Sustainability is a word that is appearing with increasing frequency in corporate strategies and business objectives. It is an intrinsic element in environmental, social and governance (ESG) programs. When implemented properly, sustainable business practices lead to stronger risk management and long-term competitive success. But many organizations have misperceptions about sustainability and ESG, and they struggle to integrate and align these with their risk management programs.
Let's look at some common misperceptions that can prevent businesses from achieving sustainable practices and increase their exposure to ESG risks.
Misperception: ESG only matters for large companies. Shareholders and regulators are pressuring publicly traded companies of all sizes to increase their transparency and disclosure of ESG data, but privately held organizations are experiencing increasing pressure and questions about their ESG practices from customers and employees. ESG matters for organizations of all sizes, because it is not merely the right thing to do; ESG makes businesses more resilient and is the foundation of long-term success.
Misperception: Only companies required to disclose financial data need to worry about ESG. The need for, and benefits offered by, ESG are independent of an organization's disclosure requirements. Some organizations voluntarily report their business practices and ESG strategies, even in the absence of regulation. In addition, reporting frameworks differ around the world. The lack of standardization in ESG reporting is creating gaps in what companies disclose as regulatory filings and information they volunteer.
ESG is very much on the minds of regulators, and more of them are taking a deeper look at ESG disclosures to minimize the data gap. The Securities and Exchange Commission, for example, has launched a task force for climate and ESG disclosures. About 90% of companies in the Standard & Poor's 500 publish reports on sustainability, but only about 16% include any reference to ESG in their filings. S&P Global Ratings, a leading ratings agency, has adopted an ESG evaluation to help investors see rated companies' readiness for ESG risks. At the August 2021 national meeting of the National Association of Insurance Commissioners, insurance regulators focused a significant amount of discussion on ESG-related topics, across several of the NAIC's working groups. Regulators in insurance and other industries are expecting companies of all sizes to gather data and report progress on ESG.
Misperception: Sustainability is primarily about environmental issues. The environment, and particularly climate change, are critical factors for businesses and communities around the world. Sustainability is often invoked in the context of environmental resources, but it transcends those. Sustainability encompasses impact on the environment, as well as product sourcing, operating practices and workplace values. Strong ESG values enable organizations to grow and sustain their talent. Employees increasingly want their employers to be engaged in doing the right things — not just for the environment but also for customers and communities. For example, Millennial employees care deeply that their employers, as well as the businesses they buy goods and services from, have values that align with their own. Environmental and social responsibility are especially important to this generation. A strong ESG program built on sustainable practices can have a major impact on an organization's reputation and financial performance.
Misperception: ESG is a goal. Programs that address environmental, social and governance risks are a journey, not a destination. Just as organizations cannot create a risk management program and forget about it, ESG needs continuous monitoring and adjustment. Like risk management itself, ESG is a mindset meant to be applied every day and over time, not an end state unto itself.
Misperception: Assessing ESG risks and implementing sustainable programs are expensive and difficult. Understanding an organization's ESG risks does not require costly investments in additional resources. Putting sustainable programs in place might seem difficult, but often that is because organizations are unsure where to start. In looking at ESG risks within QBE, our company has found that a top-down and bottom-up approach to environmental, social and governance issues is an effective way to communicate our values and secure the support of our teams. It's not a question of expense but rather an investment of time, which offers rewards.
To help our customers in their ESG journey, QBE has developed a Sustainability Self-Assessment tool. The QBE Sustainability Self-Assessment tool is an online format that walks customers through a series of questions about their business and industry. Upon completion, organizations receive a comprehensive, customized sustainability assessment report, which outlines environmental impacts to their business, key sustainability motivations, the organization's largest sustainability challenges, foundations of sustainability, and recommendations.
QBE has chosen to offer this tool because our company deeply believes that ESG only matters if we are operationalizing it for our customers, our employees, our partners, and the communities we serve. The Sustainability Self-Assessment tool is part of our vision to be a leading provider of risk solutions that lift up our customers and communities and help them to evolve, improve and become more resilient.
For more information, visit the QBE Risk Solutions Center at www.qbe.com
. Mark Pasko is the Chief Legal Officer of QBE North America.