While insurers have a role to play in mitigating the risks associated with climate change, very little attention is paid to analyzing companies' environmental, social and governance (ESG) practices in their underwriting policies. Find out more about our insurance products.
Banks enter the impact loan market
More and more banking networks are offering impact loans to their business customers. The interest rate on these loans can be reduced when the borrower achieves predefined extra-financial environmental, social and governance objectives.
Caisse d'Epargne is the latest player to enter the market, following in the footsteps of its competitors BNP Paribas, La Banque Postale and Crédit Agricole. Against a backdrop of rising interest rates, the bank is counting on this new product to attract a growing number of companies. Companies have nothing to lose, since if they fail to meet their targets, the rate remains unchanged. On the other hand, if the targets are not met, they benefit from a bonus paid annually by the lender.
ESG: insurers lag behind
Unlike banks, insurers are lagging behind when it comes to ESG. In fact, these criteria are not generally taken into account in their underwriting policies. In other words, customers who adopt a virtuous approach are not currently rewarded with lower rates.
Only a few insurers are beginning to exclude coal and oil shale extraction facilities from their coverage.
" This refusal to underwrite is gradually being extended to new fossil fuel extraction projects, and then to the operators themselves, but with phases of transition," reports Jean-Christophe Tessier, head of liability insurance and financial lines at Marsh, to Les Echos newspaper.
In terms of prevention, insurance companies are becoming more involved to avoid an excessive rise in increasingly costly weather-related claims. This mainly involves raising awareness and training employees.
Directors' liability, the only field of experimentation
According to brokers, the ESG analysis of companies concerns a single product: directors' and officers' liability. This coverage is designed to cover damage caused by the executive to a third party. The fault that causes the damage must be separable from the company director's duties, and be attributable to him or her personally.
In this market, a good ESG rating can enable you to benefit from more advantageous conditions with insurers (guarantees, deductibles, etc.). However, this protection comes at a high cost, particularly for companies operating in sensitive sectors.
While insurers lag far behind in their ESG analysis of companies, the situation could change as of 2024, when the European CSRD directive comes into force. This text will oblige companies with at least 250 employees to publish extra-financial reporting.