With UNIBA’s Worldwide Conference in Bangkok, Thailand (25-28 October 2023) at our doorstep, we will spend the upcoming weeks introducing speakers, sponsors and the latest hot topics on ‘The Changing Face of Risk’. In this edition Zurich Resilience Solutions’ Amar Rahman, who will be speaking on Climate Resilience during the Conference, discusses the sustainability risks related to ESG strategies.
This article was originally posted on July 19, 2023 on Zurich’s website.
Managing sustainability risks, specifically those related to environmental, social and governance (ESG) strategies, calls for close collaboration among a company’s internal stakeholders, and the risk manager is well-placed to help steer the effort and provide valuable input. A company’s insurer is a very valuable partner to support the risk manager with this effort.
Risk managers, who understand their organisations’ risks better than anyone, should not be shy about taking a central role in the company’s work to address long-term sustainability issues. It may mean working with internal stakeholders they are unfamiliar with, but the detailed knowledge of their company’s value chain and expertise that risk managers bring to the effort make them indispensable partners to the development of the sustainability strategy and its implementation.
Insurers bring their expertise and wealth of internal and external data to help shape an approach that strengthens the company’s resilience against events that could disrupt their operations and develop strategies that are environmentally friendly and focused on protecting people and property.
A different approach to risk
Risk managers and their insurers have a common role in identifying, assessing, quantifying and managing sustainability risks while helping organisations structure their ESG frameworks.
An insurer understands that managing sustainability risk differs from traditional risk management in that it considers societal aspects of the risk, various time horizons and the potential impacts of climate change. And, while insurance has long been considered the last bulwark against a loss, there are actually other lines of defence that need to be in place before risk transfer is structured.
Johnson Matthey PLC’s collaboration with Zurich Insurance Company illustrates how the two have worked closely to support the chemical company’s sustainability approach.
Johnson Matthey’s sustainability strategy was developed back in 2007 and augmented in 2021 with a comprehensive list of goals that addressed how the business would deliver products and services that helped customers decarbonise, how it would decarbonise its own operations and what efforts were needed to properly protect people.
While risk managers, as part of their traditional roles, have a responsibility to identify the risks related to all of an organisation’s facilities, suppliers and various assets, Zurich Resilience Solutions approached Johnson Matthey’s climate-related exposures with the aim of assessing the evolution of risks and incorporating their analysis into the company’s sustainability and ESG frameworks. That work included, amongst other aspects, a societal component of examining local infrastructure, by, for example, uncovering vulnerabilities in power supplies or other utilities that could have an impact on the community and by considering some of the health and safety impacts of climate change like for example the increased risk of severe droughts or extreme heat in some locations.
One of the many important elements that insurers bring to managing risks such as those faced by Johnson Matthey is the ability to not just assess risk, but to quantify it. The tools insurers have routinely used to assess their own exposures have been adapted to provide measurements for customers that reveal the potential impact of climate and other sustainability risks well into the future. The results are a useful component to help organisations develop ESG investment strategies and quantify the potential benefits.
In addition to risk quantification, insurers are in a unique position to bring their expertise to offer practical risk mitigation and adaptation solutions. Building on their experience and long-established expertise in risk improvement programmes for fire, explosion and natural catastrophe risks, insurers can help an organisation develop holistic climate change physical risk adaptation solutions. These ensure that organisations can rely on more resilient assets, infrastructures, and supply chains in their existing business and when making critical investment decisions.
