The insurance industry is heavily based around the core principles of sharing and managing risks collectively, which are closely connected with ESG criteria. As ESG becomes increasingly significant for insurance companies, it is important to understand how it can help companies to thrive in the present and future.
We need to ask the main questions: What is ESG exactly and how does it impact insurance companies? Moreover, it is worth examining how insurance companies in Southeast Asia are implementing ESG and the benefits they are experiencing.
What Is ESG and Why Is It Important for Insurers?
ESG stands for Environmental, Social, and Governance. It is a framework used to evaluate a company’s sustainability and ethical practices.
- Environmental, ‘E’, refers to the impact of a business’s resource consumption on the environment, such as carbon footprint and other activities that directly affect the environment.
- Social, ‘S’, refers to how a business interacts with the communities where it operates and its internal policies related to labor, diversity, and inclusion.
- The term ‘G’ in ESG refers to a company’s internal policies and practices that enable effective decision-making and compliance with legal requirements.
Environmental, social, and governance criteria have gained a lot of traction in recent years, as companies and investors alike recognize the importance of sustainability and responsible business practices.
However, it is worth noting that investors primarily use ESG data due to its relevance to investment performance. According to a research, Client requests and ethical purposes are considered secondary, indicating that financial considerations still dominate the demand for ESG over ethical reasons.
The main reasons for abiding to ESG criterion include the company’s efforts for legitimacy and decreased regulatory burden, improved reputation, enhanced brand value, and employee motivation.
The ASEAN insurance industry is recognizing the benefits of integrating ESG into their operations. Companies that integrate ESG practices into their operations benefit themselves and society. Whether done to boost investment performance or to genuinely embrace sustainable practices, committing to sustainability is a step towards a better future for all.
The Rise of ESG Practices in ASEAN Insurance Companies.
According to HSBC, investors from ASEAN member countries are increasingly focusing on ESG due to three key factors: 50% of respondents cited pressure from employees, 46% mentioned the regulatory environment, and 40% recognized that integrating ESG into their strategy can lead to improved returns or reduced risk.
Insurance Companies in ASEAN Have Adapted to ESG Regulations in Several Ways:
- Tokio Marine Group offers Cyber Risk Insurance, which contributes to smooth business activities through new products and services. This is in response to the growing demand for ethical and sustainable practicesby creating ESG-compliant products for their customers.
- To promote inclusivity and environmental friendly practices, Allianz has established a dedicated ESG Task Force to handle sustainability concerns within its organisation.
Insuring a Sustainable Future: The Benefits of ESG Integration in the Insurance Industry
Integrating ESG criteria into insurance operations can bring a range of benefits, not only to the insurance companies but also to their customers and society as a whole.
Let’s take a look at some of these benefits:
- Better risk management by considering environmental, social, and governance factors when underwriting policies.
- Insurers can identify potential risks that may not have been apparent before.
- Helps to avoid potential losses and protect their bottom line.
- Improves customer relations by attracting and retaining customers who prioritize sustainability and responsible business practices.
- Be seen as more trustworthy and reliable by customers.
- Increased innovation and cost savings by finding new and efficient ways to operate while reducing environmental impact.
- These initiatives can not only improve the company’s reputation but also lead to cost savings over the long term.
- Valuable tool for attracting and retaining top talent by showing a commitment to social responsibility and sustainability.
- Companies can not only take care of their employees’ needs but also inspire them to contribute to a greater cause that benefits society and the environment.
- This can create a sense of purpose and motivation among employees, leading to increased job satisfaction and retention.
Bottom Line
The rise of ESG practices in ASEAN insurance companies demonstrates the growing demand for ethical and sustainable practices, and how ESG integration can lead to improved returns or reduced risks. By implementing ESG practices into their operations, insurance companies can improve their risk management, customer relations, innovation, cost savings, and talent retention, while also benefiting society as a whole.
However, it is worth remembering that ESG is not solely about fulfilling regulatory obligations; it’s also about making a sustainable commitment for a brighter future.
It would be ideal for other companies outside the insurance industry to also recognize the importance of ESG integration and immediately take action in the goal towards sustainability.
