Getting ahead of regulations curve – managing principal’s advice on “climate-first” ESG reporting

Recent weather across the world has led to the insurance industry highlighting climate risks as one that will carry one of the most – if not the outright most – weight as we move towards the future. In line with this, there have been a lot of calls to action for better environmental, social, and governance (ESG) reporting, especially with regards to climate-driven initiatives.

As it’s a fairly new area that’s still being studied and developed, there are times when some firms feel lost in the haze, which could eventually lead to the problem of greenwashing. In light of this, Capco, a management consultancy, has unveiled a new proposition with AXA to offer enhanced data-driven climate risk assessment and reporting in the hopes of guiding both insurers and their clients to better ESG reporting standards.

In conversation with Insurance Business Risk Management channel, Capco managing principal Alan Au (pictured) provided background on how this collaboration came about.

“While Capco currently provides climate advisory services to clients, we recognise that sourcing high-quality and reliable climate risk data in the region is one of the key challenges facing financial institutions and listed companies moving forwards, as regulators increasingly move towards requiring more granular climate-related disclosures,” Au said. “In light of this, after connecting with our AXA partners initially, we collaborated to develop a solution offering combining Capco’s expertise in climate disclosure and risk advisory with AXA’s robust climate risk models backed by high-quality data.”

This new climate proposition, Au said, offers both listed companies and financial institutions an end-to-end means for climate risk advisory, with the necessary flexibility depending on where firms are in their climate risk journey.

“The proposition can support companies ranging from climate disclosure advisory to enable compliance with relevant regulators, to more advanced climate risk assessment, integration and strategy advisory across companies’ portfolios,” Au said.

Where are we on ESG reporting in Asia?

As someone who’s in the thick of discussions and the continued development of standards for proper ESG reporting, Au said that while there are some who have a broad idea of how to proceed, there are still those who are undeveloped when it comes to their reporting.

“Focusing specifically on climate-related disclosures, which is the scope of this partnership’s climate proposition, companies’ disclosures in the region are currently mixed with pioneers disclosing quantitative information where possible. For example, some international financial institutions with significant regional presence disclose climate-related metrics and targets in line with EU regulations,” Au said.

“On the other hand, while many smaller local and regional financial institutions in the region have been gradually enhancing the quality of their mandatory ESG reports – for a decade, in the case of Hong Kong-listed companies – their climate-related disclosures are in initial stages of development and are mostly qualitative to meet regulatory requirements from HKMA (Hong Kong Monetary Authority), HKSFC (Hong Kong Securities and Futures Commission), HKEX (Hong Kong Stock Exchanged) and MAS (Monetary Authority of Singapore), for example,” he said.

That said, wherever companies are on the spectrum, Au said that what’s important is getting ahead of the curve, especially as expectations for more granular and quantitative regulatory disclosures in the future rise. Companies can do this through robust, data-driven solutions, including the one offered through Capco’s partnership with AXA.

“One of the common greenwashing pitfalls occurs when they make ambitious and publicly-stated ESG goals without a credible or robust plan in place to achieve them,” Au said. “To avoid this pitfall, companies must back up their commitments with a clear action plan supported by reliable data to track their ESG performance. Having high-quality data not only helps companies monitor and disclose their progress to relevant stakeholders, but also provides a robust foundation to adapt to the dynamic regulatory landscape.”

On the topic of commitments that do not get backed up, Au also spoke briefly about the recent mass exodus from the Net-Zero Insurance Alliance, including its possible effects on ESG reporting. Au echoed a similar sentiment from an Asia ESG leader, saying that insurers’ commitment to their own frameworks is still the important aspect to consider over crumbling alliances.

“Even though there have been withdrawals from the alliance, the insurers who have withdrawn are all still committed to net-zero goals using their own frameworks. The departures may slow down collaborative efforts in reaching net zero across the industry, but it does not stop insurers in working towards their net zero targets,” he said.

Better disclosures to result in focus on actual performance

If there’s one thing Au is sure of, it’s that the need for ESG reporting, especially relating to climate, will be more prevalent as a response to climate change and its effects. Citing recent developments in Asia, particularly in Singapore and Hong Kong, Au said that insurers and their clients can expect heavier scrutiny around ESG reporting.

“With the ISSB (International Sustainability Standards Board) standards being launched this year expected to be aligned with TCFD (Task Force on Climate-Related Financial Disclosures), and regulators across the region indicating they will align with ISSB, we foresee a strong trend of standardisation of ESG disclosures. This means the global trend of ‘climate-first’ ESG reporting will continue to be implemented in APAC and there will be increasing scrutiny on the reliability and granularity of disclosures, including the quantification of financial implications of climate-related risks and opportunities,” he said.

Improvement on the disclosures front will lead to a renewed focus on the actual performance of the organisations, Au said, especially when weighed against their commitments to addressing climate change and their management of climate risks.

“While our partnership proposition is not limited to insurers, we advise companies including insurers to take a comprehensive approach to climate risk strategy – from preparing themselves for the upcoming changes by identifying high quality data sources to improve the reliability of their climate risk assessments, devising informed climate risk and opportunity strategies to address priority areas identified by these assessments, to planning how to embed ESG capability and practices both within their own organisation and across external stakeholders,” Au said.

What are your thoughts on this story? Please feel free to share your comments below.