Blog: ESG to overtake CSR - is it time to parade our credentials in a better light?

The insurance industry – like many – is full of three-letter acronyms. As time passes, once beloved TLAs will often lose their popularity or become superseded. The TLA graveyard is about to welcome a new member – CSR (corporate social responsibilty). It is being replaced with ESG.

CSR is conceptually and practically limited

Circa 10 years ago, corporate social responsibility was created to get businesses to consider, articulate and feedback on their efforts to positively impact upon society and the environment. However, CSR is conceptually and practically limited in that it typically refers to a portfolio of charitable and philanthropic works performed by businesses to give back to the community and environment from which – and within which – they have benefitted. CSR did not really create focus on the core operations of the business and how they impact upon the world at large.

However, step forward a new TLA: environmental, social and governance. The hope with ESG is that it represents a way of making business accountable not just to an internal set of philosophies, as with CSR, but to a measurable set of impacts linked to a wider common good.

The Financial Conduct Authority already requires prominent listed businesses to discuss ESG within their market announcements and to explain how they are consistent with certain climate change-related criteria, giving explanations for any areas that are out of sync. Such obligations are only likely to become more pressing as the UK moves towards its 2050 goal of Net-Zero greenhouse gas emissions.

The momentum behind ESG is not only regulatory. Investors, especially large institutional funds, are looking to invest in sustainable companies that will deliver reliable returns over the long term. Add to this a growing body of evidence indicating that consumers are increasingly seeking out and prioritising ethical and environmentally conscious brands and products, and it is becoming a given that demonstrating responsible business practices is an important way to have your business brand stand out from the competition.

In the now super-connected social media-enabled world, brands are being held accountable at dizzying speed. The reaction of brands to the ostracising of Russia saw several falter and then retreat. L’Occitane, for example, said it was not going to close its Russian shops. Cue outcry and rapid U-turn.”

In the now super-connected social media-enabled world, brands are being held accountable at dizzying speed. The reaction of brands to the ostracising of Russia saw several falter and then retreat. L’Occitane, for example, said it was not going to close its Russian shops. Cue outcry and rapid U-turn.

Strong ESG practices make for better businesses that are more sustainable, carry less risk and better align with customer interests. Businesses are under growing scrutiny for more than just profitability; they now must also demonstrate excellent ESG performance.

ESG and business operations

There are numerous ways that businesses can build ESG into their operations that are aligned to their industry, stakeholders and business objectives. These might include integrating ESG considerations into products and services; ensuring supply chain transparency in relation to environmental and social requirements; minimising waste and energy use; applying governance to areas such as executive compensation and making sure that recruitment policies are inclusive.

Businesses are under growing scrutiny for more than just profitability; they now must also demonstrate excellent ESG performance.”

In the insurance world specifically, there has been a conversation for many years about insurers and the companies associated with them, such as the legal and claims supply chain having not enjoyed the best of reputations with the person on the Clapham omnibus. ESG represents a terrific opportunity for the greater insurance ecosystem to parade its credentials in a better light. Unfortunately, few customers consider the role of insurance in society in this way, however much many of those who are employed in the industry derive great satisfaction from the enabling role of insurance.

key communication lever

Insurance is part of the bedrock that supports the architecture of today’s complex developed societies. As such, insurance has a massive role in the realisation of climate change, governance and social goals, and thus ESG reporting will be a key communication lever for the industry.

It’s not just the Clapham bus passenger that perhaps doesn’t appreciate the enabling role of insurance. Arguably, it’s highly likely that very few induction-training packages for insurance industry staff will dwell on this; the industry’s basic purpose. And that’s a missed opportunity, as people with purpose do better in – and for – businesses.

It is important to collect and disseminate, to staff and customers alike, stories that support ESG goals. Motor insurance claims has a great story to tell about the way that end-of-life vehicles are 96% recycled back into reclaimed parts or reused as new raw materials. Very few other businesses can tell that story and take pride. We have a real opportunity to shine a light on the insurance industry’s contribution to protecting the planet and in doing so to build some positive reputation gains.

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