The latest report in our Risk & Resilience series explores the difference in perception and resilience amongst business leaders to environmental risks including pandemic, climate change, environmental damage, food security and energy transition.

This risk grouping represents the most rapidly evolving category of risk and attitudes to these potential perils are changing at a similar pace. We were surprised that business leaders ranked environmental risks very low in their list of risk concerns when we undertook this research at the start of 2021, even predicting that their concern would diminish further over the next twelve months. However, C-suite sentiment is likely to have shifted markedly since our field research was conducted as a result of a combination of factors: rising natural catastrophe severity and frequency, supply chain and energy price inflation, continued high COVID-19 infection rates and heightened regulation and litigation.

Environmental risks rank bottom

Only 12% of business leaders in the UK and US rank environmental risks their most pressing concern in 2021. That proportion falls to 9% in 2022.

Please click on the legend boxes to view the different data points.

Key takeaways

  • Even with COVID-19 and climate change dominating the news, executives appear to think of this category of global systemic risks as an externality, something that does not impact their bottom line.
  • Businesses are focused on near term environmental risks - in particular, compliance with regulation and meeting stakeholders’ ESG expectations.
  • There is potential for a significant disconnect between stakeholder expectations and corporate risk management priorities.
  • Companies that are slow to align their operational practices and are not alert to the new regulatory landscape will face new interconnected legal, reputational and regulatory risks.
  • Although energy transition risk is a key feature of debate at a global level, it is currently a business blind spot failing to register on boardroom agendas of many of the firms we surveyed.
  • Given the pace and scale of environmental change and the measures announced at COP26 summit, it is our hope that environmental risks will become more significant on corporate agendas over the coming year.

Next steps

COP26 set some very clear priorities for governments, businesses and individuals including encouraging commitments to reduce methane emissions, prevent deforestation and protect biodiversity.

Mark Carney’s coalition, Gfanz, announced that it could provide up to $130 trillion of capital to help the transition to net zero, while UK Chancellor Rishi Sunak announced firms will have to publish net zero roadmaps by 2023, making the UK, its public companies and financial institutions part of the world’s "first-ever net zero aligned global financial centre".

It was also announced that a new board - the International Sustainability Standards Board (ISSB) - will be set up to develop a single global set of sustainability disclosure requirements to try to tackle greenwashing by companies.2

The insurance industry can play a key role in helping deliver those priorities – by supporting the transition to a greener future through its underwriting and investment policies.

We believe that firms that heed ESG principles are likely to be better risks over the long term. ESG considerations will become an increasingly significant underwriting factor in the coming years, and we are keen to build relationships with, and support clients that demonstrate strong ESG credentials at this stage.

We recognise that as an industry, we have not seized opportunities as soon as we should have. We cannot accelerate further now without leaving our comfort zone. This will require greater investment in and sharing of data and as we learn more about how ESG principles can reduce risk, we will build the lessons into our underwriting, claims and investment process to deliver innovative insurance solutions that provide additional cover to clients that perform highly against established ESG metrics.

We hope to see tangible benefits in managing environmental risks over the next two years and this research indicates where some of the priorities might lie.

To find out more about this report please get in touch with me.

Chris Illman photo
Chris Illman Head of Responsible Business