The growing pressure and urgency across all sectors of society to respond and find solutions to environmental, social and governance (ESG) issues has led to some rethinking within the marine insurance industry. Individual companies are reconsidering their targets and responsibilities beyond their core businesses to incorporate sustainability. These insurance companies work on a better understanding and overarching principles to identify and define ESG standards that align with their values and commitments as a company. This approach will also guide what information they will seek from clients and other third parties. Considerations may comprise aspects of underwriting, claims handling, loss prevention, investment strategies, recruitment and education. Acknowledging the importance of ESG issues for the industry, some insurance companies have already integrated ESG issues and principles into their corporate strategy and established reporting procedures to ensure compliance with a company’s defined ESG standards.
The results of a membership survey on ESG matters among IUMI’s member associations conducted in December 2019 showed a desire to expand IUMI’s role as an educator and facilitator for ESG issues. Over 90% of the respondents said that they were already doing a moderate amount or even a lot of work on sustainability. 65% viewed ESG topics on IUMI’s agenda to be very important or extremely important and would like IUMI to spend more time and effort on such issues. The mandate to include ESG issues on IUMI’s agenda could not have been clearer.
IUMI’s overall role and involvement on sustainability matters has been tasked to the ESG Working Group which was set up in 2021. The group is in charge of developing a workplan and vision for IUMI’s approach to sustainability. The WG identifies ESG topics which are specifically relevant to the global marine insurance industry and includes them in the ESG Watch List. The purpose of the group is to educate IUMI members and raise awareness about ESG related trends and developments relevant for marine insurers. The ESG WG’s focus is to work on tangible and specific topics with direct relevance for IUMI’s membership.
IUMI’s support of UNEP Principles for Sustainable Insurance (PSI)
Global initiatives such as United Nations (UN) Sustainable Development Goals (SDGs) have led to growing awareness of ESG issues. In the insurance context, the UN Environment Programme Financial Initiative’s (UNEP FI) Principles for Sustainable Insurance (PSI) are central. UNEP intends the four principles to serve as a global framework for the insurance industry to address ESG risks and opportunities. The four principles are:
- Embed environmental, social and governance issues relevant to our insurance business in the decision-making.
- Work together with clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.
- Work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.
- Demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.
The four Principles are based on the insurance industry’s core business to understand, manage and carry risk. They are part of the insurance industry criteria of the Dow Jones Sustainability Indices and FTSE4Good. The purpose of the PSI Initiative is to better understand, prevent and reduce environmental, social and governance risks, and better manage opportunities to provide quality and reliable risk protection. In February 2020, IUMI became a supporting institution of the UNEP PSI.
In 2020, the UNEP FI launched the first guideline for “Underwriting environmental, social and governance risks in non-life insurance business”. The guide is not intended as a formal standard which organizations are required to comply with or follow directly. It is instead an optional support tool to help organizations grasp this wide-ranging topic, particularly those with no or limited ESG expertise. The guideline was subject to a public consultation in 2019, and the full 1.0 version of the guide was published in June 2020.
IUMI’s support for Poseidon Principles for Marine Insurance
The Poseidon Principles for Marine Insurance (PPMI) are a framework for quantitatively assessing and disclosing the climate alignment of marine insurers’ underwriting portfolios. They have been established to engage with the shipping industry and support net-zero insurance as a main focus area. They provide a framework for transparent disclosure based on four principles (Assessment of Climate Alignment, Accountability, Enforcement and Transparency). The PPMI are a first tangible step towards enabling hull & machinery insurers to support shipowners in reducing greenhouse gas (GHG) emissions. The PPMI were launched in December 2021. IUMI is a Supporting Partner of the initiative and encourages interested marine insurers to look into the scheme.
Regulatory developments
Many governments and intergovernmental organisations such as the IMO start to develop rules and regulations on ESG issues, often going beyond the most prominent topic of climate change. Some of these regulations have the potential to impact the business marine insurers write. The EU, for instance, is making significant strides to move its sustainability ambitions forward with the EU Taxonomy Regulation. The purpose of this initiative is to provide companies, investors and policymakers with appropriate definitions and encourage investments in environmentally sustainable economic activities. This is to be achieved with the creation of a taxonomy, i.e. the introduction of a uniform procedure with which the economic activity of companies is classified into categories. The Taxonomy Regulation establishes six environmental objectives:
- Climate change mitigation
- Climate change adaptation
- The sustainable use and protection of water and marine resources
- The transition to a circular economy
- Pollution prevention and control
- The protection and restoration of biodiversity and ecosystems
IUMI will monitor regulatory developments and inform members about the impact they may have on marine insurers.
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