In late 2019, I wrote a blog for the Risk Coalition about how Chief Risk Officers (CRO) are transitioning to become Chief Responsibility Officers. I don’t often find time to write blog posts, but I was fired up by the fact that in a VUCA (volatile, uncertain, complex and ambiguous) world with round-the-clock newsfeeds – where most of the value of companies is intangible – there is an even stronger need to proactively manage an organisation’s brand and reputation.
Since then, the risks associated with ESG (environment, social, governance) have been rising inexorably and, given that 2020 was the year of the pandemic and hence social issues, I see 2021 becoming a year of refocusing on the environment and, in particular, the climate change challenge.
Larry Fink’s letter to CEOs is a good signal. ESG is essentially about ensuring that an organisation is able to address the expectations of its stakeholders, now and in the future, and thereby create a sustainable business model worthy of investor support.
The diagram below tries to put some shape around this concept. I would argue that questioning an organisation’s approach to sustainability is to look for convergence and congruity between its strategy, its sustainability and its risk appetite.
Having a clear organisational purpose is a great starting point. If a company provides socially-meaningful solutions with positive environmental outcomes, then it is well placed in terms of pivoting its strategy to manage its risks and capitalising on sustainability opportunities.
The Covid-19 pandemic is a live, real-world case study for how this is applied in practice. Employees’ mental health and wellbeing as well as managing protracted remote working have not only been key challenges for many organisations, but also test cases for social policies when it comes to flexible working. For employees, it is one of those moments of truth that will linger in the memory long after the pandemic.
The impact of #MeToo, Climate Emergency and Black Lives Matter on both business plans and corporate reputations is also clear. These are powerful movements and businesses must address the need for change.
Failure to do so has consequences: a Bloomberg News article looked at the culture at Lloyd’s in 2019 and highlighted what happens when legitimate concerns are ignored.
So why is this relevant to CROs? I would argue that a CRO is one of the few senior executives able to look across the breadth of ESG and sustainability issues and bring together cross-functional teams to address them, with an eye to leveraging business opportunities and managing threats.
However, this can be particularly challenging because the current ESG space has a multitude of different external reporting standards and is also suffering from data quality issues related to consistency and capture of performance date.
Given this complex environment, it pays to step back and interpret ESG in the context of your own organisation’s risk universe. Each company faces its own ESG challenges, so it is impossible to implement a one-size-fits-all approach across different companies or sectors. Addressing sustainability and the climate challenge resembles risk management. The principles are clear, but there are no off-the-shelf answers for implementation. Each organisation needs to grasp the subject and make it their own.
Increasingly, firms recognise the importance of ESG in managing their reputation and see it as part of their toolkit in differentiating themselves from competitors. An authentic sustainability commitment that is based on providing targeted risk solutions and a clear, credible sustainability message maintains stakeholder confidence, resonates with current employees and helps to attract diverse future talent.
But the fact is ESG is coming, whether your organisation is ready or not. In fact, it is already here.
Fundamentally, it comes down to what sustainability means to your company and your stakeholders. There is no one correct path: it is about being transparent and incorporating ESG principles into your company strategy– making it part of the ethic and culture of your business.
This is why Argo Group recognises sustainability as a board-level strategy and no longer as an esoteric risk management topic. Board sponsorship has been strong, given the need to move on from a series of governance challenges in 2019. My CRO role has been formally broadened to a new Chief Risk & Sustainability Officer remit, acknowledging the desire to give this more focus around the Executive table.
Our efforts over the last 18 months have not gone unnoticed. I am delighted to share Argo Group has been recognised by our peers, winning InsuranceERM’s Corporate Social Responsibility Initiative of the Year 2021.
Alex Hindson is Chief Risk & Sustainability Officer at Argo Group
