As ESG matters are reshaping the future of insurance, senior financial leaders are being asked to help set the direction for the business. Chief financial officers will play a vital role because ESG is not just a compliance exercise, but rather an imperative to mitigate severe risks, create long-term value and secure the future of the organisation. 

ESG

A recent EY paper highlights both why finance leaders should provide leadership in the realm of ESG and how they should approach the most urgent ESG-related tasks. Further, it outlines specific actions they can take to chart a clear course to winning in the ESG era. 

Identify and measure the impacts – including both risks and opportunities: This is a huge task for the entire business, especially risk teams, which will build extensive scenario models. CFOs will provide key inputs and help define materiality within integrated ESG risk frameworks. 

Understand reporting requirements across jurisdictions: A complex mix of mandatory and voluntary reporting standards has emerged. The Task Force on Climate-Related Financial Disclosures has developed perhaps the most visible standards, and the UK and EU are seeking the most rigorous. With the number of global ESG regulations nearly doubling in the last five years, finance teams have a lot to keep up with. 

Define the right strategic metrics: Beyond high-quality data for reporting, CFOs can help define specific metrics to measure the impact of ESG policies and track performance relative to peers. This is an important task as it can impact ESG scores and ratings that investors and analysts are paying more attention to.  

Solve for data: Integrated data management capabilities based on current, complete and consistent data is necessary for finance teams to meet all of their ESG responsibilities. Ideally, ESG data will be combined with revenue, cost and capital data to track sustainability initiatives. On a practical level, finance teams will build on their traditional role as data gatekeepers by providing access to data and insights as necessary. For instance, CFOs will engage with chief risk officers to understand how sustainability affects liability measurements and solvency assessments.

Shape a persuasive narrative: Because CFOs represent their companies to investors and regulators, they are well positioned to shape their firms’ ESG stories for these and other external audiences. The strongest narratives will speak to investment strategies, risk exposures and liability impacts, and product and underwriting strategies.

To learn more on how ESG will impact the future of finance insurance, please download the full report here.

Frédéric Pierchon is EY Insurance ESG Finance Reporting Leader