3. Environmental, Social and Governance (ESG) – Risk functions are investing in maturing their ESG risk management capabilities
As mentioned, CRO’s indicate Climate and Sustainability as one of the key priorities for the next 12 months. It is clear that also over the past year this topic has been high on the agenda for many risk teams. Even though initial focus is mostly on Climate, the broader Environmental aspects and also the Social and Governance dimensions are starting to gain attention.
The survey showcases a broad variety in maturity when it comes to integrating ESG in the overall Risk management framework, with integration in risk appetite, risk measurement, scenario analysis and ORSA as concrete examples. Regulatory developments will facilitate CRO’s and their teams to further invest in maturing their ESG risk management capabilities.
While Sustainability is a topic that touches the entire organization, the role of the risk function is to identify how ESG-risks impact the risk profile of the organization, and how to respond to these. In this role the Risk function is interacting with many other departments, with Asset Management as the stakeholder they are currently engaging with most. Human Resources, Product development & oversight as well as pricing and procurement are next in line. For each of those areas, intensified interactions are expected when more in-depth insights on ESG risk exposure and how to respond to these become available. It’s important to note that not only own risk exposures need to be considered, also increased attention for protecting clients who are faced with new and aggravating risks will be required. Insights from the risk function will help to ensure the product offering and the pricing are adjusted to these tendencies. This will enable the insurer to respond to the changing needs of the clients while ensuring appropriate pricing and managing the conduct risk of mismatches between customer expectations and value offered.
CRO’s are putting ESG on the agenda when interacting with the Board Risk Committee. These interactions are currently more focusing on environmental aspects, although an average of 30% of the respondents indicate to cover also the Social and governance dimension for each of the topics surveyed . Topics surveyed include training, risk appetite, risk register, ORSA and (non-financial) reporting.