Why measuring ESG is crucial for business

What is ESG and why is it so important?

ESG is increasingly a source of competitive advantage for the companies that do it right.  Additionally capital providers, including insurers, are increasingly interested about organisations' ESG credentials.

ESG is a framework to map out a company’s impact on the world, and what it is doing about it:

(E) Environmental: Captures climate change, energy efficiencies, carbon footprints, greenhouse gas emissions, deforestation, biodiversity, and other environmentally sensitive issues.

(S) Social: Covers labour standards, wages and benefits, diversity, human rights, community relations, privacy and data protection, health and safety, supply chain, and other social justice issues.

(G) Governance: Captures the governing of the “E” and the “S” categories plus corporate governance considerations.

Stakeholders are demanding transformational change

A view on your ESG performance is critical to:

1. Capital providers (including insurers): ESG is linked to financial out-performance.
2. Regulators: Regulation on ESG topics is tightening with over 1,800 climate-related laws and policies are already in place globally.
3. Customers: Customers are favouring companies with a good ESG story.
4. Employees: Good ESG helps win the competition for talent and improves productivity with a measurable impact on shareholder value.
5. Partners/suppliers: Business are requiring ESG adherence from vendors.

An ESG risk rating framework will help organisations better understand how ESG performance may be perceived and to help communicate your company’s performance to insurers. A good framework will help you:

• Measure how the business is positioned compared with international best practice and standards, and track performance and progress towards their ESG goals.
• Manage ESG risks and opportunities by identifying, prioritising, and integrating them into risk management planning. This can differentiate businesses and build organisational resiliency.
• Communicate ESG strategy and performance in a structured and detailed framework to insurers and potential capacity providers. Being proactive in organising and cataloguing ESG performance will enhance effective engagement with underwriters, who are increasingly showing their appreciation in the value of ESG.

Marsh provides a clear framework from which to better understand your ESG performance, make more informed investment decisions, and potentially negotiate better insurance outcomes with its ESG risk rating tool.

The tool is a self-assessment tool which asks questions across 18 themes including climate change, pollution, natural resource use, innovation, inclusion, health and wellbeing, future skills, risk oversight, supply chain management, governance strategy, ethics, and stakeholder engagement. Find out more