ESG agenda key for insurance industry

With the escalating frequency and severity of risks influenced by global economic shifts, extreme weather events, and societal expectations, it is increasingly becoming clear that businesses that want to survive and thrive must swiftly adopt the Environmental, Social, and Governance (ESG) agenda.  

One industry that needs to move quickly and embrace this agenda is the insurance industry. This is because its core function is centred on risk management. 

We all now know that shocks did not end with the Covid-19 pandemic; this was just an eye-opener for businesses to always consider what new catastrophes might emerge in the future and draw attention to how underwriters manage sustainability risks. 

Also, as an industry, we need to look at the health of our businesses beyond quarterly or annual reporting to ensure that we have the “right” values for customers, maintain high governance and ethical standards, and mitigate the business’ overall impact on the environment.

There is no doubt that sustainable practices have a positive potential to save costs, increase revenues, reduce risks, develop human capital, and improve access to insurance services.

This means that when businesses purpose and actively demonstrate their ESG values, they will not only increase customer trust but also build business resilience and protect themselves against reputational damage.

For insurers, ESG is a risk management tool that can be applied to both underwriting policies and investment strategies.For instance, insurers can choose to underwrite or not to provide insurance services to a particular company based on the impact their activities have on the environment. 

Insurers can also integrate ESG principles in risk management. This requires that businesses have risk management frameworks in place with ESG factors integrated. Having this in place enables a business to easily assess and manage risks associated with environmental and social factors like climate change, natural disasters, social unrest, and reputational risks. By considering ESG risks, businesses can develop more comprehensive risk models and pricing strategies.

Secondly, insurers can adopt responsible investment practices that align with ESG principles. This includes incorporating the ESG agenda into investment decision-making processes such as considering environmental impact, social factors, and corporate governance practices when selecting investments. 

Additionally, developing products that support sustainability, environmental protection, and social well-being is another area in which the insurance industry can play a great role in the ESG agenda. 

Also important to note is that businesses can actively engage with stakeholders, including customers, employees, and communities, to understand their ESG expectations and concerns. This helps identify opportunities for improvement, address emerging ESG issues, and strengthen relationships based on trust and transparency.

By swiftly adopting the ESG agenda, businesses will promote sustainable practices, and align their strategies with the broader goal of creating positive social, environmental, and governance outcomes, and in turn, manage risks, enhance the industry’s reputation, and contribute to a more sustainable and resilient industry.

Alhaj Kaddunabbi Ibrahim Lubega is the Chief Executive Officer of the Insurance Regulatory Authority of Uganda