Getting Ahead of the Regulatory Curve: ‘Weather First’ ESG Reporting Advice from the Managing Director

Recent weather around the world has led the insurance industry to highlight weather risks as one that will carry one of the biggest, if not the biggest, weight as we move into the future. In line with this, there have been many calls for action to improve environmental, social and governance (ESG) reporting, especially with regard to climate-driven initiatives.

As it is quite a new area that is still being studied and developed, there are times when some companies feel lost in a haze, which could eventually lead to the problem of greenwashing. In light of this, Capco, a management consultancy, has filed a new proposal with AXA to offer better data-driven weather risk assessment and reporting in the hope of guiding both insurers and their clients towards better ESG reporting standards.

in conversation with Insurance Business Risk Management channel, Capco managing director Alan Au (pictured) provided background on how this collaboration came to be.

“While Capco currently provides climate advisory services to clients, we recognize that obtaining high-quality, reliable climate risk data in the region is one of the key challenges facing financial institutions and publicly traded companies in the future. , as regulators increasingly move toward requiring more granular weather. -related disclosures,” Au said. “In light of this, after initially connecting with our AXA partners, we collaborated to develop a solution offering that combines Capco’s expertise in climate disclosure and risk advice with AXA’s robust climate risk models supported by data from high quality”.

This new climate proposal, Au said, offers both publicly traded companies and financial institutions a comprehensive means of advising on climate risks, with the necessary flexibility depending on where companies are in their climate risk journey. .

“The proposal can support companies ranging from climate disclosure advice to enable compliance with relevant regulators, to more advanced climate risk assessment, integration and strategic advice on companies’ portfolios,” Au said.

Where are we on ESG reporting in Asia?

As someone who is at the center of discussions and the ongoing 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 underdeveloped when it comes to to your reports.

“By specifically focusing on climate-related disclosures, which is the scope of this association’s climate proposition, disclosures from companies in the region are currently mixed with frontrunners disclosing quantitative information where possible. For example, some international financial institutions with a 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 gradually improved the quality of their mandatory ESG reporting (over a decade, for Hong Kong-listed companies), their disclosures related to climate are in early stages of development and are mostly qualitative to meet the regulatory requirements of HKMA (Hong Kong Monetary Authority), HKSFC (Hong Kong Securities and Futures Commission), HKEX (Hong Kong Stock Exchange ) and MAS (Monetary Authority of Singapore), for example,” he said.

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

“One of the common pitfalls of greenwashing occurs when they set ambitious, publicly stated ESG goals without a credible or robust plan to achieve them,” Au said. “To avoid this pitfall, companies need to back up their commitments with a clear action plan backed 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 solid foundation for adapting to the dynamic regulatory landscape.”

On the topic of unsupported commitments, Au also spoke briefly about the recent mass exodus from the Net-Zero Insurance Alliance, including its potential effects on ESG reporting. Au echoed a similar sentiment from an ESG leader from Asia, saying insurers’ commitment to their own frameworks remains the important aspect to consider over crumbling alliances.

“Although there have been withdrawals from the alliance, insurers that have withdrawn are still committed to net-zero targets using their own frameworks. The departures may slow collaborative efforts to reach net zero across the industry, but it does not stop insurers from working toward their net zero goals,” he said.

Better disclosures to focus on actual performance

If there is one thing Au is certain of, it is that the need for ESG reporting, especially in relation to weather, will become more prevalent in response to climate change and its effects. Citing recent developments in Asia, particularly Singapore and Hong Kong, Au said insurers and their clients can expect more rigorous scrutiny around ESG reporting.

“With the launch of the ISSB (International Sustainability Standards Board) standards this year, which are expected to be aligned with the TCFD (Task Force on Weather-Related Financial Disclosures), and regulators across the region indicating they will align with ISSB, we anticipate a strong trend of standardization of ESG disclosures. This means that the global trend of ‘weather first’ ESG reporting will continue to roll out in APAC and there will be increasing scrutiny over the reliability and granularity of disclosures, including quantifying the financial implications of ESG-related risks and opportunities. weather, “he said. said.

Improvement on the disclosures front will lead to a renewed focus on organizations’ actual performance, Au said, especially when compared to their commitments to address climate change and their management of climate risks.

“While our partnership proposal is not limited to insurers, we recommend companies, including insurers, take a comprehensive approach to climate risk strategy, from preparing for upcoming changes to identifying high-quality data sources to improving the reliability of your climate risk assessments, devising informed climate risk strategies and opportunities to address priority areas identified by these assessments, to plan how to embed ESG capacity and practices both within your own organization and among external stakeholders said Au.

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