ESG and its importance in the insurance industry

Environmental, social and governance (ESG) is comprised of non-financial factors considered in the investment decision-making and corporate strategy development processes, among others. Although not necessarily a new concept, ESG is becoming a phenomenon and focal point of corporations operating in a fiscally-responsible manner. ESG centers around socially responsible investing as a defining theme for corporate investment portfolios that can significantly impact long-term investment returns, as well as business operations that support representation within and access for people of color.

The components of ESG focus on multiple overarching factors. Environmental factors are positioned around conservation of the natural world to include climate change, natural resources, air and water pollution, and environmental opportunities. Social factors consider people and relationships and center around human capital, product liability, stakeholder opposition such as community relations and controversial sourcing and social opportunities. Governance establishes standards for operating a company and includes corporate governance, corporate behavior, and governance opportunities.

ESG continues to be a hot topic and stockholders and stakeholders alike have a vested interest in a corporation’s investment practices that support sustainability. It’s an expectation of consumers and employees for businesses to do more to support issues they care about.

Establishment of the Climate and Resiliency (EX) Task Force

In response to powerful and complex disruptors emerging in 2020 that amplified long-standing inequities and issues in the U.S. and worldwide – the global pandemic, widespread civil unrest, a highly contested presidential election and unconstrained climate change – the National Association of Insurance Commissioners (NAIC) established both a task force and a special committee under the Executive (EX) Committee to address ESG issues within the insurance industry, namely the Climate and Resiliency (EX) Task Force and the Special (EX) Committee on Race and Insurance.

The Climate and Resiliency (EX) Task Force (also referred to as the “task force”) was established to serve as the coordinating NAIC body for discussion and engagement on climate-related risk and resiliency issues, including dialogue among state insurance regulators, industry and other stakeholders. Managing and assessing financial risks associated with climate change became a top priority of the NAIC.