Insurers beware: The Red Queen trap on ESG

The current ESG challenge is to avoid the perennial Red Queen trap — an old piece of wisdom from literature that refers to a situation in which an individual runs faster and faster in an attempt to adapt but remains stuck in the same place; or worse, falls behind. (Andrii/Adobe Stock)

The insurance industry, which manages north of $26 trillion in assets globally, has been thrust into the center of the environmental social and corporate governance (ESG) conversation due to the influence it can exert on the businesses it serves. As a result, companies across the insurance ecosystem have in recent years come forward with bold net-zero pledges, committing to rebalance their portfolios away from heavy carbon emitters and toward low-emission enterprises. But now, those ambitious and widely praised promises are drawing potential scrutiny from regulatory bodies, which are beginning to apply the same level of rigor to ESG statements as they do to financial statements.

Against this backdrop, the central question for insurers, brokers and so many others is how to meet expectations from regulators at a time when requirements are changing at a dizzying rate and often in incongruous ways from one jurisdiction to the next. The challenge, in other words, is to avoid the perennial Red Queen trap, an old piece of wisdom from literature that refers to a situation in which an individual runs faster and faster in an attempt to adapt but remains stuck in the same place; or worse, falls behind. It’s a situation that scores of companies are currently confronting.