Risk rating for environment, social and governance
A difficult to satisfy the demand for information about the environmental, social and governance practices of private companies led Marsh LLC to create a tool to manage ESG risks and leverage additional insurance capabilities.
Launched in March, Marsh’s Environmental, Social and Governance Risk Rating provides smaller private companies with a free tool that measures how they measure up against international ESG standards.
Marsh’s largest clients are generally rated by agencies that rely on publicly available information to assess their ESG performance, said Amy Barnes, head of climate and sustainability strategy at Marsh in London.
“There was no good solution for private companies,”; which typically do not receive the same attention as large public companies from credit rating agencies, and as demand for ESG-related information has increased, the broker saw the need for “a mirror that showed ESG performance relative to international framework,” she said.
“Our tool doesn’t provide Marsh’s view of what good ESG is,” Barnes said. Instead, it measures against more than 10 international frameworks including those of the Global Reporting Initiative, the World Economic Forum and the UN Principles for Sustainable Insurance.
“It sets a high bar because some of the smaller private companies typically wouldn’t hold themselves to some of these very high reporting standards,” Barnes said.
When an organization completes a confidential self-assessment, it receives an overall ESG risk score as well as a score on 18 individual themes that include biodiversity and nature loss, climate change, supply chain, dignity and equality, and governance strategy. The theme points enable companies to pinpoint areas where attention is most needed.
The scorecard also considers controls in place to comply with ESG laws and regulations, how an organization reports ESG-related metrics, and its resilience in identifying and managing the risks.
Organizations can benchmark their performance by industry and geography, Barnes said.
Insurance companies offer additional benefits to organizations with ESG ratings.
Liberty Mutual Insurance Co. offers climate-related and sustainability risk advisory services to Marsh clients in the US and Canada who hold the ratings. Specialty insurer Beazley PLC offers additional global underwriting capacity through its Lloyd’s of London Syndicate 4321 to clients whose ESG scores reach a threshold.
Although the tool was built with smaller businesses in mind, it has attracted larger organizations. A new look at user demographics revealed that more than 20% of respondents have an annual revenue of more than $1 billion and 27% are global companies. “A real mix,” Barnes said.