How to Leverage ESG for Better Business Outcomes in Insurance
The insurance industry is making progress in how it is tackling environmental, social, and corporate governance (ESG) issues. However, industry reports suggest there is still work to do. With ESG reporting comes further digitization, and automation of underwriting processes, accurate data and sophisticated analytics become increasingly vital.
With accurate analytics and data better decisions can be made about insurance risks—particularly when they are coupled with ESG
considerations. They also bring with them some new data integration challenges that need to be overcome if insurers are to benefit from gaining a considerable competitive advantage through their application.
An August 2022 McKinsey Quarterly report titled “Does ESG really matter—and why?”, points out that ESG comes with some objections that often need tackling.
The authors of the report—Lucy Pérez et al—argue that some valid questions have been raised about ESG, so companies need
to understand how their externalities—such as the war in Ukraine—are likely to become essential to maintaining their social licence.
Companies therefore need to address the criticisms of ESG, which are not new, suggesting that ESG is nothing but a distraction; that it is not feasible “because it is intrinsically too difficult”; that it is “not measurable, at least to any practicable degree”; and that “even when ESG can be measured, there is no meaningful relationship with financial performance”.
The authors respond to these criticisms by suggesting that the critics of ESG are failing to take account of the social licence, which is about the perception that stakeholders have in determining whether a business or an industry is acting fairly, appropriately, and whether it is deserving of trust. That, in essence, is what the social licence is about. Read the full report.