding factor today is that ESG has to be first and foremost,” he explains. “A company must point to a set of strategies that they are living and breathing. That's absolutely essential. I'm wary of those two to three pages that are so often lifted and dropped into the annual report and accounts – as well as across a company’s social channels – that just say the same general things about their ESG commitments. There’s nothing tangible there. Equally, I’ve seen companies make big commitments that can backfire massively.”
Watson cites the example of construction industry businesses making serious claims about being carbon neutral by 2030. “My initial reaction to statements like that is to tell companies that they’re possibly painting big targets on their backs. What if they don’t meet those goals?”
As an underwriter, Watson needs to see that the promises a business makes when it comes to ESG are more than simple platitudes.
“A good example is the LGBTQIA+ agenda,” Watson says. “A lot of companies are looking to support it. But are they truly supporting it? Or are they just talking about it when Pride is on in Manchester? Are they really, truly supporting the LGBTQIA+ people and communities within the company to ensure it’s a fully rounded cultural agenda? Not just, a case of ‘yeah, let's put something on LinkedIn when Pride is on’. That’s the interesting thing about ESG. It’s the moral compass of a business.”
Make it authentic
While ESG is increasingly becoming an essential part of a company’s agenda, smaller companies shouldn’t panic if they don’t have an extensive strategy. What’s key is showing that what you are doing is supporting your values.
“You could argue that most businesses should be taking ESG on board,” says Watson. “But for a small, private, limited company – for example a one or two location motor trader, which has a commitment to sell more electric vehicles and bring in female mechanics – you’re hardly going to expect to see a huge amount of detail from its board regarding ESG. It’s very different when you’re dealing with a large PLC with an enormous number of staff and regulatory provisions and requirements.”
It's not just about your reports and website
Your actions and your organisational chart speak volumes about your ESG commitment too.
“I was recently speaking to a potential client in the construction industry, and there were several directors on the call,” says Watson.
“Two or three of them chipped in when we started talking about ESG. They were talking about projects they were involved in and the difficulty of having listed properties on their estate, and how they could then look at the cost to offset carbon. And there was a clear budget in place that was going to allow them to execute that strategy. This was when I got really interested. It was clear that it wasn’t one individual that they pulled in. This was evidence of the board working together and understanding the relevance and importance of this strategy.”
It’s also important for a company to have an idea of timelines and what resources they require, as well as the capital spend that they're going to need and whether or not they're engaged with external consultants.
“I think it's very difficult as a business just to look at ESG as a principle and then have individuals in the finance team or the procurement team who are just performing those roles as part of the day job, because that never really works,” Watson explains.
“So, is the business getting external advice? Has it considered having a separate ESG team within the stable of employees? And if so, what are the strategies of the ESG team? How is the strategy being maintained? Has it been costed? How is it being driven? And I also think that employee engagement on this journey is important as well. How is a business getting data from its employees? How has it been measured and messaged? Is there a structure for feedback from employees? Because if there is, I think that also helps with the cultural framework in the business. Ultimately, when it comes to ESG, that’s the kind of ground-up approach that you really need.”