In this 3-part series, Craig Hupper, TransRe’s ESG Leader, talks about the Environmental, Social and corporate Governance framework.
Can’t listen now? Read the transcript (edited for brevity and clarity)
Does the ESG movement feel like an NGO to you?
If you create more value by doing these things than not, then it becomes part of your fiduciary duty. Part of the debate is about these externalities and giving ESG a legitimate role in business. The government, in the form of the US Department of Labor, the Securities and Exchange Commission (SEC) and the New York State Department of Financial Services have not provided specific guidelines to be met. Nasdaq floated a proposal requiring listed company Board members to meet certain criteria, but that hasn’t been implemented. Nasdaq isn’t the SEC (you can decide to list or not) but they are making a similar argument about disclosure and providing the data that investors want.
If the SEC creates regulations, that changes the debate from voluntary to compulsory?
Markets don’t always respond to every factor. Pollution is a classic externality. There’s no charged cost associated with it, so society bears the costs rather than the owners, principals or agents. It is legitimate for a government to capture those externalities and force parties responsible to shoulder the burden.
European regulators are more demanding about re/insurers and climate change. They require companies to calculate and demonstrate their exposures to certain scenarios. Depending on the calculations, regulators may intervene with requirements to comply with, and may impose additional capital charges.
Can you talk about the ‘G’ (governance) of ESG?
Governance is not a new concept. D&O underwriters evaluate how a company is set up, how its governance works, how leadership is compensated and the incentives for operations. Stock analysts/investors have similar interests. Adding governance to the ‘E’ & ‘S’ links the factors into a broader framework of corporate culture. The effort to integrate G brings ESG together.
So ‘G’ will ensure that ‘E’ & ‘S’ are achieved?
Part of the debate is about who is a principal, rather than just an agent. Principals are no longer ‘just’ company shareholders. Today it includes the broader society in which it operates, which means employees and communities which they operate.
Why does the word ‘stakeholder’ upset people?
The debate can be polarizing. What is the definition of a stakeholder? During the financial crisis we saw leading insurers holding financial instruments that threatened the global economy. That went far beyond policyholders who had made a conscious decision to buy from those companies. Insurance is part of the financial chain that connects global finance. Regulators ensure solvency of the system. One company can get in trouble and affect others. So, from a regulatory perspective, socially responsible investments, triple bottom lines, sustainable finance and events (financial crisis, Covid-19, climate change etc.) have been brewing for some time. The issues have become so prominent that many people think businesses need to take a stand. These are societal issues.
How do you structure a business differently as a result of the ‘G’?
Successful companies already have established and extensive governance processes in place. Alleghany changed the name of its Corporate Governance committee to the ESG Committee in 2020. That shows the emphasis being placed on these broad issues.
So ‘G’ is a way to introduce ‘E’ and ‘S’ to a larger audience?
Companies respond to pressure. Georgia’s voting law triggered baseball’s actions and we saw statements from two Atlanta-based multinationals. In the past, they may have remained silent.
Companies have often taken stances on issues. Is the magnitude different now?
There have always been activists wanting the corporate world to take stands. Those campaigns seem more professional now.
What impact does employee activism have?
We all want to do better, and to work for an organization that is meaningful and doing the right thing. Companies that ignore this will have a tougher time attracting and retaining strong and talented team members.
How can employees get involved for most impact at TransRe?
Participate! We have opportunities. This is how we will maximize long-term value – we will do well by doing good. There are many examples of companies that prosper while creating positive developments. Capitalism may not be perfect, but it has lifted more people out of poverty than any other system. If more people share the benefits of capitalism, we will have a more equitable society where everybody has a chance to achieve their potential. This will be a positive force if we remain pragmatic and focused on what generates value.