PwC’s Tim Braasch and Utz Helmuth highlight industry progress on ESG reporting.
The integration of ESG in the insurance sector is evident – a recent market survey we conducted revealed that European insurers engage up to 50 employees in ESG work – the equivalent of up to 1 percent of full-time employees. This reflects a rough increase of 50 percent in the number of ESG core team employees, particularly at the central group level.
The organisational commitment and the pace of adoption we are witnessing is unprecedented. Insurers have formed robust ESG committees that include board members and facilitate close alignment with C-level management, ensuring ESG considerations are integrated deeply into business strategies and decision-making processes. On top of this, around 90 percent of the insurers we spoke to have set themselves a carbon reduction target. This is huge progress and, with the right milestones and action plans in place, confirms ESG is no longer just a tick-box exercise.
Good progress towards targets
On average there is positive movement towards ESG goals, with the insurers we spoke to rating their progress against targets as seven out of 10. Another positive indication is that about 80 percent of insurers feel their organisations are well prepared for both current and future challenges. This confidence stems from a proactive approach to ESG – a majority of the insurers we spoke with have invested for years into ESG on strategic, operational and business levels. Despite these advancements and the optimism, the challenges in this area are significant and the consequences severe. Based on what we’re hearing from the market, the three primary challenges that need to be addressed are:
1. Overemphasis on reporting
Insurers prefer actionable insights and strategic steering over extensive reporting. The emphasis on reporting, as seen with the Corporate Sustainability Reporting Directive (CSRD), has led to an overwhelming amount of documentation. This focus diverts resources and attention from actionable strategies. Although the CSRD has not yet been adopted into national regulations, insurers are already preparing for its potential demands.
This emphasis on reporting overshadows what truly drives impact: implementing effective ESG measures. Insurers are calling for a shift towards streamlined reporting that emphasises actionable outcomes rather than exhaustive documentation.
2. Data availability and limitations
The scarcity of relevant and reliable data is a key challenge to meeting reporting obligations. Small and medium-sized insurers lack sufficient data, complicating assessments. This includes data on the ESG impact of financial investments, on own operations and on the core insurance business. While several providers have emerged on financial investments, insurers remain concerned about reliability. A particularly high level of uncertainty and discomfort on data availability and comparability has also been expressed amongst peers for operations and insurance business. The challenge this poses should not be underestimated – particularly when it involves reporting ESG disclosures for listed insurers.
3. Regulatory divide
International insurers continue to face dilemmas relating to conflicting regional ESG standards, with contrasting regulatory perspectives in North America and the EU on insuring carbon-related businesses.
Furthermore, inconsistencies within Europe itself, between EU regulations and those of individual member states, complicate compliance and operational efficiency.
Insurers are asking for a coherent framework to navigate diverse regulatory expectations effectively.
Call for regulatory reforms
Streamlining reporting requirements, improving data accessibility and harmonising standards across regions are crucial steps. The goal is to transition from producing extensive, unwieldy reports which do little service to the hard work being undertaken, to actively managing ESG factors and succinctly telling the story of how, why and what next.
In a relatively short period of time, and despite imperfect data on past performance and future challenges, the insurance industry has made significant progress in embracing ESG principles. We are on the brink of discovering exciting new business models and addressing the challenges explored above will create opportunities for genuine change as well as giving insurers confidence and credibility.
On the other hand, an extraordinary rise of documentation and reporting obligations, paired with the termination of currently very profitable business, will be a significant competitive burden for insurers, especially in Europe. European regulators should take the lessons learned from the Basel IV implementation seriously: a very prudent regulatory regime in Europe led to a significantly higher cost base and complexity of European players associated with lower growth and profitability of the European banking sector, compared with the US.
Tim Braasch, partner, PwC Germany
Utz Helmuth, director, PwC Switzerland