Work to develop global guidance which would help insurers to underwrite environmental, social and governance (ESG) risks is now underway.
The United Nations Environment Programme (UNEP) Finance Initiative has begun a worldwide survey, through which it is hoping to identify the biggest ESG risks for non-life insurers and what barriers, if any, have prevented the creation of any guidance on how these risks should be considered within insurance transactions to date.
The survey is the third and final phase of a consultation programme begun by the Sustainable Insurance Forum (SIF), an international group of insurance supervisors and regulators, in conjunction with the UN's environmental funding programme. The group is seeking responses from underwriters, brokers, risk engineers, loss adjusters and other non-life insurance industry participants until 30 June 2018.
Examples of ESG risk include the impact of climate change and natural disasters, pollution, carbon emissions, degradation of natural resources, illegal fishing and logging, forced labour, poor health and safety, lack of transparency and corruption. These issues are increasingly influencing traditional risk factors but to date, the insurance industry has no international guidance on how these risks should be considered within insurance transactions.
SIF and UNEP have developed four principles for sustainable insurance (PSI), including a list of possible actions, which they intend to be used as a global framework for the insurance industry to manage ESG issues. The principles are based on the important role that the global insurance industry can play in encouraging responsible, sustainable economic and social development, due to insurers' work as risk managers, risk carriers and investors.
The creation of global ESG risk underwriting guidance is seen by the authors as an essential part of the PSI, as well as an opportunity for the industry to identify and define ESG risks from an insurance underwriting perspective and to consider how to prevent and reduce such risks. SIF and UNEP anticipate that the guidance will play a similar role to the banking industry's 'Equator Principles', which establish an environmental and social risk management framework for those involved in project finance.
Work on drafting the guidance will begin once the survey closes. The aim is that it will be ready to launch in the first quarter of 2019.
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