ESG: balancing the benefits and the drawbacks

Environmental, social, and governance (ESG) considerations demand prudent reflection from companies aiming to derive maximal value from them. At the Vermont Captive Insurance Association's annual conference, during a discussion titled 'The Essence of ESG in Your Captive,' the merits and demerits of ESG issues were deliberated.

Moderated by Andrew Baillie, Global Insurance Program Director at AES Global Insurance Company, and Finky Yan, Vice President of Marsh Captive Solutions, the group concurred that ESG issues transcend mere trends and can yield tangible advantages. These encompass the enhanced management of challenges such as climate change and unforeseen contingencies.

The forum underscored how stakeholders exert pressure on insurers and firms to grapple with ESG challenges. Nonetheless, the participants acknowledged moments when the clarity of ESG matters could be less straightforward than initially perceived. Baillie, in a paradoxical observation, highlighted that ESG regulations might inadvertently harm specific enterprises. Compliance with these regulations, when made publicly known, could adversely affect businesses by alienating them from opportunities due to non-conformity with local norms, like bribery prohibition.

The subjectivity inherent in ESG regulations was also spotlighted. Attendees noted the complexity in accurately measuring ESG performances of different companies. A participant articulated that rating agencies are addressing this concern, yet uncertainty remains on how these agencies will evaluate or quantify ESG dimensions.

The discussion panel emphasised the need for measured action, acknowledging the significance of sustainable energy production. However, it cautioned that renewable energy must be complemented with backup plans for sunless or windless periods. Some complexities also emerged; for instance, situating solar panels in regions prone to hailstorms or windstorms is inadvisable due to the fragile nature of glass-based panels. Notably, solar panels themselves lack sustainability; after replacement with newer models, old panels often end up as landfill waste.

The participants concurred that captives offer pathways to resolving ESG challenges and deficiencies in specific social or governance aspects. For instance, captives can rectify shortfalls in employee benefits stemming from same-sex marriage disparities in certain US states.

Overall, the panel agreed that captive insurance can adeptly address a myriad of concerns faced by companies. For instance, when obtaining bank loans necessitates insurance coverage that's challenging or expensive, captives can intervene. Yet, it remains imperative to comprehend that ESG constitutes an extensive domain, far more intricate than initial impressions suggest.