The insurance industry’s path to ESG impact

Many Canadian insurers are not just disclosing, but also actively undertaking new efforts related to environmental, social, and governance (ESG) factors. However, embedding ESG within a company’s core purpose and strategy, and then translating that to their lines of business and enabling functions continues to be an area of untapped opportunity. Pressure to respond to ESG considerations from investors, boards, customers, employees, and ecosystem stakeholders will only continue to intensify. Why must insurers act now?

Three areas of risk in the insurance industry today

Regulatory impacts: The publication of Guideline B-15: Climate Risk Management by the Office of the Superintendent of Financial Institutions (OSFI) sets out disclosure and governance expectations for the management of climate-related risks for federally regulated financial institutions (banks and insurance companies) starting in 2024 and coming into force in 2025. ¹

Financial risks: In 2021, severe weather events across Canada resulted in $2.1 billion in insured losses, ranking it as the sixth-highest loss-year on record. The impact of climate change on property and casualty business models is of growing concern to insurers, as payouts from extreme weather events have more than doubled each decade since the 1980s, causing Canada’s natural catastrophe protection gap to widen significantly. ²

Reputational risks: A 2022 Deloitte survey showed that almost half of Generation Zs (48%) and millennials (43%) had put at least some pressure on their employers to take action on ESG and climate change. ³ The Canadian Securities Administrators (CSA) regulatory body is working to establish climate-related disclosure requirements for Canadian publicly traded companies, which will have a significant impact on insurers as large institutional investors both domestically and globally. ⁴

With a focus on how to proactively mitigate these risks while managing stakeholder expectations, this report explores how insurers can make a meaningful impact in their organizations, communities, and the real economy through a well-developed ESG strategy that considers the entire insurance value chain while leveraging key enablers of successful execution. This perspective is organized into three sections:

Tie ESG to purpose and strategy

Successful value creation happens when an organization’s purpose, ESG, and strategy are integrated. Answering the question “Why?” is the first step insurers should take to establish an ESG strategy that will deliver tangible and positive environmental, social, and governance impacts.

To clarify your organization’s “why,” consider the following questions: 

Focusing on material ESG topics to see where they naturally connect with your organization’s values and strategy can help you to identify areas where your business is differentiated and can gain competitive advantage. 

Consider opportunities across the value chain

Developing an ESG-driven competitive advantage (the what) begins with taking an end-to-end view of the value chain to identify areas of opportunity for creating impact. What insurers should do across the value chain will vary by organization and ties back to its why (connection to purpose and strategy), current maturity level, distinct competitive advantage, and the overarching ambition to do more. Regulatory, financial, and reputational risks will drive insurers to move at greater speed and we expect this to continue to be the case in the years ahead.

Because each player in the insurance sector is unique, so too will be individual end-to-end approaches to embedding ESG priorities into business operations and activities across the value chain. Not every insurer will be able to develop best practices across all business activities, but those that are able to differentiate themselves are also positioned to move beyond baseline compliance and into their own holistic and strategy-driven ESG approach.

Our latest report takes this thinking further, outlining how you can mobilize to execute your strategy and what Canadian insurers can do to help bring their ESG goals to life.

¹ Office of the Superintendent of Financial Institutions, “Climate Risk Management,” Government of Canada, accessed March 14, 2023.

² Insurance Bureau of Canada, “Severe Weather in 2021 Caused $2.1 Billion in Insured Damage,” January 18, 2022.

³ Deloitte, Striving for Balance, Advocating for Change: The Deloitte Global 2022 Gen Z & Millennial Survey, Deloitte Global, May 2022.

⁴ Canadian Securities Administrators, “Canadian securities regulators seek comment on climate-related disclosure requirements,” October 18, 2021.