Published in mid-November, Beazley’s “Spotlight on Environmental Risks” found that environmental issues are bottom of business leaders’ concerns and set to fall further in 2022.
Only 12 percent of business leaders across 10 industry sectors in the UK and US rank environmental concerns (such as pandemic, climate change, and food security) as their top risk category in 2021. Looking forward to 2022 this falls to 9 percent.
“When you look at the environment, if you ask a number of people the same question they respond in a slightly different way. Environmental, social and corporate governance (ESG) factors are front and centre, but environmental issues are down the list,” said Chris Illman, head of responsible business at Beazley.
Speaking with the Re/insurance Lounge, Intelligent Insurer’s digital hub for interviews, debates and panel discussions, Illman added: “Generally speaking when you talk about the environment, people think it’s someone else’s problem or something they can push towards tomorrow.”
He said that things that are happening here and now, such as cyber risk and supply chain issues, are higher up the agenda.
“Perhaps it’s more a case that it was slightly down the pecking order, given those other things are more pressing right now,” said Illman. “We need a longer-term narrative around this, to support clients in what is effectively a future journey in the environmental space.”
Illman believes that, regarding the environment, people and companies have been driven by legislation. According to the Beazley report, businesses are focused on near-term environmental risks, in particular, compliance with regulation and meeting stakeholders’ ESG expectations.
“It’s not just about where you draw energy from but also how your business is going to change as a result of that.”
Chris Illman, Beazley
The report added that businesses “may be focusing much of their effort on the interconnected legal, reputational and regulatory risks of compliance with ESG reporting, instead of actively addressing environmental risk”. Indeed, 18 percent of leaders ranked political and regulatory risks their top concern in 2021.
Taking pollution as an example, Illman noted there are a number of pollution laws and regulations that people adhere to, and it is just considered business as usual.
“Alongside that, wider ESG is coming to the forefront, and we are starting to get some court cases here and there on issues such as climate change liabilities. These things are forcing people to consider the bigger picture and more of a responsible business approach as opposed to just focusing on the environmental sector,” he said.
Additionally, Illman said, there was a disconnect between environmental matters from a board exposure point of view and stakeholder expectations, plus a divide between what investors want and what companies are actually delivering.
Starting conversations
With environmental matters so low on business leaders’ lists of concerns, it’s down to the insurance industry to spark conversations and help their clients understand the significance of environmental risk.
For Illman, it’s crucial to start having conversations about the risks now. He’s speaking from experience—Illman’s role at Beazley didn’t exist two years ago. He was brought in around 18 months ago to start having conversations internally and develop an external strategy, building on the firm’s disclosure and engagement across the market.
Illman is hopeful that more conversations will be had on energy transition risk. According to the report, this type of risk is a key feature of debate at a global level, but is currently a “business blindspot failing to register on boardroom agendas of many of the firms surveyed”.
Illman added that supporting energy transition is crucial to achieving net zero carbon emissions but that energy transition risk is not highlighted enough at board level. He advises firms to become engaged and understand that “it’s not just about where you draw energy from but also how your business is going to change as a result of that”.
When engaging with clients on environmental issues, Illman advises not simply believing they’ve heard about things such as COP26, November’s 2021 UN Climate Change Conference, and that therefore environmental issues will be front and centre.
Illman added that you need to put environmental risk into clients’ minds and understand what this risk means to them.
“Insurers can drive greater awareness using the tools at our disposal in the financial sector to illustrate what the impact of climate change is going to be on their profitability or balance sheet going forward so they have a tangible picture of what’s involved,” he said.
Having environmental issues as a regular topic at the “higher echelons of boards and business is fundamental”, said Illman.
“Understand your risks and perhaps how your business is going to change. If you have a head start on that, that means you’re a lot better prepared than some of your competitors when the wider environmental impact of climate change starts to be realised over the next 10, 15 or 20 years.”.
Chris Illman is head of responsible business at Beazley. He can be contacted at: chris.illman@beazley.com
To view the full Re/insurance Lounge interview click here
Images, from top: Shutterstock / Rich Carey, Rudmer Zwerver
