Environmental, Social and Governance (ESG) are hot risk factors for organisations of all sizes, but with these issues being so broad, where do you begin?
Kerris Earle, Training and Development Manager at Zing 365 has been helping large insurers, brokers and others get to grips with ESG. Kerris joins us to deliver a fascinating series of recordings designed to cover the question everyone is asking... what should we be doing with ESG?
If you would prefer to read rather than listen to this episode, please see our transcript below.
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TRANSCRIPT
Johnny Thomson 00:01
Environmental, social, and governance are three big risk topics to cover, so where should we begin? Hello, everyone, and welcome to the RiskACUMEN podcast, which offers thoughtful insight around risk management. Now, intergenerational and social fairness are very much at the forefront of the minds of both policymakers and the wider public and this is making Environmental, Social, and Governance, or ESG, hot risk factors for organisations of all sizes. But with these issues being so broad, where do you begin with ESG? Well, today, I'm delighted to be joined by Kerris Earle, who is Training and Development Manager at Zing365 and has been helping large insurers and others get to grips with the topic of ESG. Hi, Kerris and welcome to our podcast.
Kerris Earle 01:00
Hi, Johnny, thank you for having me.
Johnny Thomson 01:02
It's a pleasure. Thank you very much for for coming on. Now, before we get onto the main topic of conversation, tell me a little bit firstly about Zing365 and also your role there?
Kerris Earle 01:13
So at Zing365 we are a specialist training provider. We've got over two decades of experience, and we offer a real comprehensive range of technical insurance courses. Also some CII exam support as well as soft skills and we really pride ourselves on providing a blended learning solution that caters to diverse learning needs. So, this spans across elearning, to interactive live learning webinar sessions, instructor led in person training, as well as things like topical workshops, and even coaching. So in addition to this, as well, we also have a library of technical and FCA compliance courses, but also we've developed a comprehensive boxset of ESG and sustainability training. And that includes things like e-learning courses, those recorded webinars, resources, as well as FAQs and top tips. So to really help firms and their staff to increase their awareness and understanding and get to grips with what is a very much a hot topic, but also very much an evolving topic.
Johnny Thomson 02:22
Fantastic, and ESG, you know apart from the three words that it makes up, what what exactly is it Kerris and why is everyone talking so much about this?
Kerris Earle 02:34
So what it is, is a framework that's used by businesses, as well as investors to evaluate and measure what is essentially a company's performance. But it's about that impact across those three core areas. So, for environmental, this aspect is looking at a company's efforts and its practices related to things like environmental sustainability, so that pulls in your pollution and waste resource, conservation, as well as your climate change mitigation, which is, of course, that big one in the E section. For social, we're looking more at things like how a company actually manages its relationships across all of its stakeholders. So that pulls in your D&I, so your diversity and inclusion, as well as things like labour practices and community engagement. Whereas, of course your governance is an oldie but a goldie, but that evaluates a company's internal policies, their leadership structure, and things like ethical standards. So that pulls in what can be uncomfortable topics like executive compensation, as well as transparency and in tax and financial reporting. So it is a bit of a cliche, but it is all about understanding what businesses are actually doing to make the world a better place, whilst they are still turning a profit.
Johnny Thomson 04:04
Yeah, and we we first met at BIBA, didn't we, at the BIBA conference earlier this year, and you gave a fantastic presentation, which kind of started our initial conversation, I remember you told me there that there was a real hunger for this for this information and the key question everyone was asking was... what should we be doing, yeah?
Kerris Earle 04:25
Yeah, definitely. So there's a real hunger about it, because of course everybody is talking about it. It is incredibly topical, particularly with those growing global concerns, again, touching on that big one of climate change. But it also brings in things like social inequality, and that corporate accountability piece. So it's really driving discussions and it is across industries, but of course as as we found it BIBA there was that real hunger around it, and it's particularly around the 'how'. We get told a lot about the 'why', so we know there's a lot of stakeholder expectation and we know it can give a competitive edge and it's all about that access to investor capital. But that 'how' seems to be the big question. People are really hungry for information, that guidance and that steer on what they should actually be doing. And again, that isn't just within the sector, it is across a number of industries. But particularly in my experience from working with brokers and intermediaries, they're really struggling as to what it is, what they need to be doing. And a big thing around this is going to be a key role, actually, for the regulator, for the FCA to actually really be putting some guidance in place, whether it's going to be rules or regulations, we're not too sure on yet. But of course, they did have a discussion paper that recently closed back in May, which has quite a long title. So it's your DP23/1 Finance for sustainable change: governance, incentives and competence in regulated firms. I believe, I've been told that the answers that they've received, they're absolutely drowning in them, which further emphasises that need for information around this. And I think when they come back with their response in their findings from that consultation paper, it's going to be a lot about that need, that want for guidance and actually a steer from them.
Johnny Thomson 04:25
Yeah, it's almost overwhelming, isn't it in terms of its breadth, but I guess one kind of simple way of looking at it is to just understand that they are really just three categories of risk, like any other kind of risk aren't they, to be managed?
Kerris Earle 06:48
It's exactly that. Now when we hear ESG, we think of it as that topical buzzword, it is a real hot topic. And it can even just be seen as a faddy, feel good initiative, which is 100%, not what it is. It is about that risk management piece, those ESG factors that fall into those three categories, they should be being seen as any other set of risks that a company needs to not only mitigate, but also manage. And that's just because it encompasses various factors that can really impact a company's financial health, things like their competitive position, as well as the big one, which is the long term sustainability, and not being able to effectively manage or even flat out ignoring these risks within ESG can really have some significant consequences, some negative consequences for firms.
Johnny Thomson 07:48
Now, talk to me about what's known as 'the protection gap' here, because this a really important aspect of it all, isn't it?
Kerris Earle 07:57
It really definitely is. So what we're talking to here is the disconnect between insurance coverage that individuals and businesses need, that they require, compared to what's actually available to them. So it pulls into question things like affordability, but when we're looking at ESG issues, they actually become more prominent with this as well. Because the protection gap can and likely will widen due to ESG concerns. So a big one, for example, is as climate change leads to more frequent and severe natural disasters, if we think about what's currently going on all of the flooding compared to a couple of weeks ago, the fires and then the highest temperatures across Europe, traditional insurance models just might not be sufficient for that anymore, and likely won't be. And when we're talking about the protection gap, it's actually estimated that it will reach a whopping $3.6 trillion by 2026. So it pulls in another reason for the importance of understanding ESG, particularly for insurance firms and actually incorporating its practices and its framework can really actually help us start to bridge that gap by enabling insurers to offer that more relevant coverage.
Johnny Thomson 09:24
Yeah, because that protection gap, it's all about the bigger picture, isn't it? It's understandable to withdraw certain types of cover, but ultimately that could that could just lead to a lot of businesses and organisations not existing anymore. So there's a far wider picture around that isn't there, which needs to be explored and examined as part of this?
Kerris Earle 09:47
Definitely. And then it pulls into those wider issues such as trust or lack thereof, and understanding of insurance anyway. So it brings in that reputational piece also, if we start looking at that pulling away. And as you said, it does make sense., but you have to pull in that bigger picture.
Johnny Thomson 10:06
And you mentioned before the context of ESG. It's often talked in terms of this, this phrase 'doing well by doing good', isn't it, but there's a lot more to it than that in terms of significant and emerging regulatory picture as well isn't there?
Kerris Earle 10:22
Very much so. Definitely. The landscape around the regulation for ESG is ever-evolving. And as much as we're saying, we're wanting more guidance from the FCA or the sector is wanting a lot more guidance from the FCA, they are actually in quite a responsible position, a lot of pressure is being placed on the FCA. If we think of the fact, back in June 2019 the UK became the world's first major economy to actually legally commit the entire country to a target of net zero emission by 2050. And as part of that, they actually pledged that the UK financial services would be the greenest in the world. And who has responsibility for that? Well the FCA are going to be playing a very big role in it. So there's that immense pressure being put on them to prioritise not only regulation, but also the integration of ESG. And they have very much acknowledged that the financial sector needs to be able to support this sustainable future and to do that it requires that high quality information, a well functioning ecosystem, as well as clear set standards for us to be following. And thinking of that in terms of for the insurance industry, it's really going to actually influence how insurance firms are going to be incorporating principles of sustainability, because it pulls into question around risk assessment, underwriting practices, and even investment strategy.
Johnny Thomson 12:06
This is where the sheer breadth of this comes in. Because, I'm also thinking, as you mention that, Consumer Duty, for example, is coming to mind. And that's the social aspect, or part of it is the social aspect isn't it around vulnerable customers and so on as well. So all of this is just, it's almost like a regulatory minefield isn't it?
Kerris Earle 12:29
Very much is and pulling in things like Consumer Duty, the FCA have made it clear previously, that it's going to be ESG is going to be something that firms are expected to self govern. And so existing rules and regulations will be what's called upon to be able to do that. And those key systems and controls that are in place will actually be aiding companies in their ESG endeavours, or at least, that's the idea. So two key regulations there would be Consumer Duty, as well as SM&CR, so the senior managers and certification regime. So as you touched on, Consumer Duty definitely has that social element. It's prioritising the interests of customers, even pulling in their preferences and needs, which will have an ESG steer, and preventing that harm to them. And of course, with the SM&CR, that's all about actually holding individuals in the firms accountable for their decisions and actions and that will be used to include those decisions and actions that relate to ESG factors.
Johnny Thomson 13:43
And it's fair as well to say Kerris isn't it that the language and the complexity around this almost gives you a feeling that it's only about large corporations, but that's not the case either, is it?
Kerris Earle 13:56
No, no, not at all. We do get that feeling just because most focus when we're talking about ESG is really put on to insurers. They're typically those larger firms already being mandated to report on ESG matters, for example, under the TCFD, but for it's not just those organisations, but you are very right, the language is all about that large, large organisation.
Johnny Thomson 14:29
Yeah and of course there's that knock on effect as well isn't there from large insurers. It's clear that they are more and more seeking to work with ESG conscious brokers and suppliers and partners as well, yeah?
Kerris Earle 14:43
Yeah, it's definitely true. We are seeing what is in essence a trickle down effect of compliance when it comes from those larger firms. Because of course at the moment, those sort of smaller firms those SMEs and particularly our brokers and intermediaries and our suppliers, they're not being pulled into the mandated requirements or reporting requirements and regulation yet. But the key point there is yet! They will be being pulled in due to the sheer number of them. If we think about the stats, there are five and a half million SMEs in the UK. That's overall that's not just in the insurance industry. But altogether, they actually make up 99.9% of the whole UK business population. And globally, SMEs are making up around 90% of all businesses. So even though we are getting that trickle down effect of compliance, it's very much the case that SMEs are going to be pulled into regulation themselves. We can't forget the Government's Roadmap that says in those in scope of reporting requirements is going to be expanded by 2025. And that's, of course, going to be pulling in our SMEs. But like the point you've just made there, we have already got this trickle down effect that is leading to a number of brokers in particular having to start their voluntary ESG endeavours because of their relationships with those larger firms, particularly those partnerships with insurers. And this is because insurers want to be working with brokers and other agents that are not behind on ESG. So it is putting a lot of pressure on them. And it doesn't mean that those ties have to be severed, or anything of that nature, it's just the fact that for their own endeavours, they need their supply chain to also be aligning with their own sort of ESG criteria. And that is creating that trickle down pressure.
Johnny Thomson 17:01
Yeah, and I'm sure you probably have experience of this in the same way we have at RiskSTOP Group. You know, you see those compliance and governance questionnaires that come through to make sure certain standards are being met. And often the key to this is compliance with already existing standards, isn't it because that helps to cut through a lot of that and the bureaucracy with that, if you've if you if you already have a programme in place to have complied and to have met some of those standards. It often makes it a lot easier, doesn't it?
Kerris Earle 17:32
It definitely does. So that's what we're saying when we're saying we should be treating this like other risks, a lot of our risk frameworks will already be putting us in a good position. It's just almost looking at new topics. And of course, that means they will need to evolve. As we've been touching on throughout this conversation, ESG is just such a broad, deep topic. But as you've said that that foundation, definitely is going to be absolutely essential for all organisations that will be being pulled into these reporting requirements and regulations. And should ideally be really aligning themselves with these voluntarily now for for their organisations to be ready.
Johnny Thomson 18:21
Well hopefully this has helped some people out there with understanding this issue Kerris. I'm conscious that you know, we're limited by time with with the podcast here, we've only got... I don't like to do you know, long, long hour, two hour long podcasts because I'm not sure everybody can be engaged in things for that long. I don't know how you feel, perhaps we could come back and look at environmental and social and governance separately, as separate issues here just to give the audience out there a little bit more detail and help them around that 'well what is it that I need to do?' question. How would you feel about that?
Kerris Earle 19:01
Yeah, that sounds absolutely perfect. I think that's the best way to look into this. As we've said, it is so broad, it is so deep and I think that would be really effective and helpful for those that are looking for that information to get this understanding of what we need to be doing for our our ESG endeavours.
Johnny Thomson 19:22
Wonderful. Well, let's do that then.
Kerris Earle 19:26
Yeah, sounds good to me, Johnny.
Johnny Thomson 19:28
Great. Well, many thanks so far, in that case. It's been great talking to you up to this this point Kerris and really helpful information. As I said, when I met you back in BIBA I found your presentation really enlightening anyway. So, I was really keen to get you on as a guest, and talk about this issue. So thanks very much for coming today.
Kerris Earle 19:49
Not a problem. Thank you for having me.
Johnny Thomson 19:51
And yeah, thanks again and see you next time.
Kerris Earle 19:55
Yep, see you next time.
Johnny Thomson 19:57
Brilliant. Thanks Kerris.
Kerris Earle 19:58
No problem.
Johnny Thomson 20:00
And that's it for this episode of the RiskACUMEN podcast. If you have any questions or comments around the topic that we've discussed today, that's an invitation and a half isn't it Kerris.... or any of our other risk-related content, please head to our LinkedIn page. You can find a link at riskacumen.co.uk And thanks everyone for listening in. Until the next time, goodbye for now.
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