Client selection - The side of ESG that the insurance sector seldom talks about


Following COP26, which now seems like a lifetime away, if you're like me, I’m sure you would have been heartened by the sentiment, announcements, commitments and promises made by some of the industry’s senior leaders in and around carbon emission reduction and sustainability. 

What’s not to like about the insurance industry playing its part in the saving of planet earth…

If you’re still on the same page as me, over the past five years or so you would have found yourself buoyed by the fact that most of the insurance industry has joined the wider societal debate in and around diversity and inclusion.

The drive towards being ethical and the unfolding drive to ‘do the right thing’ is a narrative that I’m sure the majority of us welcome.  

Enter stage left Environmental Social and Governance - ESG for short

Now despite what you might read or hear, there’s nothing terribly new about the overarching concept of ESG. The current crop of politicians, business leaders and consultancy firms haven’t had a collective bump on the bonce and just dreamt it up.

Operating ethically and being conscious of the need to do societal good is something that has been happening throughout history (to a lesser or greater extent).

In the eighties (yes, I am that old), when I took out an endowment mortgage, I distinctly remember looking into the subject of ‘ethically invested’ funds which were ‘all the go’ at the time.

If like me, you are partial to the odd piece of chocolate you only need look at Quaker owned confectionary businesses like Cadbury’s, Rowntree and Fry’s that ingrained integrity, pioneered improved working conditions and labour laws, practiced fair pricing and the payment of debts amongst other things – it all sounds a bit ESG’y to me.

So, what’s the problem?

In more recent years it’s become rather fashionable for the industry to opine with at times with campaigning zeal, key ESG/CSR/D&I messages and themes.

It’s great to hear that modern and progressive thinking is finally beginning to drill into the slow and change resistant insurance psyche.

It gives me hope. It should give us all hope that this great industry of ours is trying to be better.

What doesn’t inspire hope, is the fact that the sector is still largely prepared to stay tight-lipped, turn a blind eye and park all notions of progressiveness and particularly the ‘Social’ of ‘ESG’ when it comes to client selection i.e., who it does business with.  

The insurance industry readily deals with sectors whose business activities offer absolutely no societal good at all (save for the tax revenues).

In some cases, it could be argued that they are the cause of mass societal harm.

I’ve just picked out a few sectors here:

  • Manufacturers that have dubious supply chain practices that see their goods (or some of them) being produced by what we would define as slavery or child labour. 
  • Gambling organisations – it’s a fact that gambling organisations do not make their profits from the occasional fair-weather punters. They make the lion’s share of their profits from people who lose far more than they win and are best described as have a gambling problem.
  • Alcohol manufacturers – I don’t need to bang on about this as it’s obvious – just take a look at A&E departments up and down the country on a Saturday night. In 2016 the NHS estimated that alcohol misuse cost £3.5bn per year or to put it another way £120 for every taxpayer.
  • Weapons manufacturers – According to Freedom House, a US government funded human rights group the UK sold £17bn of arms to regimes guilty of human rights abuses between 2011-2020. I’m struggling to see how enabling companies that produce products that are designed to repress, kill torture and maim fits into any insurer or brokers ESG framework.
  • Tobacco – Say no more…

The above examples, beg the question:

Should the insurance sector be enabling companies engaged in these activities by providing them with insurance risk transfer and insurance broker services?  

Following my logic here, next up would be countries that are known human rights abusers. 

It baffles me that companies that openly publish anti-slavery policies, opine about diversity, equity and inclusion, can park their collective credos and deal with regimes that are do not practice any of these values.

The future

Now I know I might be accused of being a bit ranty here (I am).  Lighten up Paul you might say! 

You might even disagree (that’s fine too), but perhaps before you do, give some thought about where ESG is heading.  Here are some things to consider:

  • Your customers – Larger customers often send out very prescriptive Request for Proposals (tender documents).  It’s been commonplace for quite some time now, for these documents to include specific questions about Corporate Social Responsibility. Some companies have already stated that ESG criteria will form an integral part of their decision-making process when it comes to awarding contracts. So, insurers and brokers should be prepared to share far more granular information about their ESG credentials when pitching for business.
  • Attracting talent to join your business – I can’t remember a time when individuals seemed to be more socially aware, responsive and prepared support causes and issues aimed at addressing many of the world’s inequities (many of them ESG issues). Companies that are seen to play lip service to important ESG topics or attempt to ESG ‘Wash’ (deploy tactics aimed at deceptively persuading stakeholders that they are committed to a cause when they are not) will find it hard to attract and retain people who are increasingly looking to give their best waking hours to building careers with companies whose values align with their own.
  • Be ready for Activism – This is a very real phenomenon for the insurance industry. This is nothing new. Anti-vivisection campaign groups have targeted insurers and brokers that act for life sciences companies, at times in very frightening ways. More recently activist have repeatedly demonstrated outside of Lloyd’s in protest at the markets support of fossil fuels.
  • Poor adherence to ESG issues could seriously impact and erode a company’s brand value which could not only be bad for the business future prosperity but also its directors and officers who could find themselves embroiled in legal action.

Here’s my very simple starter solution to making client selection a part of an ESG framework

Many businesses nowadays have a published mission/purpose statement that seek to articulate a set of values, a credo if you like that they support, trade by and stand for.

If your firm has such a statement, why not use these set of words as a benchmark to assess the compatibility of all future clients that you deal with.

As an added bonus, it probably goes without saying that clients that share a similar ethos/values to your own, will almost certainly go on to be better, longer-term and far more profitable and collaborative clients.

It would be good to see insurance taking a strong lead position in this area.  


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