Columnists

Transforming the insurance Industry in Africa through ESG

Monday April 17 2023

Insurance regulators and operators in Kenya have been urged to adopt Environmental, Social and Governance (ESG). FILE PHOTO | SHUTTERSTOCK

Insurance regulators and operators in Kenya have been urged to adopt Environmental, Social and Governance (ESG) to drive sustainable growth of the market.

The key substance of the Nairobi Declaration on Sustainable Insurance was a commitment by African insurance industry leaders to support the UN Sustainable Development Goals (SDGs).

The agreement highlighted the industry’s urgency to develop ESG principles and solutions within their businesses to meet expectations with actions, especially on climate concerns.

The importance of ESG in the insurance industry is particularly relevant in Africa, where it faces unique challenges related to climate change, social inequality and governance issues.

Environmental factors are critical in Africa due to the continent’s high vulnerability to climate change.

Extreme weather events such as floods in South Africa, drought in the Horn of Africa and storms in Malawi, Mozambique and Madagascar are becoming more frequent and severe, leading to significant economic losses and human suffering.

Insurers in Africa need to consider the environmental risks their clients face and promote sustainability by offering products that incentivise environment-friendly practices and investments.

Social factors are also crucial in Africa due to high levels of inequality and poverty. Insurers must ensure that their products and services are accessible to everyone, including marginalised communities and low-income groups.

They can also promote social inclusivity by supporting programmes that address social issues, such as education, health care, and community development.

Governance issues are prevailing in Africa, with corruption and political instability sometimes undermining the rule of law and business confidence.

Insurers must operate with integrity and transparency, and avoid engaging in unethical practices that harm society and the environment.

ESG considerations can help insurers in Africa manage risks effectively and promote sustainable development.

For example, insurers can incorporate climate risk assessments into their underwriting processes, develop products that promote sustainable agriculture and renewable energy, and support social programmes that improve access to better livelihood including good education and healthcare.

In addition, ESG considerations can enhance the reputation and financial performance of insurers. Investors and customers are increasingly looking for companies that are committed to sustainability and responsible business practices.

By incorporating ESG considerations into their operations, insurers can attract socially conscious investors and customers, and differentiate themselves from competitors.

Pressure from investors to consider ESG is driven by the recognition that a company’s impact on society and the environment can have a significant impact on its financial performance and long-term viability.

By encouraging companies to adopt sustainable practices, investors are seeking to ensure that they are making informed decisions and supporting companies that are built to last.