Why ESG is now a Jack-in-the-Pandora’s Box for many

08-06-2022

Why ESG is now a Jack-in-the-Pandora’s Box for many

ESG (environmental, social, corporate governance) considerations are now very high up, if not top, of the agenda of all insurers and reinsurers. But, for many, ESG has also become a “Jack-in-the-Pandora’s Box of risky promises, a regulatory nightmare, and a liability minefield”.

ESG (environmental, social, corporate governance) considerations are now very high up, if not top, of the agenda of all insurers and reinsurers. But, for many, ESG has also become a “Jack-in-the-Pandora’s Box of risky promises, a regulatory nightmare, and a liability minefield”.

That is the claim of Nir Kossovsky, chief executive officer, Steel City Re, a carrier which, using a mixture of parametric insurance, ESG-related coverages and risk management advisory services, helps its clients manage and mitigate reputation risk. The company’s underwriting process, insurance products and advisory work are informed by a synthetic indexes of reputation value extracted from public company data.

Kossovsky was speaking in advance of a special virtual webinar hosted by Intelligent Insurer called “Embrace ESG: Discover what tools and policies are available to insurers”, which will take place at 2:00pm BST on June 13, in association with DLA Piper, and will also feature speakers from Zurich and SiriusPoint. To sign up to watch that webinar, click here.

The webinar will examine how re/insurers are increasingly positioning themselves at the cutting edge of embracing, using and setting standards relating to SESG. This topic will explore how re/insurers are using technology to help them implement standards and create policies which can help society better manage challenges such as climate change while ensuring re/insurers implement the highest possible SESG standards.

Here, Kossovsky explains to Intelligent Insurer why he thinks this issue is important–—and some of the major challenges the industry faces as it grapples with the often-conflicting expectations around ESG.

Why has ESG come to such prominence in the past two years?

An unexpected and highly publicised statement in August 2019 by the CEOs of 180 leading companies redefining corporate purpose mainstreamed the term, “ESG.” The wave of interest was punctuated by strong emotions among all stakeholders including anticipation, cynicism, and dread, all of which systematized material reputational risk. 

ESG ratings and ESG investment funds, each have their own criteria which are rarely understood clearly, and which are sometimes ignored by fund managers, reinforced the focus of the financial world. This in turn has led the SEC to propose rules on ESG disclosures, which add little value except to the extent that any information is more beneficial than no information unless one appreciates that no information is in itself informative.

In this volatile emotional milieu, the insurance industry was caught three ways: as public companies seeking to mollify ESG raters, as board-led companies seeking higher purpose while meeting institutional investor expectations, and as enablers of the purposes of other industries.

What is the single biggest change that has meant for you?

Courts have already ruled that statements companies make in connection with ESG aspirations may be considered as material by shareholders, that reputation is mission critical and that failure to safeguard it is grounds for claims against boards of directors. That has made the protection value of Steel City Re’s reputational value metrics, advisory services, and strategic insurances simple to understand with an invaluable ROI.

What tools or technology are you using that might help the industry understand and embrace ESG?

We use two tools to validate companies’ risk management with respect to ESG practices. These help to satisfy the proposed SEC rules for disclosure, authentication, risk management, and risk governance; pre-empt Caremark post Marchand challenges, and boost equity value. 

The first is a process tweaking key elements of the enterprise risk apparatus: governance, leadership, controls, and insurances. The second is a measurement technology providing weekly reputational value and risk metrics. 

In your opinion, can the industry lead the way on this?

Yes, because the path to ESG goals is laden with risk, the goals are less important than the journey’s process, and nothing beats parametric insurances for risk in process controls.

How might the industry do things differently in the future because of ESG?

For many, ESG has become a Jack-in-the-Pandora’s Box of risky promises, a regulatory nightmare, and a liability minefield. The insurance industry–including risk managers within all companies–should seize the ESG initiative from the marketing community, which cynics blame for the stramash, and offer meaningful tactical and strategic risk solutions that facilitate the vital journey to better environmental stewardship, greater social justice, and more dutiful governance.



Join Nir Kossovsky, chief executive officer, Steel City Re who is speaking at a special virtual webinar hosted by Intelligent Insurer titled “Embrace ESG: Discover what tools and policies are available to insurers”, which will take place at 2:00pm BST on June 13, in association with DLA Piper, and features other speakers from Zurich and SiriusPoint . Click here to register

Steel City Re, DLA Piper, Climate Change, ESG, Risk Management, Insurance, Reinsurance, Nir Kossovsky, Global

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