The Insurance Industry’s Renewed Commitment to Sustainability

When it comes to environmental responsibility, insurers have been slow to sign on. But recently they have begun to step up their commitment to sustainability.

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Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
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Over the past decade, the number of NGO campaigns against financial institutions has increased steadily. Financial institutions are under fire because of transactions related to controversial sectors, such as defense, or — to use a term coined by advocacy groups — because of those related to “dodgy” companies and projects. NGOs might view companies and projects as dodgy, for example, because they disregard international standards such as the OECD Guidelines for Multinational Enterprises, or engage in controversial practices such as mountaintop removal mining in West Virginia.

But why do so many NGO campaigns target banks, while so few take aim at insurance companies? This discrepancy is hard to understand.

Both banks and insurers have a similar role as “enablers” of business. The “insurance industry is a key enabler of most extractive, manufacturing and distribution activities by its corporate clients,” according to a publication by the CRO Forum, a risk management think-tank that primarily represents European multinational insurance companies. It is likely that most projects — controversial or not — that are financed are also insured. In some cases, having the appropriate insurance can even be a prerequisite for credit.

Both banks and insurance companies acquire comparable insights into the activities of their clients. They both tend to have long-lasting business relationships with them. Both also have a strong interest in truly understanding the risks of their clients. As with banks, the clients’ risks are likely to translate into business risks for the insurer.

According to RepRisk, a Swiss-based ESG business intelligence provider, banks have received roughly eight times more criticism on environmental and human rights issues over the past four years than have insurance companies. “Our data, which captures negative public sentiment from thousands of third-party sources on a daily basis, shows that until recently, insurance companies have rarely been the targets of NGO criticism. Interestingly, more recent data suggests that the gap between banks and insurance companies may have started to close,” says Alexandra Mihailescu, head of business development at RepRisk.

Does the relatively small number of NGO campaigns against insurers explain why they lag behind banks when it comes to environmental and social risk management and comprehensive sustainability strategies?

It could be. Other explanations are hard to find.

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Topics

Leading Sustainable Organizations

Corporate adoption of sustainable business practices is essential to a strong market environment and an enduring society. What does it mean to become a sustainable business and what steps must leaders take to integrate sustainability into their organization?
See All Articles in This Section

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