Panel debate: Chaucer/Moody’s scorecard key to enabling measurable action in wider ESG journey

This year has been one of significant momentum for the (re)insurance markets in relation to ESG, with the industry markedly increasing its focus on assessing risk through an ESG lens.

Earlier this year, in a first of its kind collaboration, specialty (re)insurer Chaucer joined forces with Moody’s to create a data-driven ESG scorecard designed to improve the way firms' ESG credentials are assessed using proprietary data and metrics.

The Insurer TV sat down with Angela Brown and Paul McCarney from Moody’s and Chaucer’s John Fowle and Simon Tighe to talk about:

Completely data-driven

Disclosures of ESG-related data must hinge on transparency and standardisation to enable more powerful insights and comparability, all panellists agreed.

During the discussion hosted by The Insurer TV, Moody’s and Chaucer talked about the need to standardise ESG-related data so that the (re)insurance industry can have a better and more cohesive understanding of how it can best support its clients, with the scorecard providing a useful template.

“The more we can make the data comparable, the easier it will be to measure,” said Angela Brown, global head of product at Moody’s ESG Solutions.

“Making it easier for the client to understand what they should be disclosing, what’s expected to be disclosed and what is being incorporated and measured – that transparency and standardisation is going to facilitate better disclosure which then in turn will facilitate better measurement,” Brown added.

Brown’s comments echoed those of Chaucer CEO John Fowle, who added that there must be a specific dataset to satisfy the ultimate objective of “making it easy for the customer”.

In the same way all insurance underwriters need a particular dataset to make their decisions with confidence, ESG disclosures must also be based on foundational data points that will be used for standardisation.

“We just think that all these different views of what the key data points are will start to coalesce. We’ll get some common agreement and there will be key data points that everyone agrees that you will always want to see, and there may be a bit of range around that,” Fowle said.

Chaucer’s group head of investment for treasury and credit Simon Tighe agreed that standardising ESG data will enable the measuring of trends, which will in turn allow the industry to derive deeper insights.

“When you do standardise it [the ESG data], we can actually measure the trend. We want to see the trend move to a more sustainable future. When you get to that standard data, we’d be able to measure that and get to communicate that clearly, which we are lacking as an industry right now,” said Tighe.

Getting into the details around how the scorecard came about, Tighe said Chaucer knew data was going to be key and that it needed to find a partner that could provide that data in a “seamless way”, which led to the partnership with Moody’s.

Having identified what data points were important to Chaucer, Moody’s then identified the data it already had and where the gaps were, working to close them to be able to assess data quickly.

“Ease and speed of assessment” for clients is central to the scorecard’s purpose, said Tighe. However, he stressed the scorecard cannot be effective unless clients are willing to share their data in the first place, just as Chaucer did.

“We need to access it to assess it, so we can make a real judgement on your ESG journey. We're not trying to say what's good or bad. We're just trying to say where people are now and we only want to measure progress,” he said.

Paul McCarney, director advisory service at Moody’s Analytics, echoed this, highlighting the necessity – and benefit – of Chaucer’s willingness in “opening up and providing us access to, essentially the problem, the situation, the stakeholders” to create this “transparent, authentic” and balanced scorecard.

Tighe added: “We've got 158 data points, we've got 44 risk criteria. That sounds extremely daunting. But when you break it down by the industry, then it does become less for the end client as well. And by doing this, and by being open and transparent, we are giving the market the opportunity to put that data out there for us, which is what's really important.”

Realising “actionable insights”

McCarney noted that using comprehensive analytics tools to generate ESG insights will help insurers understand their existing ESG exposures and target “hotspots” across different sectors and industries they underwrite.

In addition, the use of analytics tools should also serve as a starting point for insurers to help their underwriters to understand how to best help their insureds.

“When an underwriter at the pre-buying stage is thinking about, do I write business given potentially all the perils including ESG, how can you show them the marginal impact? By rating that account, what would that do to the business portfolio? How does that look in terms of the strategy, the targets that eventually firms are thinking about?” McCarney asked.

“There’s a big workflow component to this that allows that data to turn into actionable insights,” he concluded.

Fowle said this actionable side to the data is “the key to everything”, underscoring the main objectives of the scorecard around transparency and ease of use. But the challenge, he added, “is to make it easy for underwriters to overlay that ESG lens on top of everything else we ask them to get their head around”.

He continued: “Once the commitment to get to net zero is made, the division of the work on how to get there is the next point that needs clarity. We have to be able to say to underwriters, ‘Here's your part you need to play in it, this is what you need to be doing in your portfolio’.”

This, he explained, is what will then enable businesses to ingrain the practices into their underwriting processes “without it being a whole exercise”.

Fowle also discussed how the scorecard will allow businesses – Chaucer’s clients – to “compare notes” on how they are transitioning and have a mutually beneficial, well-informed dialogue.

“We do business with a lot of different people, but we need to have very informed conversations with them about what we're trying to do and what they're trying to do,” said Fowle. “So, if you're dealing with counterparties who fundamentally agree with the principles of the Paris Agreement, then you've got an open door to go through to say, ‘Okay, well, let's talk more about how you're actually getting there and we can tell you how we're hoping to get there and compare notes’,” he added.

These data-driven insights are at the core of what Chaucer and Moody’s are trying to achieve, said Brown.

“Promisingly, we are seeing increased disclosure year-on-year in the private company space, but that there's still an enormous gap between what's being disclosed by companies and what's available for measurement.”

Chaucer’s Tighe added that underwriters should look at ESG as “just a new data point” to use – something the carrier is embedding across the group.

“If a company scores well on an ESG balanced scorecard, they are going to be more sustainable, therefore, they're going to be around longer,” said Tighe. “So, when you can get that into the ethos and into the way your business thinks, it becomes easy to embed it. Because you're then going to start partnering with businesses that will be around longer for you, which is just better for you as a business.”

Increasing the scope

The ESG scorecard that Chaucer and Moody’s have developed also targets the ‘S’ and ‘G’ elements of ESG and not only the ‘E’ element.

Brown noted the importance of considering clients’ exposures to human rights and natural capital losses, for instance, which are elements outside of the ‘E’ that the scorecard encompasses.

“All of those factors are playing a role in people’s assessments of their impact,” Brown noted.

McCarney agreed that looking solely at the environmental aspect does not provide an accurate representation of the ESG performance of a company, and that a more comprehensive approach to the ESG spectrum is necessary.

“Particularly if you think of different sectors and industries, the social and governance becomes maybe more important from, say, financial institutions. Being able to capture the full spectrum of the pillars, and also going down a level almost to the risk criteria that are driving that, I think it’s going to be critical to helping insurers integrate this into the decision-making process,” McCarney noted.

Watch the 35-minute panel discussion to hear more on what the panellists had to say on:

- The industry’s current approach to ESG

- How ESG hygiene can help bolster resilience

- How Chaucer is incorporating ESG into its underwriting

- Details of the scorecard from the Chaucer/Moody’s collaboration

- The need to access ESG data to derive relevant insights

- How brokers can leverage insights from ESG scorecards

- The challenges of incorporating ESG into the workflow

- The correlation between business performance and ESG credentials