ESG concerns require holistic response – Beazley

In order to successfully navigate the growing regulatory demands around environmental, social and governance (ESG) metrics, the insurance sector will need to provide proactive support for its clients – similar to what it offers to combat cyber risks – according to Lorena Segovia, regional manager for continental Europe at insurer Beazley.

Speaking to Insurance Times at the Federation of European Risk Management Associations’ (Ferma) Forum 2024 event, held in Madrid between 20 and 22 October 2024, Segovia confirmed that the growing weight of regulatory rules around ESG delivery was becoming a major concern for companies of all sizes.

For example, in January 2023, the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) came into effect.

This modernised the rules around the ESG information that companies have to report and broadened the scope of businesses that have to undertake this reporting to include listed SMEs and non-EU firms that generate more than €150m (£125m) in the EU market.

Companies have to apply this directive for the first time in the 2024 financial year, for reports published in 2025.

In addition, the European Commission approved the European Green Deal in 2020 – this is a set of policy initiatives that aim to make the EU climate neutral by 2050.

Segovia told Insurance Times: “ESG is becoming an increasing concern for businesses and the directors’ and officers’ (D&O) market.

“In Europe, the issue has been on the agenda for some years with the European Union’s work towards the creation of its Green Deal. The EU non-financial reporting directive was implemented in 2014, but next year will see the corporate sustainability reporting directive come into force.”

Segovia noted that around 11,000 companies have been reporting ESG information under the EU’s 2014 laws – this demographic will now be captured under the CSRD, alongside an additional 40,000 firms that fall into the EU’s broader remit.

Firms that must adhere to the CSRD have to meet two of following criteria – have a net turnover of €50m (£41.6m) or more, have more than €25m (£20.4m) in assets or more than 250 employees.

Segovia continued: “What we see is an increasing complexity of ESG regulations affecting risk managers and boardrooms.

“The European Union is also [asking] businesses to ensure the goods and materials they source have not come from the result of deforestation.

“Companies need to prepare for new rules and regulations and how that will impact their compliance structures.”

Segovia’s comments were made after the insurer released the results of a survey of 3,500 global business leaders, published in October 2024. This found that 67% of respondents think ESG regulation is too complex for their business to comply with.

Reputational risk

Segovia additionally noted that increasing climate activism was impacting the D&O market.

“With the increase in climate and environmental regulations, there have been more activists seeking to take businesses to court,” she explained.

“The plaintiff can often be shareholders and activist funds with the support of non-governmental organizations organisations.

“Oil and gas, automotive and even consumer companies have been faced with action. While we are seeing these cases being dismissed, even if the business is successful in it defence, it comes with reputational risk.”

Segovia said insurers need to offer access to data, information and insight – similar to the suite of products offered by the cyber market – to clients seeking to understand ESG linked risks.

“There is a need to work with companies to identify the risks and look to how they can be managed. In some ways, the insurance cover is the last part of the conversation,” she concluded.

• Insurance Times has converted euro amounts into pound sterling at an exchange rate of £1 = €1.20, as at October 2024.