Marsh unveils ESG guidance

Marsh has produced environmental, social, and governance (ESG) guidance for captives to reflect the fact that regulated insurance entities, including captives, can expect to see new climate and sustainability-related disclosure standards, along with requirements to monitor and stress test related risk exposures.

Jurisdictions, in particular Bermuda, Dublin, and Guernsey, have started to define ESG standards and reporting requirements for captives, Marsh notes. Although regulation will be implemented in domiciles around the world at differing rates, ESG is “likely to crystalize” as an important topic for all captive owners over time, the company says.

“Regardless of industry or size, the mere existence of a captive demonstrates good governance because a captive is a formalized loss-funding vehicle. It is licensed by regulators and is a regulated legal entity, which has been established to protect the organisation against risk,” the guidance says.

In addition, a captive demonstrates “impactful” governance in the following ways: structured risk management review and oversight; active risk management as a result of prefunding and oversight; addressing risk management’s contributions to a parent company’s ESG efforts for required annual regulatory reporting in the US and EU; facilitating tax and regulatory compliance; and, enhancing an organisation’s risk profile in the eyes of commercial insurers.

Captive surplus can be used to support a sustainable investment strategy, Marsh continues, such as through investments in green bonds.

“Captives enable organisations to reduce the total cost of risk and enhance sustainability as a long-term strategy, allowing them to preserve assets and improve resilience,” the company says, adding that captives are a good way to prevent “erosion of profitability” and preserve the opportunity to support ESG programmes and sustain future growth.

The guidance is here.