The events of the past 18 months, including COVID-19, social unrest and inequity, and a myriad of weather-related disasters no doubt drive and exacerbated by climate change, have dramatically accelerated firms’ emphasis on pre-financial environmental, social and governance (ESG) factors. And unlike the “feel good”-oriented Corporate Social Reporting (CSR) movement of yore, the focus of ESG centers around risk management and opportunity identification. Stakeholders may be motivated by differing factors, but all are seeking to minimize risk micro- and macro-economic risk and maximize resiliency.
Investors are increasingly interested in and engaging on ESG issues to proactively address non-financial risks, avoid “grey swan” events, protect against loss of shareholder value and safeguard their social license to operate
Understanding ESG risks leads to better underwriting and potentially reduced risk of loss, protection of social license to operate & investment capital
Strong ESG credentials may ease talent acquisition, decrease turnover and increase productivity
Social License to Operate
Making products and doing so in a way that resonates with consumers is increasingly important
Regulatory Bodies & Disclosure Regimes
An increasing number of regulatory bodies and disclosure regimes require companies to consider and disclose ESG risks
These stakeholder groups are driving a rush of activity around ESG, including:
- The development of more than 650 mandatory and regulatory guidelines around ESG globally
- 400 of the largest 2,000 companies (and counting) have committed to Net Zero.
- 175 CEOs (and counting) have committed to the CEO Action for Diversity and Inclusion.
- 95% of S&P 500 companies have detailed ESG data available, with roughly 75% using CDP (Climate Disclosure Project) and 49% using the Task Force for Climate Related Financial Disclosure (TCFD) framework.
- Institutional investors (such as pension funds, endowments and foundations) have increasingly embraced ESG over the last two years, with one Natixis survey showing totals growing from 61 percent to 72 percent
Given the momentum and motivations around ESG, we believe it is now “table stakes” for market participants and expect continued rapid development in the space.
As firms navigate new forms of volatility such as climate change, Aon is committed to protecting and enriching the lives people across the world. At COP26, our goal is to mobilize private sector capital and drive collaboration with governments, academia, communities and businesses to deliver compelling solutions. Find out more about how we are tackling climate change at COP26.
About the Author
Meredith Jones is a Partner and Global Head of Environmental, Social and Governance (ESG) at Aon. In this role, she works across Aon’s solution lines (Risk, Reinsurance, Health and Wealth) to develop and deliver ESG assessment, consulting and solutions.